The Star reported on 15th August 2018, stating some 64,632 Malaysians aged between 18 to 44 years old have been declared bankrupt over the last five years.
Minister Liew Vui Keong said in a written reply that the highest cases of bankruptcy among the youth were recorded in 2014 with a total of 13,098 cases, followed by 13,036 cases in 2013, based on the statistics from the Insolvency Department.
In 2015, a total of 11,277 were declared bankrupt, increasing slightly to 11,875 in 2016.
In 2017, there were 4240 cases until April this year.
What is Bankruptcy?
Bankruptcy Act 1967 and alongside the Bankruptcy (Amendment) Act 2017 made up the bankruptcy law in Malaysia.
A bankrupt is the legal status of a person/organization who is unable to pay the debts owed to creditors. The court of law makes such declaration.
(In March 2017, our Parliament passed the Bankruptcy (Amendment) Bill 2016 that officially made it more difficult for people to become bankrupt.)
Bankruptcy is a process where a debtor (a person who owes money to a creditor) is declared bankrupt following a court order from the High Court against him or her.
The following criteria applies when declaring a person bankrupt:
- Unable to pay debts which amount to at least RM50,000 (previously RM30,000)
- Debt involved (which is at least RM50,000) must be ascertainable which means the debt amount is in a liquidated sum.
- There has been a period of six months default for the debt before a person can be declared bankrupt.
- The individual must have resided in Malaysia for at least one year.
One of the significant changes after the amended act is to increase the maximum threshold of RM30,000 to RM50,000 before a person is declared bankrupt. Aside from that, under the new Section 2c(1) Insolvency Act 1967, a debtor can now “propose a voluntary arrangement to his creditors any time before he is adjudged bankrupt.”
Bankruptcy Proceedings Under The New Law:
- There must be ‘acts of bankruptcy’, as stated in s3(1)(a)-(j) Insolvency Act 1967;
- There must be a final judgement/order;
- Execution has not stayed;
- >RM50,000.00;
- Bankruptcy Notice must be served;
- The terms of the Bankruptcy Notice must follow the terms of judgment;
- Defendant failed to pay within 7 days;
- The Interest must be quantified.
Bear in mind that the Bankruptcy Notice must be served personally.
Under the new law, a debtor can negotiate a debt settlement (voluntary arrangement) with his creditor before he is adjudged a bankrupt.
Furthermore, s5(3) Insolvency Act 1967 clearly stated that a petition creditor shall not be entitled to commence any bankruptcy action against:
-a ‘social guarantor’, and
-a guarantor other than a social guarantor unless the petitioning creditor has obtained leave from the court.
S2 Insolvency Act 1967 defines ‘social guarantor’ as:
-guarantee for a loan, scholarship, or grant for educational or research purposes
-a guarantee for a hire-purchase transaction of a vehicle for personal or non-business use; and
-a guarantee for a housing loan transaction solely for personal dwelling
