The Major Amendments to The Bankruptcy

First and foremost, the most important amendment made is the threshold for the debt for bankruptcy proceedings. The threshold for commencement of bankruptcy proceedings has been increased to RM50, 000 under the Insolvency Act 1967 from the previous RM30,000 in the Bankruptcy Act.

The Section 5(1) (a) of the Insolvency Act 1967 now reads:

“(1) A creditor shall not be entitled to present a bankruptcy petition against a debtor unless –

(a) the debt owing by the debtor to the petitioning creditor, or if two or more creditors join in the petition the aggregate amount of debts owing to several petitioning creditors, amounts to fifty thousand ringgit.”

This section provides that the minimum debt for bankruptcy proceeding is RM50, 000 and that a bankruptcy proceeding can only be commenced against the debtor if the debt amounts to RM50, 000.

By referring to the Hansard of Parliament with regard to the Insolvency Act 1967 at page, the fundamental intention of Parliament to raise the threshold is to bring down the insolvency rate and to provide protection.

In our opinion, the position after amendment is better as RM50, 000 would be a more suitable figure as for the current modern society. This is because the previous threshold of RM30, 000 was set in the year of 2003, which was 15 years ago. Hence, it is safe to say that RM30, 000 does not keep up with the pace of inflation. Also, most importantly, with a higher threshold, the bankruptcy rate will be reduced in which it will benefit our country as a whole.

Exemption of social guarantors from bankruptcy proceedings

The next major amendment made is on the exemption of social guarantors from bankruptcy proceedings. A social guarantor is defined under Section 2 of the Insolvency Act 1967 as those who do not profit from providing a guarantee for education loan, hire-purchase transaction of a vehicle for personal or non-business use and housing loan for personal dwelling. In the past, the Bankruptcy Act 1967 allows bankruptcy proceedings to be commenced against social guarantor if all the avenues have been exhausted by creditor in order to recover the debt from the debtor, as provided under section 5(3) of the Bankruptcy Act 1967 while the present Section 5(3) (a) of the Insolvency Act 1967 provides absolute prohibition for commencement of bankruptcy proceedings against social guarantors.

Section 5(3) (a) of the Insolvency Act 1967 reads:

“A petitioning creditor shall not be entitled to commence any bankruptcy petition against a social guarantor.”

This means that the social guarantors will no longer be subjected to bankruptcy proceedings if the borrowers failed to repay their debts. The reason for such amendment is to provide protection and fairer system to the social guarantors are as they have always been the victims and declared bankrupt due to the failure of repay of debt. However, it must be noted that other actions can be taken against the social guarantors by the creditors even though the social guarantors cannot be declared bankrupt. Besides, it is important to note that the absolute prohibition only applies to social guarantors as the creditor may commence bankruptcy proceedings against a guarantor other than a social guarantor if leave of court has been granted.

In our opinion, absolute prohibition for bankruptcy proceedings against social guarantor is Automatic discharge.