2,954 Debtors Declared Bankrupt From January to April 2021

Large-scale business closures and losses due to the Covid-19 pandemic lead to many entrepreneurs declaring bankruptcy. In the first four months of 2021, 2,954 debtors have been declared bankrupt. 

 

Moratorium cushioning the blow

If not for the government's rescue packages cushioning the blow on businesses, the number would have been higher. However, economists say these financial packages were only a bandaid. 

Dr Yeah Kim Leng, Sunway University economist, pointed out that initiatives such as loan moratoriums only delayed the inevitable for many enterprises. He said the moratorium just defers loan repayment to assist financially troubled borrowers evade bankruptcy.

Once the moratorium is lifted, they will still have to service the loans, and there will be more bankruptcies. 

 

Bankruptcy cases in the country

In Malaysia, the number of bankruptcies has been decreasing for the past five years. There were 19,588 bankruptcy cases reported in 2016, and in 2019, the numbers dropped to 12,051. 

Even with the pandemic and the economic fallout in 2020, the number dropped to 8,351, despite the widespread business closure. 

 

Government's actions to reduce bankruptcy cases

Lawyer Kevin Wu stated that the government had recently taken several legislative steps, which helped stop a drastic increase in bankruptcy cases. 

For instance, an amendment to the Insolvency Act 1967 passed by the government last year increased the threshold for filing bankruptcy petitions from RM50,000 to RM100,000.

However, even before the government passed the amendment in October 2020, it had already raised the threshold under the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (Covid-19) Act 2020. The government enacted the measures in August 2020, but it only took effect on March 18. 

Wu said that since the amendment took effect, the increase in bankruptcy cases has eased. 

Under the Insolvency (Amendment) Act 2020, creditors must determine that their debtor owes RM100,00 or more before filing bankruptcy petitions. But several debtors may file a joint petition if the total amount owed is not less than RM100,000.

Bankrupts are not allowed to leave Malaysia without the Insolvency Department or the court's permission. ​
 

What happens when a person is declared a bankrupt?

Once someone has been declared bankrupt, their assets are immediately liquidated, and the proceeds are paid to the creditor. 

The director-general of insolvency is responsible for liquidating a bankrupt's assets and distributing the proceeds to the creditors after submitting a valid proof of debt to the Department of Insolvency. 

The person must meet specific requirements before they can be declared a bankrupt. For example, the debtor must be a Malaysian citizen. 

A bankrupt cannot hold elected or public office positions in statutory bodies and registered organisations or societies. They cannot practise certain jobs such as an accountant, lawyer, liquidator or quantity surveyor. 

Bankrupts are not allowed to leave Malaysia without the Insolvency Department or the court's permission. 

 

Advantages of becoming a bankrupt

Though the complete payment of the debt is one way to be discharged from bankruptcy, there are situations when the authorities can free a person of the status without meeting all the obligations first. Wu said that there are several advantages to be declared a bankrupt. 

For instance, a court can stop all pending legal action, execution or other legal procedures against the debtor's property or person after he is declared a bankrupt. 

When the authorities issue a bankruptcy order, creditors cannot take further legal action against the debtor. 

Source: The Sun Daily

 

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