The current issues on the insolvency field. This part

The Bankruptcy Act 1967
was in effect until it was amended to the recent Insolvency Act 2017 where the
main reason for this major reformation is the laid back rules and provisions of
the previous legislation which could not cope up with the major changes in
economy and technology in Malaysia over the years. The newly introduced
Insolvency Act 2017 is deemed to be more up to date and in line with the
current issues on the insolvency field. This part will discuss on the key
amendments made on the Insolvency law in Malaysia and the significance of such
changes.

The most important
provision which was in need for a change was the minimum threshold for presentation
of a bankruptcy petition. The previous Bankruptcy Act provides in Section 5(a)
that the minimum threshold shall be RM 30,000. This has been stated as
substituting the word “thirty” to “fifty” in the Section 5(1)(a).1In
2003, there has been amendment made in respect of the minimum amount from RM
10,000 to RM 30,0002
as to match the increase in the living costs in Malaysia where any loan or
property requires much high deposit compared to the property costs when the
Bankruptcy Act came into force many years ago3.
For an example, in 2017 even the cheapest Axia model car would cost up to RM
30,000 in Malaysia. Hence, the increase of the minimum threshold to RM 50,000
under Section 5 of Insolvency Act is a more “protection to people” principle.

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The next amendment made
in the new act is in respect of the bankruptcy orders. Previously there where
two different orders namely receiving order4
and adjudication order5,
where in the current act it is merged into a single order named the bankruptcy
order. In the previous law, both of these orders were usually made
simultaneously, however in certain cases the adjudication order is not made if
the debtor could satisfy the court that he could make an arrangement scheme
accepted by his creditor. This has been explained in the case of Re:
Tan Sri Kishu Tirathraj; ex parte Affin Bank Berhad6where
the court had mentioned that receiving orders are not necessarily followed by
adjudication order.

However, as provided in
Section 4 of the Insolvency Act 2017, there is only one order now knows the
Bankruptcy Order7
which includes all the effects and necessary procedures to be carried out by
the Director General of Insolvency and the judgement debtor prior to the
issuance of the bankruptcy notice.8
The effect of this single bankruptcy order is however told to have removed the
flexibility available to the debtor under two different orders as discussed
above.

The following amendment
made is on the privilege of “Social Guarantor” and other guarantors. The term “social
guarantor”9
for this scope is defined in the Insolvency Act as person who provides
guarantee without any self-profit in education, hire-purchase and housing
loans. The common wisdom behind this amendment is that people such as family
and friends who helped the debtor to obtain the loan often get trapped within
the law of bankruptcy when the actual debtor fails to pay the loan. However, on
the pervious Bankruptcy Act, Section 5(3) provides that actions can only be allowed
against social guarantor when all the other means to recover the loan has
exhausted.  In contrast to that, the current
Insolvency Act absolutely prohibits bankruptcy proceedings against a social
guarantor by virtue of Section 5(3) (a). On the other hand, the protection for
other guarantors who are not within the definition of “social guarantor” has
also been made stricter by virtue of Section 5(3) (b). It has been expressly
provided in the Insolvency Act that actions against guarantors other than
social guarantor can only be made when the creditor proves that all other means
are exhausted. The court in determining whether all other means have exhausted
may consider the affidavits produced by the creditors as provided in the case
of Hong
Leong Bank Bhd v Khairulnizam Jamaludin10.
This case however discusses on the par for the “social guarantor” privileged under
Section 5(3) of Bankruptcy Act which now has the same effect to “other
guarantors” under the Insolvency Act. Not just that, the time taken to exhaust
all modes of execution may also provide a time-bar under Limitation Act 1953.11  This new requirements has now set a higher bar
for the commencement of actions against guarantors other than social
guarantors.

 

The next amendment to
be discussed here is the amendment in service of bankruptcy notices.
Previously, Section 3(2) of the Bankruptcy Act was unclear as it says notices
have to be served in “prescribed manner”, which is now changed to “personally
to a debtor”12.
This given rise to situations where many bankrupts were not aware that they
were served or adjudged bankrupt as no personal service has been done, but
creditors tend to make substituted service under the virtue of Rule 110 of
Bankruptcy Rules 1967. The actual rule to be followed was Rule 109 on the
requirements of personal service as discussed in the case of Mat
Ripen Bin Mat Elah v Perwira Affin Bank Berhad.13
Hence, the new Insolvency Act now has amended the situation by virtue of Section
3(2) which provides bankruptcy notice should be served personally and
substituted service can only be used when there come situation under Section
3(2A)14
of the Insolvency Act.15 This
technically means that such substituted service is only allowed under the new
law when the debtor intent to defeat, delay or evade personal service.

The following noticeable
amendment made is the automatic discharge of bankruptcy. On the pervious law
under the Bankruptcy Act 1967, Section 33A has provided the discharge could be
done in discretion of the DGI under Sec 33A(1) and also the minimum time was
set at 5 years under Sec 33A(2). This matter of DGI’s discretion has been
discussed in the case of Re Benny Ong Swee Siang; Ex p United
Overseas Bank (Malaysia) Bhd16
where the court has mentioned that the discretion is not absolute and must be exercised
reasonably due consideration as demanded by public interest, reason
and justice. In the current Insolvency Act, this has been made to be “automatic
discharge” under Section 33C by lapse of three years17
from the date of submission statement of affairs by the bankrupt if he has
achieved an amount of target contribution of his provable debt and complied
with the requirement to render an account of moneys and property to the DGI.
Hence it can be concluded that the debtor can now be discharged automatically
if he complies with Section 33C and does not need to be under DGI’s mercy and also
that it is now reduced to three years.

Apart from all the amendments
made on the Bankruptcy law, we shall now examine the two newly introduced
schemes namely the “voluntary arrangement” and also “insolvency assistance fund”.
Both of these are not available under the old Bankruptcy Act and have been included
in the new Insolvency Act.

Voluntary arrangement
has been introduced in Section 2A of the Insolvency act and is regarded as a rescue
mechanism which allows a debtor to save himself from bankruptcy by proposing
voluntary arrangement18
to his creditor and schedule repayment of the pending debts.19 This
scheme of voluntary arrangement has been practiced even in Singapore20 and
had given positive results. The necessary procedures for voluntary arrangement
have been set out in Section 2C to 2Q in the Insolvency Act as well as the
Insolvency (Voluntary Arrangement) Rules 2017. As to summarize the procedures,
a debtor will have to appoint a nominee and then seek an interim order of 90
days from the court, and within that period the nominee shall arrange approval
of creditors in respect to the voluntary arrangement.21 In
the course where such arrangement has been rejected by the creditors, the
debtor may also re apply 12 months after the interim order lapses.22
This
new mechanism reflects the standard practice in many developed countries, such
as the United Kingdom and Singapore; where their bankruptcy laws have since
long ago contain similar provisions.23

Finally the next
discussion would be on the introduction of Insolvency Assistance Fund (IAF) under
Section 77A of Insolvency Act where it will be used in administration of
bankrupts estate and payment of fees.24
The main concern of the creditors upon introduction of this section is that
whether there will be chargeable fees on them by IAF when they invoke
procedures against debtors. Creditors must now wait and see as
to whether the IAF will require creditors to pay administration costs
especially if the IAF is not able to recover its expenses from the collection
of the assets of a bankrupt.

1 Section
12(a) of the Bankruptcy (Amendment) Act 2017

2
Section 4(a) of the Bankruptcy (Amendment) Act 2003

3 “Is
Bankruptcy Being Discouraged?”; 2003 4 MLJ clix; Jerome Hew

4
Section 4 of the Bankruptcy Act 1967

5
Section 24 of the Bankruptcy Act 1967

6 2007
2 MLJ 53 at para 28, pages 62-63

7
Section 10 of Bankruptcy (Amendment) Act 2017

8
Sections 4-32 of Insolvency Act 2017

9
Section 2 of Insolvency Act 2017

10 2016
7 CLJ 335 at para 23, page 344 and para 35, page 346 FC

11 Limitation
Act 1953 (Act 254)

12
Section 9(b) of Bankruptcy (Amendment) Act 2017

13 2005
MLJU 121

14
Section 9(c) of Bankruptcy (Amendment) Act 2017

15
Only under 2 circumstances provided where debtor tries to evade the service.

16 2016
3 CLJ 1001, page 1006-1007

17 Section
37 of Bankruptcy (Amendment) Act 2017

18 Section
2C(2) of Insolvency Act 1967

19
Section 8 of the Bankruptcy (Amendment) Act 2017

20 Section
45 of the Singapore Bankruptcy Act Cap 20

21
Section 2I of the Insolvency Act 1967

22
Section 2D of the Insolvency Act 1967

23 Humanising
The Insolvency Law By Salleh Baung on April 13, 2017

24
Section 48 of the Bankruptcy (Amendment) Act 2017