Light at end of tunnel for insolvents under amended Act

DARKNESS and pain engulfed Mad Noor, 65, (not his real name) after he was declared bankrupt over a bank loan two years ago, forcing him to wind up his printed fabric operation in Rawang, Selangor.

For Mad Noor, who had been running the business jointly with his wife since 2018, the episode was one of the darkest and most painfully debilitating chapters of his life.

COVID-19 pandemic upended many businesses, especially small and medium enterprises (SMEs) and Mad Noor was not spared. Having saddled with RM100,000 losses, he was unable to service his bank loan, with months in arrears.

"Our profit took a slight dip in 2019 as many customers shifted their spending toward online shopping and this trend continued until mid-2020 due to COVID-19.

"After struggling to stay afloat with the outstanding debt hanging over our head, we had to close down our operation at end-2021, and the bankruptcy filed against us was the final straw," he told Bernama.

Being declared a bankrupt means an individual will have plenty of restrictions imposed upon him. Mad Noor's existing bank account has since been deactivated and he was not allowed to own a business or be part of a business ownership, plus, he was not able to travel out of the country.

The bankruptcy status has made it difficult for him to bounce back, but amendment to the Insolvency Act 1967 (Act 360) which took effective on Oct 6, brought a ray of hope for Mad and 35,714 bankrupt individuals, whose cases are administered by the Malaysian Department of Insolvency (MdI).

Bankruptcy refers to a process where a debtor will be declared a bankrupt pursuant to a court order on the creditor's petition or the debtor's petition. All the unsecured property belonging to the bankrupt will be vested on the Director General of Insolvency (DGI) and the DGI has the responsibility to realise all such assets.

LIGHT AT END OF TUNNEL

The second chance policy aims to release some 130,000 bankrupt individuals, allowing them to carry on with their lives and continue contributing to the country's economic development, Minister in the Prime Minister's Department (Law and Institutional Reform) Datuk Seri Azalina Othman Said said early this month.

The main amendment, Section 33C Act 360, helps bankrupts be released from insolvency within three to five years from the time they submit their statements.

The amendment was a much-needed relief for Mad Noor, who is currently being provided for by his working children, noting that his wife is currently running her own small tailoring business.

"Once our bankruptcy status is lifted within this short period, I hope to revive my business and rebuild our life from rock bottom," he said, noting that after being in the doldrums, the Budget 2024 news brought "some light at the end of the tunnel" for him and family.

Prime Minister Datuk Seri Anwar Ibrahim said in line with its approach to protecting the people's welfare, the government will next year expand the Second Chance Policy on bankruptcy to those aged 40 and below who have debts not exceeding RM200,000.

As of July this year, almost 14,000 cases with small debts of below RM50,000 have been discharged from bankruptcy.

"The implementation of the Second Chance Policy, the Insolvency (Amendment) Act 2023 has automatically exempted current and past cases that meet requirements from being declared bankrupt," he said when presenting Budget 2024 in the Dewan Rakyat.

The amendment to the Insolvency Act 1967 has added two new categories of individuals who can be discharged through the issuance of a certificate from the director-general of the Insolvency without going through debtors' objections under Section 33B (2A).

The inclusion of the two categories, namely individuals who cannot manage their personal affairs due to mental illness as defined in the Mental Health Act 2001 and those aged 70 and above, who, according to the Insolvency director-general's discretion, are incapable of contributing to the bankruptcy administration.

The Department of Insolvency in its report cited personal loans as the main factor leading to bankruptcy in the country based on the number of bankruptcy cases that it administers.

During the period 2019 to August this year, personal loans are the main cause of bankruptcy cases in the country, with 49.14 per cent or 17,550 cases out of 35,714 bankruptcy cases compared to other financial loans.

Personal loans include secured or unsecured loans from banking institutions, personal loans from money lenders other than banking institutions and friendly loans from individuals.

Apart from that, business loans accounted for the second highest number of bankruptcy cases with 17.30 per cent or 6,179 cases, followed by hire purchase on vehicles (3,898), housing loans (2,978) and credit card debt with 2,198 cases or 6.15 per cent.

HIGH NUMBER OF BANKRUPTCY CASES

Efforts to reduce the number of bankruptcy cases among the people started since 2017 when the previous government amended the Insolvency Act 1967 (Act 360) by raising the minimum bankruptcy threshold from RM30,000 to RM50,000 and later to RM100,000 in 2020.

As a result of the initiative, there was a declining trend in the number of bankruptcy cases registered each year.

"Records show 5,695 individuals were declared bankrupt in 2022 compared to 6,554 previously and as of August this year, the number of cases stood at 3,063.

"In terms of age, statistics show those aged between 35 to 44 were the highest number among bankrupt individuals recorded for the period 2019 to August 2023, that is 13,757 people compared to bankrupt individuals aged below 25 with only 115 cases, while bankrupt individuals aged above 55 stood at 5,549," the department said.

The latest amendment however evoked mixed public reaction. According to the owner of a logistic company in Butterworth, Penang, who prefers to be called Muszafar, 52, there is still room for improvement especially before an individual is declared bankrupt.

Citing his case, Muszafar said he is in the process of being declared a bankrupt by the court for failing to settle his RM150,000 loan, but noted that his assets are enough to pay off his debt.

"In my view, certain procedures under the act need fine-tuning, especially before an individual is declared bankrupt to protect debtors from unfair treatment (by creditors)," he said.

He also opined that to make the process easier for affected individuals, the period of automatic discharge of between three to five years from the date on which the debtors submit the declaration of assets, should be further shortened to help traders earn their livelihood.

"Having gone through bankruptcy, they would be more prudent in their spending to avoid similar situations and are poised to get their life back on track, with a different perspective in managing their debt and finances.

"With renewed optimism, they are ready to bounce back with a new business or helping to strengthen the local economy through their income-generating activities. They would also tap on the opportunities available through conservative and low-risk investments to ensure there is a balance between risks and returns in their overall portfolio," she added.

Nur Hafizah said the amended act would go a long way in reducing societal stigma towards bankrupt individuals, adding that life after bankruptcy would boost their mental and emotional wellbeing.

-- BERNAMA