Amendment of the New Bankruptcy Act

The Bankruptcy Act 1967 was amended in 2003 and 2017. It is now being referred to as the
Insolvency Act 1967 (IA). The Act will only regulate the individual and firm’s insolvency matter
while winding up of the companies will be regulated by the new Companies Act 2016. There are
some significant changes to law which along with these in the new Act.

The most notable change in this new Act is the introduction of the rescue mechanism which is
voluntary arrangement. The voluntary arrangement had been stated in the Part 1 of the Act which
cover from s.2A to s.2Q of IA. This arrangement can be considered as a pre-bankruptcy rescue
mechanism. The debtor will appoint a nominee to act as an independent professional to structure
a debt rearrangement with the borrower’s creditors. The debtor shall files a court application for
an interim order for voluntary arrangement. Then, the court will grant an interim order which to
protect the debtor to make sure that there is no bankruptcy petition and no legal proceedings
against the debtor except with the permission from the court.

The third amendment is that the new law has imposed a more stricter requirement for personal
service of the bankruptcy order. We may see the Insolvency Act have some amendment which
S.3(1)(h) of IA has been deleted and S.3(2) of IA provides that the bankruptcy notice must be
served personally to a debtor which previously stated it could be served in prescribed manner.
S.3(2) of IA has been inserted which stated that the creditor may serve substituted service on the
debtor but the creditor must prove to the court that the debtor had intention to defeat, delay,
evade the personal service or depart out of Malaysia.

The next significant amendment is the new law has simplified the receiving order and
adjudication order to a single unified order which is known as single bankruptcy order. This
order is to prevent the confusion of two orders which provides for under S.4 of IA. In other
words, after granting of the single bankruptcy order, the debtor will be adjudged bankrupt. With
the enforcement of new Act, the existing flexibility has been removed by replacing the receiving
order and adjudication orders with a single bankruptcy order. Moving on to the s.5(1)(a) of IA of
the latest amendment which stated that the minimum debt threshold for initiating bankruptcy
proceedings has now been increased to RM50,000 from RM30,000.
Furthermore, the latest amendment is that there is an absolute protection for social guarantor
which means that the creditors are prohibited from commencing bankruptcy proceeding against
the social guarantor which fall under S.5(3)(a) of IA. A social guarantor means persons who does
not profit and essentially provides a guarantee for an education loan, hire-purchase transaction,
or a housing loan for personal dwelling. There is also added protection for other types of
guarantors. By virtue of S.5(3)(b) of IA, a creditor need to obtain leave of court before
commencing bankruptcy proceedings against other guarantors. S.5(4) of IA has been inserted
which provided that the leave of court can only be obtained if the creditor can prove to court that
he has exhausted all modes of execution and enforcement to recover from the debtor. Based on
the case of Hong Leong Bank Berhad v Khairulnizam Jamaluddin 1, the court held that the
appellant had proved that it had exhausted all avenues to recover the debts owed to it by the
hirer. As such, the appellant had satisfied the requirement of s. 5(3) of the Act to commence.

Besides that, there is a new list of bankrupts to be allowed discharge which under S.33B (2A) of
IA. The individuals who are a social guarantor, a bankrupt with a disability under the Persons
with Disabilities Act 2008, a deceased bankrupt, and a bankrupt suffering from a serious illness
will be afforded protection where the creditors cannot object to the discharge of bankruptcy.

In addition, one of the significant changes is that there is a new provision allowing for an
automatic discharge after three years which previously could only be done after a period of five
years. Under the old law, a debtor can only be discharge depends on the Director General of
Insolvency’s (DGI) discretion which under S.33A of BA1967. However, the new law has
inserted new section which is S.33C of IA, stated that an automatic discharge of a bankrupt upon
three years from submitting his statement of affairs and subject to achieving the target
contribution set by the DGI and having rendered an account of monies and property to the DGI.
Hence, the debtor can now be automatically discharges if he meets certain requirements laid out
in S.33C of IA. The creditors can object to the automatic discharge but there are only limited
specified grounds they can raise. Therefore, with the enforcement of new Act, it does not matter
whether the DGI has absolute discretion or not, the debtor can now be automatically discharges.

1
[2016] 7 CLJ 335
Last amendment is that there is a new Insolvency Assistance Fund (IAF) has been established
which under S.77A of IA which stated that the investments will go directly into the IAF and run
as separate account.2 This new provision stated that IAF shall be administered and controlled by
the DGI for the purposes of simplifying the administration of a bankrupt’s estate in terms of
payments of fees and costs to facilitate effective administration of the estate. This is to achieve
the betterment of the administration and proceedings relating to bankruptcy. Previously, the
creditors need to pay a deposit which sum is to be used towards defraying the costs incurred by
the DGI who proceeds to administer the bankrupt’s estate without any further payment make by
the creditor towards the administration. However, with the latest amendment, the IAF will decide
whether the creditors require to pay the costs of administration.

Amendment of Companies Act

The passing of the Companies Act 2016 (CA 2016) which has been successfully replaced the
Companies Act 1965 (CA 1965), marks the most comprehensive legislative change in Malaysia’s
corporate law in 50 years. The CA 2016 make some significant changes to Malaysia’s corporate
insolvency regime and also modifies the existing law.

The CA 2016 had also introduced 2 new mechanisms which are the judicial management and
voluntary arrangement. Judicial management are fall under the provision of S.403 until S.430.
Judicial management allows a company or creditor applies to the court for the management of a
company, to be transferred to a qualified practitioner. The practitioner would then have the duty
to find options to restructure the company to the satisfaction of the creditors. Meanwhile, the
provision for the corporate voluntary arrangement can be found under S.395 to S.402. A
corporate voluntary arrangement is where the management of the company remains with the
directors of the company and the arrangement will protect the company against creditors.

2
https://themalaysianlawyer.com/2016/11/22/the-new-bankruptcy-bill-malaysia/ﾧ
The New Bankruptcy Amendment Act: The 10 Changes to Bankruptcy
Law in Malaysia
For the next amendment is about the solvency test. Under the old law, the solvency test is based
on balance sheet solvency test, as well as the commercial or cash flow solvency. However, for
the latest law has provided a provision for a solvency test against companies under S.112 of CA
2016 which showed the redemption of preference shares, reduction of shares capital and
financial assistance and how a company satisfies the solvency test. The company are no allowed
to issue dividend unless they are able to fulfill all its debt within 12 months from the
commencement of the winding up proceedings.

Moreover, the latest amendment is that the minimum debt threshold for initiating the winding up
proceedings has now been increased to RM10,000 from RM500. 3 Under S.218(2)(a) of CA1965,
a company is deemed to be unable to pay its debt when the company owes more than RM500
due. However, with the latest amendment, which under S.466 of CA 2016 provides that the
threshold for presumption of inability to pay debt will now be the amount which being
prescribed by the minister.

The mode of winding up of a company remain separated into voluntary winding up and a court
ordered winding up which under S.432 of CA 2016 (previously under S.211 of CA 1965).
However, there is an additional provision is added to subsection (2) of S.432 whereby it provides
that a voluntary winding up may be effected depending on whether the company is solvent or
insolvent. The next amendment for the voluntary winding up is the declaration of solvency which
for the new law there is only added a new subsection (7) in S.443. By virtue of S.433(7) of CA
2016 declared that the every officers who commit an offence is subject to punishment. However,
the requirements and contents of the declaration of solvency remained unchanged with the old
law under S.257 of CA1965 (now changed to S.443 of CA 2016).

Next, the court ordered winding up can be found under S.465 of CA 2016 which is similar to the
S.218 of CA 1965. However, with the latest amendment, under S.465(d) of CA 2016 which
stated that the company may be ordered to be wound up when the company has no member,
while there is a different with S.218(d) of CA1965 which provided that a company would be
wound up when the company has less than 2 members.
3
http://www.federalgazette.agc.gov.my/outputp/pub_20170126_P.U.%20(B)%2058.pdf
Federal Government Gazette - Prescription of amount of indebtedness of company.
Furthermore, the next amendment is related to commencement of the winding up where
previously under S.219(2) of CA 1965, it was provided that the winding up of the company is
deemed to have been commenced at the time of the presentation of the petition for the winding
up. However, for the latest amendment which under S.467(2) of CA 2016, the commencement of
winding up shall be at the date of the winding up order.

Moving on to the next amendment which is the avoidance of dispositions of the property. For
the old law which under S.223 of CA 1965 stated that after the commencement of the winding
up, it does not allowed to dispose the property unless ordered by the court. However, under
S.472 of CA2016, the disposition other than an exempt disposition is void unless ordered
otherwise by court. The exempt disposition should be made by a liquidator or by interim
liquidator of the company when exercising the power that appointed him or by order of court
under S.472 (2) of CA2016 and this exempt disposition cannot found in the old law..

As for liquidators, under S.255 of CA 1965 refers to “provisional liquidators” which is now
known as “interim liquidators” under S.440 of CA 2016. The powers of the liquidator are stated
under S.236 of CA 1965 whereby now can be found under S.456 and S.486 of CA 2016. For the
latest amendment, some chances have been made to increase the powers of the liquidator.

Lastly, there is no major amendment for the scheme of arrangement, but in the CA 2016 had
imposed 2 key improvements to prevent the abuse of the moratorium provisions. First is limiting
the maximum duration for a restraining order to 3 months with extensions of up to 9 months
which stated in S.368(2) of CA 2016. The second improvements is allowing the court to appoint
an approved liquidator to assess viability of the scheme of arrangement proposed and prepare a
report for submission to the meeting of creditors and members. This is on the basis that an
independent liquidator will be able to adopt a more objective assessment of the commercial
viability of a proposed scheme, and accordingly provide necessary assistance to the court.4

4
http://restructuring.bakermckenzie.com/2016/11/06/malaysia-new-malaysian-insolvency-laws/