5 Things to learn about the new Insolvency Act 1967 in Malaysia

On 6 October 2017, the Bankruptcy (Amendment) Bill 2016 came into force, bringing about significant changes to bankruptcy regime in Malaysia. Note that the Bill renamed the existing Bankruptcy Act 1967 to the Insolvency Act 1967. In this article, I set out the 5 most important changes following the Bankruptcy Amendment Act:

• Increased Threshold for Bankruptcy Proceedings

The threshold for commencement of bankruptcy proceedings is now RM 50,000 instead of RM30,000.

• Introduction of the Voluntary Arrangement

There is now a new pre-bankruptcy rescue mechanism called the “voluntary arrangement”, where a debtor can negotiate a debt settlement proposal with his creditors to avoid bankruptcy. This can be done any time before a debtor is adjudged a bankrupt. The mechanism typically involves:

1. Appoint a nominee – The debtor will appoint a nominee to oversee and supervise the implementation of the voluntary arrangement. The nominee must be either a chartered accountant, an advocate and solicitor, or such other person as prescribed by the Director General of Insolvency.
2. Apply for an interim order – The debtor will then apply to the court for an interim order for voluntary arrangement, which will be for a period of 90 days that cannot be extended.
3. Protection from legal actions – Within the interim order, no bankruptcy petition and legal proceedings can be commenced against the debtor unless with court’s permission.
4. Meeting with creditors – During the period of the interim order, the nominee will hold a meeting will debtor’s creditors to secure their approval for the voluntary arrangement.
5. Approval by special resolution – The nominee will need to secure more than 50% in number and at least 75% in value of the creditors in the resolution to approve the voluntary arrangement, which will be binding on all creditors once approval is obtained.

• Stricter Requirements for Service of Bankruptcy Papers

The bankruptcy notice must be personally served. Substituted service is possible only if the creditor can prove to the satisfaction of the court that the debtor has:

1. The intention to defeat, delay or evade personal service; and
2. Leaves or stays away from Malaysia, or absents himself from his home or place of business.

• Exemption of Social Guarantors from Bankruptcy Proceedings

Creditors will no longer be able to commence any bankruptcy action against social guarantors. A social guarantor is a person who does not profit and essentially provides a guarantee for an education loan, hire-purchase transaction for personal or non-business use, or a housing loan for personal dwelling.

• Automatic Discharge of Bankruptcy

Upon the expiration of three (3) years from the date of submission of the bankrupt’s statement of affairs, a bankruptcy will be automatically discharged if the debtor:

1. achieves the target contribution of his provable debt set by the Director General of Insolvency (DGI); and
2. renders an account of moneys and property to the DGI.

Creditors cannot object to the discharge of bankruptcy of certain bankrupts, such as:

1. social guarantor,
2. a bankrupt with a disability under the Persons with Disabilities Act 2008,
3. a deceased bankrupt, and
4. a bankrupt suffering from a serious illness.

* It is worth noticing that Section 60(1) Bankruptcy Amendment Act 2017 confirms that the amendments will not apply to any individual who has been made a bankrupt before this new Act comes into force. Further, any ongoing bankruptcy proceedings must continue and be concluded under the existing Bankruptcy Act.