In our previous article, we discussed the initiatives implemented by the Government to ease the process of discharge of bankrupts. This included the conditions and procedures for discharging bankrupts with small-scale debts, as well as proposed amendments to the Insolvency Act 1967aimed at enhancing the provisions for discharge of bankrupt and the administration of a bankrupt's estate.
The recent enactment of the Insolvency (Amendment) Act 2023 has now come into effect, implementing the proposed amendments.
Below, we summarize the key amendments to Malaysian insolvency law.
Additional categories of bankrupt individuals eligible for discharge
Prior to the amendment, the discharge of a bankrupt under section 33A was at the discretion of the Director General of Insolvency (DGI), with a minimum waiting period of five years from the bankruptcy order and subject to section 33B, which allowed creditors to object to the discharge. However, the recent amendment expands section 33B(2A) of the Insolvency Act to include two additional categories where creditors are not permitted to object to the discharge, namely:
- a bankrupt who is incapable of managing himself and his affairs due to any mental disorder, as certified by a psychiatrist from any government hospital;
- a bankrupt aged seventy years and above and in the opinion of the DGI, is incapable of contributing to the administration of his estate.
Streamlined discharge process & enhanced powers for the DGI
The Amendment Act revises section 33C governing the automatic discharge of bankrupts. Previously, a bankrupt will be automatically discharged after three years if they fulfilled specific criteria, such as reaching the targeted contribution towards their provable debt and complying with obligations related to rendering an account of money and property.
Post-amendment, the financial capability of the bankrupt is taken into consideration, and the conditions for automatic discharge under section 33C are eased. The requirement to achieve the targeted contribution towards the provable debt is replaced with the obligation to pay a sum determined by the DGI for estate administration purposes, provided that the bankrupt has fulfilled his or her obligations under the Act.
In this regard, the Amendment Act introduces the suspension of automatic discharge for up to two years if the bankrupt fails to fulfil his or her obligations. The DGI is granted the power to suspend automatic discharge for a maximum of two years if the debtor does not meet his or her obligations. Additionally, the DGI may request further information regarding the debtor's income, expected income, and properties. The suspension, as per the newly inserted section 33C(1)(b), takes effect when the DGI serves a notice to creditors who filed a proof of debt within six months before the original three-year mark.
Furthermore, in line with the 'second chance policy', the amendments to sections 33C and 33B(2A) are applied retrospectively to cover individuals who had been declared bankrupt before the passing of this Amendment Act.
Adoption of remote communication technology and electronic communications
To align with the judiciary's transition to remote hearings, and in line with the insertion of section 15A of Court of Judicature Act 1964, the Act has been amended to accommodate remote communication technology in the administration of bankruptcy in Malaysia.
Communication pertaining to insolvency matters, including service of notices under the amended section 130 of the Insolvency Act, 1967, may now be carried out by electronic means, where consent has been obtained to do so.
It is also pertinent to note that, prior to the amendment, the Act only allowed the DGI to hold a meeting at such a place which the DGI considers to be convenient for the majority of the creditors. Now, meetings of creditors under amended Schedule A of the Insolvency Act may be conducted through remote communication technology, among others, video link, video conferences, or any other electronic means of communication.
Dispensation of the mandatory requirement of holding the first meeting of creditors
Previously, section 15 of the Act made it mandatory for the first meeting of creditors to be held as soon as may be after a bankruptcy order is made. The meeting is confined to consider proposals for the composition or arrangement and the mode of dealing with the bankrupt's property.
Post-amendment, the mandatory nature of the first meeting of creditors has been replaced with a discretionary power of the DGI. Nonetheless, the purpose of the section is maintained with the additional scope of any other purpose as prescribed by the Minister. The Amendment Act also replaced all references to the "first meeting of creditors" in the Insolvency Act 1967 with "meeting of creditors".
Thus, pursuant to the Amendment Act, a meeting of creditors is no longer mandatory and will only take place upon request or when deemed necessary.
Other amendments
In addition to the above, the Amendment Act also introduces changes related to summary administration in cases where the debt is small. To provide greater flexibility in bankruptcy administration, certain monetary amounts specified in the Insolvency Act 1967 have been replaced with amounts to be prescribed by the Minister. This allows for adjustments based on prevailing economic conditions and circumstances without the need for legislative amendments.
For more information, please refer to the Insolvency (Amendment) Act 2023 and Insolvency (Amendment) Rules 2023.
Conclusion
The newly enacted amendments establish a more effective and inclusive bankruptcy administration system, aligning with the government's commitment to help bankrupt individuals secure a fresh financial start. While many are still grappling with their prior financial missteps, the enforcement of these amendments brings some relief. It is hoped that the government's initiative to fostering bankruptcy administration will ultimately contribute to the nation's economic development.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
