The Bankruptcy Act 1967was in effect until it was amended to the recent Insolvency Act 2017 where themain reason for this major reformation is the laid back rules and provisions ofthe previous legislation which could not cope up with the major changes ineconomy and technology in Malaysia over the years. The newly introducedInsolvency Act 2017 is deemed to be more up to date and in line with thecurrent issues on the insolvency field. This part will discuss on the keyamendments made on the Insolvency law in Malaysia and the significance of suchchanges.The most importantprovision which was in need for a change was the minimum threshold for presentationof 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 assubstituting the word “thirty” to “fifty” in the Section 5(1)(a).1In2003, there has been amendment made in respect of the minimum amount from RM10,000 to RM 30,0002as to match the increase in the living costs in Malaysia where any loan orproperty requires much high deposit compared to the property costs when theBankruptcy Act came into force many years ago3.
For an example, in 2017 even the cheapest Axia model car would cost up to RM30,000 in Malaysia. Hence, the increase of the minimum threshold to RM 50,000under Section 5 of Insolvency Act is a more “protection to people” principle.The next amendment madein the new act is in respect of the bankruptcy orders. Previously there wheretwo different orders namely receiving order4and adjudication order5,where in the current act it is merged into a single order named the bankruptcyorder. In the previous law, both of these orders were usually madesimultaneously, however in certain cases the adjudication order is not made ifthe debtor could satisfy the court that he could make an arrangement schemeaccepted by his creditor. This has been explained in the case of Re:Tan Sri Kishu Tirathraj; ex parte Affin Bank Berhad6wherethe court had mentioned that receiving orders are not necessarily followed byadjudication order.
However, as provided inSection 4 of the Insolvency Act 2017, there is only one order now knows theBankruptcy Order7which includes all the effects and necessary procedures to be carried out bythe Director General of Insolvency and the judgement debtor prior to theissuance of the bankruptcy notice.8The effect of this single bankruptcy order is however told to have removed theflexibility available to the debtor under two different orders as discussedabove.The following amendmentmade is on the privilege of “Social Guarantor” and other guarantors.
The term “socialguarantor”9for this scope is defined in the Insolvency Act as person who providesguarantee without any self-profit in education, hire-purchase and housingloans. The common wisdom behind this amendment is that people such as familyand friends who helped the debtor to obtain the loan often get trapped withinthe law of bankruptcy when the actual debtor fails to pay the loan. However, onthe pervious Bankruptcy Act, Section 5(3) provides that actions can only be allowedagainst social guarantor when all the other means to recover the loan hasexhausted. In contrast to that, the currentInsolvency Act absolutely prohibits bankruptcy proceedings against a socialguarantor by virtue of Section 5(3) (a). On the other hand, the protection forother guarantors who are not within the definition of “social guarantor” hasalso been made stricter by virtue of Section 5(3) (b).
It has been expresslyprovided in the Insolvency Act that actions against guarantors other thansocial guarantor can only be made when the creditor proves that all other meansare exhausted. The court in determining whether all other means have exhaustedmay consider the affidavits produced by the creditors as provided in the caseof HongLeong Bank Bhd v Khairulnizam Jamaludin10.This case however discusses on the par for the “social guarantor” privileged underSection 5(3) of Bankruptcy Act which now has the same effect to “otherguarantors” under the Insolvency Act. Not just that, the time taken to exhaustall modes of execution may also provide a time-bar under Limitation Act 1953.11 This new requirements has now set a higher barfor the commencement of actions against guarantors other than socialguarantors. The next amendment tobe discussed here is the amendment in service of bankruptcy notices.Previously, Section 3(2) of the Bankruptcy Act was unclear as it says noticeshave to be served in “prescribed manner”, which is now changed to “personallyto a debtor”12.
This given rise to situations where many bankrupts were not aware that theywere served or adjudged bankrupt as no personal service has been done, butcreditors tend to make substituted service under the virtue of Rule 110 ofBankruptcy Rules 1967. The actual rule to be followed was Rule 109 on therequirements of personal service as discussed in the case of MatRipen Bin Mat Elah v Perwira Affin Bank Berhad.13Hence, the new Insolvency Act now has amended the situation by virtue of Section3(2) which provides bankruptcy notice should be served personally andsubstituted service can only be used when there come situation under Section3(2A)14of the Insolvency Act.15 Thistechnically means that such substituted service is only allowed under the newlaw when the debtor intent to defeat, delay or evade personal service.The following noticeableamendment made is the automatic discharge of bankruptcy.
On the pervious lawunder the Bankruptcy Act 1967, Section 33A has provided the discharge could bedone in discretion of the DGI under Sec 33A(1) and also the minimum time wasset at 5 years under Sec 33A(2). This matter of DGI’s discretion has beendiscussed in the case of Re Benny Ong Swee Siang; Ex p UnitedOverseas Bank (Malaysia) Bhd16where the court has mentioned that the discretion is not absolute and must be exercisedreasonably due consideration as demanded by public interest, reasonand justice. In the current Insolvency Act, this has been made to be “automaticdischarge” under Section 33C by lapse of three years17from the date of submission statement of affairs by the bankrupt if he hasachieved an amount of target contribution of his provable debt and compliedwith 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 automaticallyif he complies with Section 33C and does not need to be under DGI’s mercy and alsothat it is now reduced to three years.
Apart from all the amendmentsmade on the Bankruptcy law, we shall now examine the two newly introducedschemes namely the “voluntary arrangement” and also “insolvency assistance fund”.Both of these are not available under the old Bankruptcy Act and have been includedin the new Insolvency Act.Voluntary arrangementhas been introduced in Section 2A of the Insolvency act and is regarded as a rescuemechanism which allows a debtor to save himself from bankruptcy by proposingvoluntary arrangement18to his creditor and schedule repayment of the pending debts.19 Thisscheme of voluntary arrangement has been practiced even in Singapore20 andhad given positive results. The necessary procedures for voluntary arrangementhave been set out in Section 2C to 2Q in the Insolvency Act as well as theInsolvency (Voluntary Arrangement) Rules 2017. As to summarize the procedures,a debtor will have to appoint a nominee and then seek an interim order of 90days from the court, and within that period the nominee shall arrange approvalof creditors in respect to the voluntary arrangement.21 Inthe course where such arrangement has been rejected by the creditors, thedebtor may also re apply 12 months after the interim order lapses.
22Thisnew mechanism reflects the standard practice in many developed countries, suchas the United Kingdom and Singapore; where their bankruptcy laws have sincelong ago contain similar provisions.23Finally the nextdiscussion would be on the introduction of Insolvency Assistance Fund (IAF) underSection 77A of Insolvency Act where it will be used in administration ofbankrupts estate and payment of fees.24The main concern of the creditors upon introduction of this section is thatwhether there will be chargeable fees on them by IAF when they invokeprocedures against debtors. Creditors must now wait and see asto whether the IAF will require creditors to pay administration costsespecially if the IAF is not able to recover its expenses from the collectionof the assets of a bankrupt.1 Section12(a) of the Bankruptcy (Amendment) Act 20172Section 4(a) of the Bankruptcy (Amendment) Act 20033 “IsBankruptcy Being Discouraged?”; 2003 4 MLJ clix; Jerome Hew 4Section 4 of the Bankruptcy Act 19675Section 24 of the Bankruptcy Act 19676 20072 MLJ 53 at para 28, pages 62-637Section 10 of Bankruptcy (Amendment) Act 20178Sections 4-32 of Insolvency Act 20179Section 2 of Insolvency Act 201710 20167 CLJ 335 at para 23, page 344 and para 35, page 346 FC11 LimitationAct 1953 (Act 254)12Section 9(b) of Bankruptcy (Amendment) Act 201713 2005MLJU 12114Section 9(c) of Bankruptcy (Amendment) Act 201715Only under 2 circumstances provided where debtor tries to evade the service.16 20163 CLJ 1001, page 1006-100717 Section37 of Bankruptcy (Amendment) Act 201718 Section2C(2) of Insolvency Act 196719Section 8 of the Bankruptcy (Amendment) Act 201720 Section45 of the Singapore Bankruptcy Act Cap 20 21Section 2I of the Insolvency Act 196722Section 2D of the Insolvency Act 196723 HumanisingThe Insolvency Law By Salleh Baung on April 13, 2017 24Section 48 of the Bankruptcy (Amendment) Act 2017