The Bankruptcy (Amendment) Bill 2016 which was tabled in Parliament for its second reading was finally passed with a majority voice on 29th March 2017. This was followed by royal assent on 10th May 2017 whereupon the Bill was then gazetted for publication on 18th May 2017 as the Bankruptcy (Amendment) Act 2017.
To that effect, the Bankruptcy Act 1967 is now amended with a new name, which is the Insolvency Act 1967 (‘the Act’). This is not to be confused with the insolvency of companies as the Act governs the same personal insolvency regime as before, where else corporate insolvency remains under the realm of the Companies Act 2016.
The amendments are widely reported as to give more leeway to bankrupts and social guarantors. However, if one were to observe the amendments carefully, the overall bankruptcy process has actually been brought on a par with international standard balancing the interest of both creditors and debtors; albeit with some protection accorded to guarantors.
To make things simpler, this Article will highlight to you what are the 9 amendments that you may want to know as a creditor, a debtor or a guarantor.
The Companies Bill 2015 was given royal assent on 31 August 2016 and was further gazetted on 15 September 2016 as the Companies Act 2016 (CA 2016). The CA 2016 however is set to be implemented in stages commencing this year. The new CA 2016 appears to encourage young or small entrepreneurs by making corporate vehicles much easier to form with less legal processes which previously made forming companies a little bit of a hassle for people who are not very regulatory and compliance savvy. Here are some changes brought by the CA 2016:
Introduction of Pre-Bankruptcy Measures, namely the Voluntary Settlement
Creditors, more often than not, opt to recover the sum owed by adjudicating the debtors as bankrupts. However, such process can be futile at time as it may not guarantee creditors the full recovery of the debt owed. Sometimes, situation can be made worse when there are more than one creditor involved.
Previously, there is no provision under the Act concerning pre-bankruptcy measures. Under the new amendment, the Act specifically makes provision for an alternative recourse i.e. voluntary settlement for creditors and debtors. The Act requires the debtor to lead the entire voluntary settlement process whereby the debtor must ensure a nominee, who must be a chartered accountant, a solicitor and an advocate, or any person determined by the Minister is appointed for implementation of the voluntary settlement. The debtor may apply for an interim order pending voluntary settlement whereby, such order would afford the debtor a temporary protection for 90-days against any bankruptcy action and any other proceedings unless there is a leave from Court.
During the interim period, there must be a meeting with the creditors for approval of the voluntary settlement which will be held by the nominee through a special resolution. The terms of the voluntary settlement, once approved, must be reported to the Court of which it will have a binding effect on all unsecured creditors. The rights of secured creditors will not be affected by the voluntary settlement unless it is made with their informed consent. If the debtor fails to make the payments in accordance to the voluntary settlement, any creditor bound by the voluntary settlement may then proceed with a bankruptcy application.
This arrangement would be an advantage to the creditors in the long run as they are allowed to settle the dispute with debtors in a faster and more affordable manner. The terms of settlement, more likely than not, would require the debtors to repay the debts either by schedule repayment, payment at a discounted rate or payment for a longer term.
Lower Company Maintenance Cost
More often than not, creditors will face the situation where the bankrupts’ estate is insufficient to meet the claims forwarded by all creditors. Unlike secured creditors, the unsecured creditors are often end up with nil recovery with no alternative solution. The new provision under the Act, i.e. section 77A provides for the establishment of the Insolvency Assistance Fund whereby the fund is managed by the DGI who will decide on the entitlement of the claim based on a fixed set of criteria. The main aim for the fund is to assist in the recovery of assets on behalf of bankrupts’ estates which do not have sufficient funds.
Higher Debt Threshold
The minimum threshold of a debt to commence bankruptcy proceedings has been increased from RM30,000.00 to RM50,000.00. According to some reports, such increment is brought in line with the international standard. Comparatively, the minimum threshold to file a bankruptcy proceeding in Singapore is S$15,000 (which is equivalent to RM47,000.00); Brunei is $10,000.00 (which is equivalent to RM31,000.00); whereas in United States of America it is US$15,000.00 (which is equivalent to RM69,000.00).
Stricter Requirements for Service of Bankruptcy Papers
The Act now requires the creditor to serve all the bankruptcy papers on the debtor personally. It is believed that the requirement is made stricter to ensure that was a proper service of bankruptcy papers on all debtors and to avoid the abuse of bankruptcy process. However if a debtor is trying to evade the service of bankruptcy papers then the creditor may apply for leave from the Court to serve the bankruptcy papers by way of substituted service i.e. through advertisement and service on last known address. Through substituted service, a debtor is deemed to have been notified of the commencement of bankruptcy proceedings against him/her.
Prohibited Objections for Discharge of Certain Bankrupts
Under the old law, a creditor may object to the application of discharge made by any bankrupts. However, under the new amendments, the creditors are now prohibited from objecting the discharge of certain bankrupts if they fall under the ‘innocent or fragile’ category of (a) a social guarantor, (b) a bankrupt with a disability under the Person with Disabilities Act 2008, (c) a deceased bankrupt and (d) a bankrupt suffering from serious illness.
Under the old law, bankrupts must apply specifically to the Court or DGI for discharge of bankruptcy. Such application can only be made after a certain period of time subject to the creditor’s objection. The Act now provides for automatic discharge provision. The bankrupts now can easily get rid of their bankruptcy status simply by following the procedures prescribed by the Act whereby the statement of affair is to be submitted to the DGI and after 3 years of the submission, the bankrupt will be discharged automatically from bankruptcy provided the conditions set by the DGI have been fulfilled. Under the new amendments, the creditors may only object to the discharge by applying the order to suspend from the court on limited grounds as stipulated under the section 33 C of the Act.
Absolute Protection for Social Guarantors
The Act imposes an absolute prohibition in commencing any bankruptcy proceedings against a social guarantor who is a person who does not benefit but provides a guarantee for an education loan, hire-purchase transaction for personal use or a housing loan for personal dwelling. It is worth to note that such immunity prohibits only the creditors from taking bankruptcy proceedings against social guarantors. In other words, social guarantors may still subject to other legal proceedings for debt recovery or other process of law.
Better Protection for other Guarantors
The Act imposes an added protection for ‘other guarantor’ (i.e. not being social guarantors). No one is allowed to initiate bankruptcy proceedings against other guarantors without leave from Court. To obtain the leave, the creditor would need to satisfy the Court that he has exhausted all modes of execution and enforcement such as judgment debtor summons, garnishment and seizure and sale to recover the debts from the debtor.
The law on bankruptcy has been revamped to balance the interest of creditors, debtors as well as guarantors. The rights of the creditors in recovering debts have been enhanced by introducing the new mechanism of voluntary settlement and the introduction of insolvency assistance fund. Meanwhile, the introduction of pre-bankruptcy measures and automatic discharge of bankrupt enable the debtors to reorganise their affairs and to turn over to a new life financially. Special measurements are also accorded to guarantors especially when the debts incurred are not of their own fault.
is an Associate in the firm’s Dispute Resolution department. Her practise areas include General Civil Litigation, Medical Negligence, Banking Litigation and Insurance Industrial Relations.