How to resolve insolvency
ON August 25, 2020, the Insolvency (Amendment) Bill 2020 was passed to raise the debt threshold for the presentation of a bankruptcy petition from RM50,000 to RM100,000.
The Insolvency Department revealed that 18 people a day, many of them young people, were declared bankrupt in the first five months of 2022. This alarmed the prime minister.
Data on the department website showed that between January and May, 2,694 people were declared insolvent, taking the number of bankruptcies in the country to 274,628.
Eighty-five per cent of insolvent persons in Malaysia are aged 25-54.
The majority of them were bankrupted by credit cards debt and personal, housing or motor vehicles loans.
Once an individual is adjudged a bankrupt, he will be assigned to the director-general of insolvency (DGI) who will administer and oversee repayment of the outstanding debts including selling properties, now vested in the DGI, in the bankrupt’s name with the proceeds distributed among the creditors.
The bankrupt is only allowed to keep necessities for daily life such as clothes and bedding that he and his immediate family might need, but only up to a value of RM5,000.
Their bank accounts will be de-activated, and he may only have one bank account for crediting his monthly income. In reality, no financial institutions will allow a bankrupt to register for an account.
The bankrupt has to submit an account of all their income and expenses every six months to the DGI. Anything received over RM500 must be reported.
The bankrupt must make payments towards his debt and submit a full account of his assets and liabilities to the DGI.
Even though bankruptcy does not prevent an individual from getting a job, in reality, very few employers are willing to hire them. Opportunities for senior management and above in companies are closed to bankrupts. If the bankrupt is a professional, he will be barred from practising by virtue of the code of conduct of the profession.
With a low-paying job, any repayment is presumably minimal. Any amount paid is largely symbolic.
And assuming the debts owing are to a corporate body, these creditors would have written off these debts a long time ago.
Assuming the bankrupt dutifully makes the monthly targeted payment and at the end of the third year of their bankruptcy, he can apply for a discharge under section 33C of the Insolvency Act, , it does not mean the DGI will grant the request.
Thus, raising the debt threshold for the fifth time will not resolve the problem.
In Malaysia, when a person is sentenced to life imprisonment, the term is effectively for 30 years with remission of one-third of the sentence for good behaviour. After serving 20 years, the person could be set free to rejoin society.
But a bankrupt generally dies a bankrupt.
Bankrupts are not criminals. They still can and should contribute to the economy. The country needs all the manpower it can get to weather the storms ahead.