How The Insolvency Act, 1967 Got A Makeover: A Brief Analysis On The Insolvency (Amendment) Act, 2023 And Its Implications

Introduction

The Insolvency (Amendment) Act, 2023 has come into force on 06.10.2023.

In a press statement, Datuk Seri Azalina Othman stresses that the Insolvency (Amendment) Act, 2023 “reflects the government’s commitment to ensure that no one is left out in the national development”.

Firstly, it is to improve the effectiveness of the administration of the bankruptcy system. Secondly, it is to preserve the welfare of the bankrupt individuals. It serves to provide a second chance to the bankrupt individuals to live a better life and subsequently contribute to the country’s economic development.

Remote Communication Technology

The amendment has been amended to cater remote communication technology in the administration of bankruptcy in Malaysia. The communication of the insolvency matters can now be done online through video conference and more.^[1]

Preliminary, the definition of “remote communication technology” has been included. The definition is taken from S3 of the Courts of Judicature Act 1964 as “a live video link, a live television link or any other electronic means of communication”^[2].

Section 130 of Insolvency Act, 1967 (“IA”) is amended^[3] to allow the service of notices to be done through electronic communication, provided that the consent has been given by the person where the notice or document is to be served.

1. All notices and other documents for the service of which no special mode is prescribed may be sent by prepaid registered post letter to the last known address of the person to be served therewith or by electronic communication in accordance with the prescribed rules.

Furthermore, Schedule A of the IA was also amended^[4] to allow the meeting of creditors to be done through remote communication technology.

4. The meeting shall be held at such place or in such manner including the use of remote communication technology as is, in the opinion of the Director.

Meeting of Creditors

Through the Insolvency (Amendment) Act, 2023, the meeting of creditors is no longer a mandatory requirement. The creditors may choose to hold the meeting only when they consider it as necessary for the scheme of arrangement or the mode of dealing with the bankrupt’s property.

This is reflected through the amended Section 15 of the IA^[5]:-

(1) As soon as may be after the making of a bankruptcy order against a debtor a meeting of creditors may be held for the purpose of considering whether a proposal for a composition or scheme of arrangement shall be entertained and generally as to the mode of dealing with the bankrupt’s property.

The purpose of this amendment is to save time and cost of administration, especially when the bankrupts or the creditors are absent in the meeting of the creditors.^[6]

Objection to Discharge of Bankruptcy

The legal position as to the objection of creditors to discharge a bankrupt has been slightly amended.

Section 33A of IA^[7] provides discretion for the Director General of Insolvency (“DGI”) to issue a certificate for discharging a bankrupt from bankruptcy. The creditor is given the right to object the issuance the certificate discharging the bankrupt under S33B of IA.^[8]

Nevertheless, as provided under Section 33(2A)of the IA, the creditors are not allowed to make an objection for the following categories of bankrupts.

1. a bankrupt who was adjudged bankrupt by reason of him being a social guarantor;
2. a bankrupt who is registered as a person with disability under the Persons with Disabilities Act 2008;
3. a deceased bankrupt; and
4. a bankrupt suffering from a serious illness certified by a Government Medical Officer.

Via the Insolvency (Amendment) Act, 2023,^[9] two additional categories of bankrupts are included, which are:

5. a bankrupt who is incapable of managing himself and his affairs due to any mental disorder, as certified by a psychiatrist from any government hospital; and
6. a bankrupt aged seventy years and above and in the opinion of the Director General of Insolvency, is incapable of contributing to the administration of his estate.

The amendments herein are made because these particular bankrupts are no longer able to cooperate and contribute to the administration of bankruptcy and that public funds are need to be used optimally.^[10]

Furthermore, the Insolvency (Amendment) Act, 2023^[11] also indicates that the above amendments shall be applicable retrospectively to the person who has been adjudged bankrupt prior to this Amendment Act.

The new paragraphs 33b(2a)(e) and (f) as inserted by section 8 of this Act shall also apply to a person who has been adjudged bankrupt before the coming into operation of this Act.

Automatic Discharge of Bankruptcy

The provisions concerning the automatic discharge of bankruptcy has been in existence before the amendment. The original position of automatic discharge of bankruptcy is provided under Section 33C of the IA.^[12]

1. A bankrupt shall be discharged from bankruptcy under this section on the expiration of three years from the date of the submission of the statement of affairs under subsection 16(1)—
   1. if the bankrupt has achieved amount of target contribution of his provable debt; and
   2. if the bankrupt has complied with the requirement to render an account of moneys and property to the Director General of Insolvency under paragraph 38(1)(b).

However, no bankrupt has been discharged automatically to-date due to the difficulties in comply with the requirements, particularly for achieving the amount of target contribution of his provable debt.

The amendment seeks to aid in the automatic discharge of bankruptcy by loosening the requirements, without compromising the interest of the creditors. The first requirement for an automatic discharge from bankruptcy under Section 33C(1)(a) of the IA has been amended to:^[13]

If the bankrupt has paid the sum of money determined by the Director General of Insolvency, for the purposes of the administration of the bankrupt’s estate, having regard to the financial ability of the bankrupt;

Similarly, the amendment of Section 33C of the IA is applicable retrospectively.^[14]

Section 33C as amended by section 9 of this Act shall also apply to a person who has been adjudged bankrupt before the coming into operation of this Act

Suspension of Automatic Discharge

Where the interest of the bankrupts is enhanced, the interest of the creditors is also taken into consideration by amending Section 33C(1)(b) of the IA toinclude the suspension of automatic discharge, which applies retrospectively.^[15]

A bankrupt shall be suspended from the automatic discharge on the expiration of three years from the date of the submission of the statement of affairs under subsection 16(1) for a period not exceeding two years if the bankrupt has failed to comply with his duties and obligations under the Act.

Conclusion

All in all, the amendments to the IA align with the purposes of easing administration of bankruptcy and to preserve the welfare of the bankrupts without compromising the interest of the creditors.

Among others, the key amendments here concern the inclusion of remote communication technology, making creditors’ meetings non-mandatory, and changes to the objection to a discharge of bankruptcy, automatic discharge of bankruptcy and its suspension.