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A Silver Lining for Bankruptcy – Insolvency (Amendment) Act 2023

By June 2023August 19th, 2024No Comments
Part A - Introduction

1. On 24.5.2023, the Insolvency (Amendment) Bill 2023 (‘Amendment’) was passed unanimously by the Dewan Rakyat. The overarching intention of the Amendment is to facilitate a more effective bankruptcy administration.

2. Amongst the key amendments to the Insolvency Act 1967 (‘the Act’) are as follows:

No

Amendments

Description
a.

s 33C of the Act [1]

  1. the bankrupt individual’s financial ability is to be taken into account by the director general of insolvency (‘DGI’) in determining the target contribution.
  1. introduction of a new power for the DGI to suspend the automatic discharge.

This amendment is intended to relax the conditions in allowing the bankrupt individual to obtain an automatic discharge in a shorter period of time of 3 years from the submission of the Statement of Affairs.

Notwithstanding that, the DGI is vested with power to suspend the automatic discharge for breach of obligations by the bankrupt individual.
b.

s 33B (2A) of the Act [2]

Inclusion of the following categories eligible to obtain a discharge of bankruptcy:

  1. bankrupt individual who is incapable of managing their affairs due to mental disorder, as certified by a psychiatrist from any government hospital; and
  1. bankrupt individual aged 70 and above and in the opinion of DGI incapable of contributing to the administration of his estate.

 

There are now 2 additional categories of bankrupt individual who are qualified for a discharge of bankruptcy without objections from the creditors.
c.

s 15(1) of the Act [3]

Removal of the mandatory requirement to convene a creditors’ meeting after a bankruptcy order is made.

 The creditors’ meeting may now be convened upon request and if necessary. This saves time and costs in the administration of bankruptcy.
d.

s 2 of the Act [4]

Introduction of remote communication technology in bankruptcy administration.

 Technologies such as live video link, live television link or any other electronic means of communication may now be utilized in the bankruptcy administration.
e.

s 48(1)(a)(ii) of the Act [5]

The removal of a prescribed value not exceeding RM5,000, for the bankrupt’s tool of trade and other necessaries which shall not be compromised.

 

 

 

There is no longer a prescribed value for the bankrupt’s tool of trade and other necessaries which shall not be compromised.

If the prescribed value is fixed at a bare minimum, there may be a risk that the bankrupt’s tools of trade will be taken by the DGI in its entirety for the purpose of repayment of debts.

This may affect the bankrupt individual’s ability to repay the prescribed contribution and/or the livelihood of the bankrupt individual.
Part B – A silver lining for bankrupt individuals?

1. For ease of reference, the differences in s 33C of the Act following the Amendment are as follows:

2. Historically, automatic discharge was introduced vide the Bankruptcy (Amendment) Act 2017 with the intention to reduce the number of reported bankruptcy cases.

3. Prior to the Amendment, automatic discharge was applicable upon the expiration of 3 years from submission of statement of affairs, provided that the bankrupt individual meets the target contribution. However, there has been difficulty for any bankrupt individual to comply with the target contribution, and this target contribution is solely determined by the DGI. Whether the DGI takes into account the bankrupt individual’s ability to repay is another matter altogether.

Before the Amendment After the Amendment

Automatic discharge

3(1)  A bankrupt shall be discharged from bankruptcy under this section on the expiration of three years from the date of the submission of the statement of affairs under subsection 16(1)—

  1. if the bankrupt has achieved amount of target contribution of his provable debt; and
  1. if the bankrupt has complied with the requirement to render an account of moneys and property to the Director General of Insolvency under paragraph 38(1)(b).

(2) Contribution of the bankrupt’s provable debt referred to in paragraph (1)(a) shall be determined by the Director General of Insolvency and the Director of Insolvency shall take into account…

Automatic discharge and suspension of automatic discharge

(1)     A bankrupt shall be –

  1. Discharged automatically from bankruptcy on the expiration of three years from the date of the submission of the statement of affairs under subsection 16(1) –
  1. If the bankrupt has paid the sum of money determined by the Director General of Insolvency, for the purposes of the administration of the bankrupt’s estate, having regard to the financial ability of the bankrupt; and
  2. ​If the bankrupt has complied with the requirement to render an account of moneys and property to the Director General of Insolvency under paragraph 38(1)(b); or
  1. suspended from the automatic discharge on the expiration of three years from the date of the submission of the statement of affairs under subsection 16(1) for a period not exceeding two years if the bankrupt has failed to comply with his duties and obligations under the Act.

(2)  For the purposes of subparagraph (1)(a)(i), in determining the sum of money to be paid by the bankrupt, the Director General of Insolvency shall take into account…

4. The difficulty to pay the target contribution is evident whereby there has been no successful case of automatic discharge since it was introduced.

5. Therefore, the Amendment intends to relax the condition for automatic discharge by prescribing the target contribution based on the bankrupt individual’s financial ability. This is to enable the bankrupt individual to be discharged in a shorter period of time of 3 years from the submission of the statement of affairs.

6. Notwithstanding the relaxed condition, the Amendment has introduced a new power for the DGI to suspend the automatic discharge of a bankrupt individual for not more than 2 years, if the bankrupt individual does not fulfill his obligations under the Act. The DGI’s new power may very well undo the intended effect brought upon by the relaxed condition for an automatic discharge.

7. The other hurdle that the bankrupt individual needs to overcome is the creditor. A creditor who wishes to object to the automatic discharge may still apply to the court, within 21 days upon being notified, to suspend the automatic discharge on the ground, amongst others, that the discharge will prejudice the administration of justice. This broad and encompassing provision, unless refined, may give the creditor the right to object to the automatic discharge thereby nullifying any good intention of the Amendment.

8. On another note, the Amendment includes 2 new categories of bankrupt individual whose discharge cannot be opposed by the creditors, namely bankrupt individual above 70 years old, and bankrupt individual who is incapable of managing their affairs due to mental disorder, as certified by a psychiatrist from any government hospital. This particular amendment has more bite as it excludes the view of the creditors in such discharge application.

9. Only time will tell if the Amendment will achieve its purpose, or will we see another round of refinement in the near future.

Brian Foong Mun Loong
Anson Chee Weng Kian

[1] Section 9 of the Amendment.
[2] Section 8 of the Amendment.
[3] Section 3 of the Amendment.
[4] Section 2 of the Amendment.
[5] Section 10 of the Amendment.