Insolvency (Amendment) Bill 2023

Syed Fadzil Alhabshi
Partner
E: syed@stwd.com.my

Aimee Lee Kim Moong
Senior Associate
E: aimee@stwd.com.my

The second reading of the Insolvency (Amendment) Bill 2023 was held on 23^rd and 24^th May 2023 and it was subsequently unanimously passed in the Dewan Rakyat.

The proposed amendments to the Insolvency Act 1967 (“the Act”) aims to provide for a more effective administration of the estate of bankrupts in Malaysia and to discharge bankrupts within a shorter period of time for the welfare of bankrupt individuals and to enable better contribution to the nation’s economic development.

The amendments also seek to introduce the use of remote communication technology in bankruptcy administration, to dispense with the mandatory requirement of holding the first meeting of creditors and to strengthen the provisions relating to automatic discharge.

Key Takeaways

1. Use of remote communication technology in administering bankruptcy cases
   The proposed amendment to s 2 of the Actⁱ incorporates the definition of “remote communication technology” as per the definition in the Court of Judicature Act 2964.ⁱⁱ
   
   This together with the additional proposed amendments below would enable bankruptcy administration to be carried out via online communication such as video conferencing or other online platforms.
   
   The proposed amendment to Schedule A sets out the procedure for holding creditors meetings via online communication modes.ⁱⁱⁱ Whereas the amendment to s 130 of the Act proposes that the delivery of all notices and other documents made via electronic communication will be deemed served, where a person has given their consent to receive notices via electronic communication (sub-s 2).^iv
   
   The proposed amendments also mean that it may be possible for proof of debt to be filed digitally or via email in the future. The utilisation of remote communication in bankruptcy administration may potentially reduce costs and save time for all parties involved, including the Department of Insolvency, bankrupt persons, creditors and other stakeholders.
   
   
2. Meeting of Creditors
   The proposed amendments to s 15 and Schedule A of the Act removes the mandatory requirement for the Director General of Insolvency (“DGI”) to hold the first meeting of creditors.v Instead, simply “a meeting of creditors may be held” at any time that is deemed necessary (or when requested), in order to save time and costs.vi Additionally, the proposed amendments would also enable a meeting to be held via remote communication technology.

3. Additional Categories of Bankrupt Individuals to be Discharged
   The proposed amendment to sub-section 33B (2A) of the Act^vii involves the inclusion of two additional categories of individuals to whom no objection shall be made in the issuance of a certificate of discharge,:-

1. 1. a bankrupt who is incapable of managing himself and his affairs due to any mental disorder, as certified by a psychiatrist from any government hospital;^viii and
   2. a bankrupt aged seventy years and above and who in the opinion of the DGI, is incapable of contributing to the administration of his estate.

This amendment will apply retrospectively and will enable the additional categories of persons to obtain discharge by way of certificate, if they satisfy the criteria.

1. Amendment to Automatic Discharge Provision
   The proposed amendment to s 33C of the Act is aimed to assist bankrupt individuals in obtaining automatic discharge in a shorter period (between three and five years) by introducing more flexibility to the payment conditions.^ix
   
   The key amendment to s 33C (1) changes the conditions for automatic discharge. Previously, a bankrupt would be automatically discharged after 3 years (from the date of the submission of the statement of affairs under s 16) if he had:-
   1. achieved the amount of targeted contribution of his provable debt; and
   2. complied with the requirement to render an account of moneys and property to the Director General of Insolvency under s 38 (1)(b).

Pursuant to the proposed amendments to s 33C (1)(a) and (8), (i) would be amended to provide “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”.

This provides the DGI with a wider discretion to consider a bankrupt person’s financial capability to make repayment in determining the amount to be paid by the bankrupt instead of a “targeted contribution”.

Provision is also made for the notification of automatic discharge or suspension of an automatic discharge on the bankrupt and creditors who have filed proof of debt.^x

The proposed provision under s 33C (1)(b) provides that an automatic discharge under s 33C (1) shall be suspended for a period of not more than two years (from the date of the submission of the statement of affairs) if the bankrupt does not fulfil his duties and obligations under the Act. The DGI will therefore have greater powers to suspend a discharge or, if necessary, to seek further information on income, expected income and property from the bankrupt (sub-s 2A).

5. Minister’s discretion
   Various amendments have been proposed to permit certain monetary values in the Act to be prescribed by the Minister. This will enable the values to be varied by the Minister without having to amend the principal Act.
   
   A proposed amendment to sub-s 48(1)(a)(ii) of the Act^xi defers the power to the Minister to prescribe the value of tools of trade or personal effects as well as the necessities of the bankrupt and his wife and children, which do not form part of the bankrupt’s divisible estate.^xii
   
   A similar discretion is also proposed under s 106 of the Act^xiii in respect of determining the total value of a bankrupt’s assets for the purpose of summary proceedings for “small bankruptcies”.^xiv
   
   The proposed amendment to s 107 of the Act^xv provides for a substitution of the definition of “wage earner” wherein the amount of RM500 is amended to “an amount as may be prescribed” by the Minister.
   
   It is also worth noting that it was initially announced by the Government that s 42 of the Act would be amended to introduce time limits for the filing of proof of debts by creditors.^xvi However, no such proposed amendments appear in the Bill.

Conclusion

Overall, the various proposed amendments to the Act introduce much wider discretionary powers for the DGI to make determinations in respect of a bankrupt person’s estate and assets as well as financial ability to make repayments. This will most certainly (as intended) result in the discharge of a large number of bankrupt persons. Creditors will have to closely monitor notifications from the DGI to ensure timely objections to discharges are made (where appropriate) in accordance with the procedure set out in s 33B and s 33C of the Act.

ⁱ s 2 Insolvency (Amendment) Bill 2023.

ⁱⁱ The Courts of Judicature Act 1964 (Revised 1972) (Act 91) provides “remote communication technology” means a live video link, a live television link or any other electronic means of communication.

ⁱⁱⁱ s 14 Insolvency (Amendment) Bill 2023.

^iv s 13 Insolvency (Amendment) Bill 2023.

^v s 3 & 14 Insolvency (Amendment) Bill 2023.

^vi The existing provision in Schedule A provides that “The first meeting of creditors shall be summoned for a day not later than two months in the case of a debtor’s petition, or three months in the case of a creditor’s petition, after the date of the bankruptcy order, unless the court, for any special reason, deems it expedient that the meeting be summoned for a later day”.

^vii s 8 Insolvency (Amendment) Bill 2023.

^viii “mental disorder” and “psychiatrist” have the meaning assigned to them in the Mental Health Act 2001 [Act 615]

^ix s 9 Insolvency (Amendment) Bill 2023.

^x See the proposed sub-s (3), (8a) and (8b). Both circumstances provide that the DGI shall serve a notice of automatic discharge or suspension of 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 the period but not earlier than a year before the expiration of the period.

^xi s 10 Insolvency (Amendment) Bill 2023.

^xii The existing provision provides for a sum not exceeding RM5,000.

^xiii s 11 Insolvency (Amendment) Bill 2023.

^xiv The existing provision provides for a sum of RM10,000 (after deducting any sums paid to secured creditors in respect of their securities).

^xv s 12 Insolvency (Amendment) Bill 2023.

^xvi The Star, Nation, 3 Feb 2023, “Amendments to Insolvency Act to improve bankruptcy administration system, says Azalina”, accessed at

https://www.thestar.com.my/news/nation/2023/02/03/amendments-to-insolvency-act-to-improve-bankruptcy-administration-system-says-azalina

The contents of this Update are intended to provide general information only and do not contain or intend to convey any legal or other professional advice and should not be relied upon as such. Although we endeavour to ensure the accuracy of the information herein, we do not warrant or guarantee its accuracy or completeness or accept any liability whatsoever for any loss or damage howsoever arising from any reliance thereon.