Insolvency (Amendment) Act 2023 – A Balancing Act?
‘… there is logic and fairness in the legal position, which must weigh the interests of the bankrupt against those of his creditors.’
Stephen Jones  UKFTT 567
Individuals who have been declared bankrupt may be able to breathe a sigh of relief with the legislation of the Insolvency (Amendment) Act 2023 (Amending Act), which came into force on 06.10.2023.
The Amending Act broadens the categories of bankrupts who are insulated from objections by creditors where a certificate of discharge from bankruptcy is issued by the Director General of Insolvency (DGI). It also changes the pre-requisites to qualify for automatic discharge from bankruptcy and introduces the usage of remote communication technology for meetings of creditors.
Discharge from Bankruptcy
Under the existing Insolvency Act 1967 (Act), Section 33B provides for four categories of bankrupts which creditors are prohibited from objecting to when the DGI issues a certificate of discharge from bankruptcy. These classifications are:
a)Bankrupts who have been adjudged bankrupt by reason of them being a social guarantor
b)Bankrupts registered as a person with disability under the Persons with Disabilities Act 2008
c)Bankrupts who are deceased
d)Bankrupts who suffer from a serious illness certified by a government medical officer
With the introduction of Section 8 of the Amending Act, two new groups of bankrupts are now covered, namely:
a)Bankrupts incapable of managing themselves and their affairs due to any mental disorder as certified by a psychiatrist from any government hospital
b)Bankrupts aged 70 years and above who in the opinion of the DGI, are incapable of contributing to the administration of their estate
Automatic Discharge from Bankruptcy
Another notable amendment is the revision of Section 33C of the Act on a bankrupt’s right to automatic discharge from bankruptcy viaSection 9 of the Amending Act.
Prior to the Amending Act, a bankrupt shall be discharged upon the expiration of 3 years of their submission of the statement of affairs if, among others, the bankrupt has reached the amount of target contribution of provable debt as determined by the DGI.
Post-amendment, a bankrupt shall be discharged automatically 3 years from the date of the submission of the statement of affairs if the bankrupt has paid the sum of money determined by the DGI for the purposes of administration of the bankrupt’s estate.
For a clearer illustration, the following table compares the legal position on automatic discharge from bankruptcy before and after the Amending Act.
Both Section 33B and Section 33C of the Amending Act apply retrospectively.
Sometime in June 2023, prior to the gazetting of the Amending Act, the Deputy Minister in the Prime Minister’s Department (Law and Institutional Reform) released a statement on the Amending Act. The statement announced that the amendments were expected to discharge about 130,000 persons from bankruptcy. This represents a significant portion of bankrupts in Malaysia, which stands at 251,554 persons based on the recent report by the Department of Insolvency.
Suspension of Automatic Discharge from Bankruptcy
Parliament must of course weigh the interests of creditors against that of the bankrupt; the right to automatic discharge from bankruptcy is not without its boundaries. To safeguard the rights of creditors, the Amending Act further introduces the concept of suspension of automatic discharge upon the expiration of 3 years from the submission of the statement of affairs for up to 2 years where the bankrupt fails to comply with their duties and obligations under the Act. In such a circumstance, the suspension of the automatic discharge from bankruptcy is effective on the date stated in the notice served by the DGI to each creditor who has filed a proof of debt within 6 months before the expiration of 3 years from the date of the submission of the statement of affairs by the bankrupt.
Remote Communication Technology and Electronic Communications
In keeping up with the judiciary’s transition to remote hearings as a result of the COVID-19 pandemic, Section 14 of the Amending Act has amended Schedule A of the Act to confer the DGI with the authority to hold a meeting of creditors by way of remote communication technology.
Previously, the Act only allowed the DGI to hold the meeting at such a place which the DGI considers to be convenient for the majority of the creditors. Further, Section 13 of the Amending Act, which amends Section 130 of the Act, now allows notices under the Act to be served by electronic means where consent has been obtained to do so.
Whilst it is evident that the amendments made to Section 33B, Section 130 and Schedule A of the Act are much welcomed and will likely be advantageous to bankrupts and creditors respectively, it remains to be seen whether the new Section 33C would in fact be any different for or even beneficial to bankrupts who may be classified under this provision.
This is in light of the fact that both positions grant the DGI wide discretion to firstly, decide on the amount of target contribution of provable debt (position pre-amendment) and determine whether the bankrupt has paid the sum of money for the purposes of the bankrupt’s estate, taking into consideration the financial ability of the bankrupt (position post-amendment). It is certainly arguable that the position post-amendment provides a clearer and possibly lower threshold in respect of the amount to be paid by the bankrupt since it would seem that the bankrupt would really only need to, at the very least, cover the cost of administration of their estate. In any event, it is clear that the legislation has made an attempt to balance the interests of creditors and bankrupts alike.
9 October 2023