MySay: Ending bankruptcy | Peripheral markets



Although bankruptcy is scary for most people, there are some who advocate that businessmen or individuals in difficulty should consider filing for bankruptcy, as bankruptcy protects them from creditors and allows them to make a new financial start more easily. .

With the pandemic engulfing the world, there is apparently no escape for the Malaysian business community and all those who depend on the economy – virtually all Malaysians – from the consequences of frequent lockdowns, reduced demand for goods and services, business closures and the resulting unemployment, except for some wealthy sectors that took advantage of the opportunities offered by this unusual period.

The possibility that they will not survive the onslaught financially and end up bankrupt, although the government has introduced measures to protect them, including the introduction of temporary measures to reduce the impact of the 2019 coronavirus disease ( Covid -19) Law 2020 (Law 829) which increased the bankruptcy threshold to 100,000 RM.

Although bankruptcy is scary for most people, there are some who advocate that businessmen or individuals in difficulty should consider filing for bankruptcy, as bankruptcy protects them from creditors and allows them to make a new financial start more easily. .

To reduce the fear of bankruptcy, it would be helpful if those concerned saw the light at the end of the tunnel, and this is what this short article seeks to do, with a focus on the law introduced by the amendment to 2017 to the Insolvency Act, which was previously known as the Bankruptcy Act.

A bankrupt can terminate his bankruptcy either by discharge or by annulment.

Cancellation is always the best way to end bankruptcy, if it is possible, because of its effect. When an adjudication order (the court order to put a debtor into bankruptcy for proceedings commenced before October 6, 2017) or the bankruptcy order is set aside, the bankrupt is put in a position as if there had been no adjudication. Bankruptcy is wiped out completely as if the debtor was never a bankrupt.

An application to set aside the adjudication order or bankruptcy order may be filed if the bankrupt can prove that:

1. The order should not have been granted;

2. The debt has been fully settled; Where

3. He has declared bankruptcy in Singapore and the distribution of his estate and its effects among his creditors must take place in that country.

The adjudication order or bankruptcy order can also be set aside if the bankrupt’s proposal for composition or composition presented by the bankrupt at the meeting of creditors is accepted by his creditors and approved by the court.

When the bankrupt is unable to obtain an annulment, he can be discharged from bankruptcy by way of discharge.

Following the amendment to the Act in 2017 which came into force on October 6, 2017, there are three ways for a bankrupt to be discharged:

1. Discharge at the request of the bankrupt in court;

2. Discharge by the DGI; and

3. Automatic discharge.

A request for discharge to the court can be filed at any time after the close of the meeting of creditors. It must be supported by a favorable report from the Director General of Insolvency (DGI) concerning the conduct and affairs of the bankrupt. In deciding on the request, the task of the court is to balance the rights of creditors with regard to the recovery of debts, and that of the bankrupt to have a second chance in life, and the interests of his family. , as well as the interest of public and commercial morals. More specifically, the court will take into consideration the following elements:

1. The age and income of the bankrupt;

2. The health of the bankrupt;

3. The duration of the bankruptcy;

4. The cause of the bankruptcy;

5. The extent of the debt settled;

6. The conduct of the bankrupt;

7. The conduct of the obligee; and

8. The number of adverse creditors.

The creditor has the right to be heard and to oppose the claim, and the court may dismiss the claim or allow discharge by requiring the bankrupt to pay the unpaid debts or a part thereof in the form of ‘a judgment by consent.

The second mode of discharge was introduced in 1999 by which the DGI was empowered to discharge at the request of the bankrupt, which can only be made five years after the date of the judgment. If the DGI is in favor of accepting the request, it must indicate its intention to issue the discharge certificate to any creditor who has produced proof of debt.

Prior to October 1, 2003, he had to serve with the certificate a statement of the reasons why he wanted to do so, but this requirement was unfortunately repealed by the 2003 amendment to the law. The discharge can be contested by creditors, but the court can only defer it for two years. Alternatively, the decision of the DGI can be challenged by judicial review.

A restriction on such challenges was however introduced via the 2017 amendment to the law – a creditor is not allowed to oppose the discharge by the DGI if the bankrupt:

1. Was declared bankrupt because he was a social guarantor;

2. is registered as a disabled person under the Disabled Persons Act 2008;

3. is deceased; Where

4. Suffers from a serious illness certified by a government doctor.

With regard to the former, discharge may be unfair to other creditors if the bankrupt has several creditors and has been declared bankrupt on the basis of the debt of which he was the social guarantor. If, on the contrary, he was declared bankrupt by another creditor whose claim against him was not linked to a social guarantee, his release by the DGI would not be immune from challenge by creditors.

As for the fourth, it is not clear whether there is a directive on serious illnesses. If diabetes is accepted as a serious illness then maybe a bankrupt can get rid of his bankruptcy by eating a lot of sugary foods.

The third mode of discharge, wrongly called automatic discharge, was introduced by the 2017 amendment to the law. The discharge is not automatic, because it is conditional on its payment of an amount to be determined by the DGI and its compliance with the requirements set by the DGI. To determine the amount to be paid, the DGI takes into account:

1. The provable debt of the bankrupt;

2. The current monthly income of the bankrupt;

3. The extent to which the bankrupt’s spouse can contribute to the maintenance of the bankrupt’s family;

4. The monthly income that the bankrupt can reasonably expect to earn during the life of the bankruptcy;

5. Reasonable expenses for the maintenance of the bankrupt and his family; and

6. The bankrupt’s assets which can be realized during the three-year period.

If these conditions are met, the bankrupt is discharged from bankruptcy at the expiration of a period of three years from the date of filing for bankruptcy.

Creditors can object to discharge, but similarly, if the court agrees with creditors, the court can only defer discharge for two years.

With the introduction of the new mode of discharge, which luckily was incorporated into our Malaysian bankruptcy law before the pandemic, debtors and bankrupts should realize that bankruptcy is not the end of the world, and bankruptcy is not. could be the effective means of a new financial start.

Khoo Kay Ping is a partner of Zaid Ibrahim & Co



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