The Malaysian Bankruptcy Act will see some changes in 2017.

The Malaysian Bankruptcy Act will see some changes in 2017.


During the announcement of the 2017 Budget, the Prime Minister said that the Bankruptcy Act 1967 would be amended in 2017. The amendments would affect “scholarship guarantors and others certified with chronic diseases as well as the elderly“. However, no details were provided about the proposed amendments or how they would operate.

Minister in the Prime Minister’s Department Datuk Seri Azalina Othman Said has since provided some clarity on what the proposed amendments would look like:

We want to create a special mechanism whereby if you have a lot of debt, you can volunteer yourself for this option to find a settlement using whatever income you have.

The Bill will offer an ‘escape clause’ for debtors. We know creditors are upset because they are owed money, but let’s be reasonable. If a guy can’t afford to pay up, we should find the best alternative to enable the repayment.

Under the current legislation, bankrupts can propose a “scheme of arrangement” to their creditors to settle outstanding debts, after which the bankrupt can apply for his bankruptcy to be annuled. The government’s proposal will allow an alternative provision for debtors to have a voluntary repayment arrangement with creditors prior to being declared bankrupt, in order to prevent bankruptcy.

The government is also considering the following changes to the existing bankruptcy legislation:

  • Absolute protection for social guarantors from bankruptcy proceedings
  • Automatic discharge after 3 years of bankruptcy in certain circumstances
  • Raising the minimum debt needed to be declared bankrupt from RM30,000.00 to RM50,000.00

It appears that the aim of the amendments is two fold: (a) to minimize the number of people being made bankrupt ; and (b) to allow bankrupts to have a “second chance” at life and business.

Under our current law, there are limited ways in which a bankrupt can be discharged.  There is no “automatic” discharge, even if a person has been a bankrupt for decades and has a good reason to be discharged. The bankrupt must still take proactive steps to seek a discharge or an annulment . For example, a bankrupt can apply to the Director General of Insolvency (“DGI“) (after a minimum of 5 years) for a discharge. The DGI has a wide discretion in deciding whether to discharge a bankrupt, but the current Bankruptcy Act does not provide any guidance on how this discretion is to be exercised. However, previous practices of the DGI include considering factors such as the cause of bankruptcy, the age or health of the bankrupt, and the conduct of the bankrupt. It appears that the 2017 amendments would possibly codify the factors which the Court or the DGI would have to take into account when deciding to discharge a bankrupt.

Bankruptcy is more than just an inconvenience as bankrupts are not allowed to travel, are disqualified from being directors, and can only open a bank account with the approval of the Insolvency Department, for example. To see some frequently asked questions about bankruptcy, read our previous article here.

Current statistics from the Insolvency Department indicate that more than 95,000 people have been declared bankrupt in the period of 2012 to August 2016. From that total, approximately 24% are individuals below the age of 34.  The proposed amendments to the law don’t appear to address the root cause of bankruptcy, which is usually poor financial planning and management, and lack of understanding of the legal consequences in making certain financial commitments such as being a guarantor. Making it more difficult for someone to be declared a bankrupt, or making it easier for a bankrupt to be discharged, is just treating the symptom and not the cause.

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ABOUT THE AUTHOR. This article was written by Donovan Cheah.  Donovan Cheah is a partner at Donovan & Ho. He is an advocate and solicitor of the High Court of Malaya, and his writings have been featured in publications like The Edge, The Star, the American Chamber of Commerce updates, and Asialaw.

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