The Insolvency (Amendment) Bill 2023 (“
Bill”) was passed by the Dewan Rakyat on 24 May 2023. It will next be tabled before the Dewan Negara. Once passed, the Bill will be cited as the Insolvency (Amendment) Act 2023 (“
Amendment Act”) and will come into operation on a date to be appointed by the Minister in the Prime Minister's Department (Law and Institutional Reform) (“
Minister”) by notification in the Gazette.
The Bill seeks, amongst others, to provide for a more effective administration of bankrupts’ estate in Malaysia and to discharge bankrupts within a short period of time to enable them to better contribute to the development of the country’s economy.
The proposed amendments to the Insolvency Act 1967 (“
IA 1967”) include the following:
Use of remote communication technology
A new definition of “remote communication technology”, taken from section 3 of the Courts of Judicature Act 1964, is introduced and defined to mean “
a live video link, a live television link or any other electronic means of communication.”
1
The amendments will allow a meeting of creditors to be held by the use of remote communication technology
2 and for the service of notices and documents under the IA 1967, such as statement of affairs and proof of debt general form, by way of electronic communication in addition to the prepaid registered post letter in the original provision.
3 Where a person has given his consent for service through electronic communication, the notice or other documents shall be deemed to have been served at the time when they are transmitted to his account through electronic communication.
4
Expanding the categories of bankrupts who may be discharged from bankruptcy by the certificate of the Director General of Insolvency (“DGI”) without objection by the creditors
Section 33A of the IA 1967 allows the DGI to issue a certificate to discharge a bankrupt from bankruptcy after a lapse of
not less than five years after the date of the bankruptcy order.
Two new grounds are added to disallow a creditor from objecting to the discharge of a bankrupt by the certificate of DGI under section 33A, i.e. where a bankrupt:
| (e) |
is incapable of managing himself and his affairs due to any mental disorder, as certified by a psychiatrist from any government hospital; or |
| (f) |
aged seventy years and above is, in the opinion of the DGI, incapable of contributing to the administration of his estate.5 |
For the purposes of paragraph (e), “mental disorder” and “psychiatrist” have the meaning assigned to them in the Mental Health Act 2001 according to the newly inserted subsection 33B(7)
6:
| “mental disorder”: “any mental illness, arrested or incomplete development of the mind, psychiatric disorder or any other disorder or disability of the mind however acquired…”.7 |
| “psychiatrist”: “a registered medical practitioner with qualifications, training and experience in the discipline of psychiatry recognized by the Director General [of Health Malaysia]”.8 |
As such, the categories of prohibited objections to applications for discharge of bankrupts under section 33B(2A) of the IA 1967 (“
prohibited objections”) have been expanded from four to six. Parliament is of the view that these additional categories of bankrupts are no longer able to cooperate and contribute to bankruptcy administration. Therefore, factors such as public interest should be taken into account as bankruptcy administration involves public funds that need to be used optimally.
9 Further, the Malaysian Department of Insolvency’s statistics show that 19,913 bankrupts who are aged 70 years and above are eligible to be considered for discharge by the certificate of DGI under section 33A if they meet the requirements following the amendments.
10
Easing the provisions for early automatic discharge
Amendments have been made to ease the operation of the provisions relating to an automatic discharge by way of a certificate of DGI under section 33C of the IA 1967 after the expiration of
three years from the date of a bankrupt’s submission of his statement of affairs.
Presently two main conditions have to be satisfied by a bankrupt for an automatic discharge under section 33C. First, the bankrupt must have achieved the amount of his targeted contribution of his provable debt (“
first condition”). Second, the bankrupt must have complied with the requirement to render an account of moneys and property to the DGI (“
second condition”).
According to the Minister, Dato’ Sri Azalina Othman Said, there have thus far been no cases where automatic discharge under section 33C have been successfully recorded due to the difficulty in complying with the first condition, i.e. achieving the targeted contribution.
11 Hence, to assist bankrupts to be released automatically in a short period of three to five years, the terms of payment under section 33C will be eased by replacing the first condition with a requirement for the bankrupt to have paid “
the sum of money determined by the DGI for the purposes of the administration of the bankrupt’s estate, having regard to the financial ability of the bankrupt.”
12
The second condition remains unchanged.
The factors to be taken into account by the DGI in determining the amount to be paid by the bankrupt under the amended first condition are set out in the existing section 33C(2) of the IA 1967 except for the removal of the existing requirement for the DGI to consider the provable debt of the bankruptcy.
13
A new section 33C(1)(b) provides that a bankrupt shall be suspended from the automatic discharge on the expiration of three years from the date of the submission of his statement of affairs for a period
not exceeding two years if the bankrupt has failed to comply with his duties and obligations under the Act.
14
If the DGI suspends an automatic discharge under the new section 33C(1)(b), the DGI is required to serve a notice of suspension of the automatic discharge on the bankrupt and on each creditor who has filed a proof of debt not less than six months before the expiration of three years from the date of the submission of the statement of affairs, but not earlier than one year before the expiration of such period.
15 Such a suspension shall be effective on the date stated in the notice.
16 The bankrupt is required to continue to fulfil his duties and obligations under the IA 1967 during that period of suspension of the automatic discharge and shall be discharged automatically at the end of the period of suspension.
17
To enhance the investigative powers of the DGI, a new section 33C(2A) is introduced to empower the DGI to request the bankrupt to provide further information in respect of his income, expected income and properties.
18
The existing requirements under section 33C(3) have been clarified and will require the DGI to serve a notice of automatic discharge on each of the creditors who has filed a proof of debt not less than six months before the expiration of three years from the date of the submission of the statement of affairs, but not earlier than one year before the expiration of such period.
19 The existing provisions in section 33C(4) that allow a creditor who objects to the proposed automatic discharge of the bankrupt to apply to court for an order to suspend the automatic discharge are retained. If the creditor’s objection is upheld, the Court will issue an order that the automatic discharge be suspended for two years.
Dispensing with the mandatory requirement of holding the first meeting of creditors.
It is presently mandatory under section 15 of the IA 1967 for a general meeting (“
first meeting of creditors”) to be held as soon as may be after a bankruptcy order is made. The purpose of the first meeting of creditors is to consider whether a proposal for a composition or scheme of arrangement shall be entertained and generally as to the mode of dealing with the bankrupt's property. The Bill seeks to replace the mandatory nature of this requirement with a discretionary power although the purpose of the section is maintained with the added scope, that is, “…
and for any other purpose as may be prescribed” by the Minister.
20 This amendment will save time and costs in the administration of bankruptcy given that a meeting of creditors will only be held upon request and if necessary.
21
Further, the Bill proposes to replace all references in the Act to the ‘first meeting of creditors’ with a ‘meeting of creditors.
Amongst other consequential amendments are the following:
Value of properties of bankrupts exempted from distribution to the creditors.
Section 48(1)(a)(ii) of the IA 1967 presently provides that the bankrupt’s property divisible among his creditors shall not include the tools, if any, of his trade and the necessary wearing apparel and bedding and other like necessaries of himself, his wife and children to a value not exceeding RM5,000.00. The amendments will replace the RM5,000.00 limit with a limit “
as may be prescribed” by the Minister.
24
Value of the properties and income of wage-earner for summary administration.
Presently, section 106 of the IA provides that where a bankruptcy order has been made and the DGI reports to the Court that the assets (after deducting any sums paid to secured creditors in respect of their securities) are unlikely to exceed RM10,000.00, the Court may make an order that the bankrupt’s estate be administered in a summary manner. The amendments will replace the RM10,000.00 value with a value “
as may be prescribed” by the Minister.
25
For the purposes of summary administration of small bankruptcies under Part VI of the IA 1967, a ‘wage earner’ is a person whose salary and other income (excluding any pension) do not exceed RM500.00 and RM50.00 per month respectively. The amendments replace the said sums of RM500.00 and RM50.00 with such amounts “
as may be prescribed” by the Minister.
26
The replacement of the amounts specified in the foregoing provisions with amounts “
as may be prescribed” by the Minister provides greater flexibility in the administration of bankruptcies as the amounts may be revised according to the prevailing economic conditions and circumstances without having to undergo the legislative process of amending the IA 1967.
Amendments to be retrospective
The amendments expanding the categories of prohibited objections
27 and easing the condition for automatic discharge
28 shall have retrospective effect and apply to a person who has been adjudged bankrupt before the coming into operation of the Amendment Act.
29
Saving provision
Any proceedings, actions or other matters required to be done under the IA 1967 which are still pending immediately before the coming into operation of the Amendment Act shall be continued or concluded under the IA 1967 as if it had not been amended by the Amendment Act.
30
Article by Trevor Jason Mark Padasian (Partner) of the Insolvency Practice of Skrine.31
1 Clause 2 of the Bill amending section 2 of the IA 1967.
2 Clause 14(c) of the Bill amending paragraph 4 of Schedule A to the IA 1967.
3 Clause 13(b) of the Bill amending section 130 of the IA 1967.
4 Clause 13(c) of the Bill amending section 130 of the IA 1967.
5 Clause 8(a) of the Bill amending section 33B of the IA 1967.
6 Clause 8(b) of the Bill amending section 33B of the IA 1967.
7 Section 2 of the Mental Health Act 2001.
8 Section 2 of the Mental Health Act 2001.
9 Dewan Rakyat Debates on 23 May 2023, Bil. 33, page 101, paragraph 4.
10 Ibid, page 101, paragraph 5.
11 Dewan Rakyat Debates on 23 May 2023, Bil. 33, page 102.
12 Clause 9(b) of the Bill amending section 33C(1) of the IA 1967.
13 Clause 9(c)(ii) of the Bill amending section 33C(2) of the IA 1967.
14 Clause 9(b) of the Bill amending section 33C(1) of the IA 1967.
15 Clause 9(g) of the Bill amending section 33C of the IA 1967.
18 Clause 9(d) of the Bill amending section 33C of the IA 1967.
19 Clause 9(e) of the Bill amending section 33C(3) of the IA 1967.
20 Clause 3 of the Bill amending section 15 of the IA 1967.
21 Paragraph 4 of the Explanatory Statement to the Bill.
22 Clause 14(b) of the Bill amending paragraph 2 of Schedule A to the IA 1967.
23 Clause 14(e) of the Bill amending paragraph 6 of Schedule A to the IA 1967.
24 Clause 10 of the Bill amending section 48(1)(a)(ii) of the IA 1967.
25 Clause 11 of the Bill amending section 106 of the IA 1967.
26 Clause 12 of the Bill amending section 107 of the IA 1967.
27 Clause 8 of the Bill amending section 33B of the IA 1967.
28 Clause 9 of the Bill amending section 33C of the IA 1967.
29 Clauses 15 and 16 of the Bill.
30 Clause 17 of the Bill.
31 The writer extends his appreciation to Tan Yng Yiin (Pupil) for her assistance in the preparation of this article.