Malaysia’s Temporary COVID-19 Bill 2020 (A Personal Insolvency Perspective)

We previously published an article on the necessity for there to be temporary amendments to the current provisions in the Insolvency Act, 1967 (the ‘Act’) and the need for said amendments to be done expeditiously to avoid an influx of personal insolvency in this difficult economic climate. Said article can be read here  

It has been 3 months since the publication of the same and only recently has the Government tabled the 1^st reading of the “Temporary Measures For Reducing The Impact Of Coronavirus Disease 2019 (Covid-19) Bill 2020”  (the “Bill”) in the Dewan Rakyat. The Bill is slated for debate sometime next week in the Dewan Rakyat. 

This brief update highlights the proposed amendments to the Act and analyses the implications of the same.

The Proposed Amendments

The fundamental amendment to the Act deals with the minimum threshold in which a creditor can seek to present a bankruptcy petition against the debtor. The previous limit of RM 50,000 has now been doubled to RM 100,000 which gives debtors a much-needed temporary respite.

These temporary amendments (assuming the bill is passed by the Dewan Rakyat and subsequently the Dewan Negara) will come into force from the date of its publication and will lapse on the 31^st of August 2021. The Minister however does have a discretion to issue notice to extend the applicability of the amendments subject to certain provisions in the Bill.

What is also pertinent to note is that all proceedings that were commenced prior to the date of the publication of the Act will still be governed by the existing provisions under the Act and will not be subject to the amendments (if approved) in the Bill herein.

(See: Clauses 19 to 21 of the Bill)

The Implications

i.        A welcome increase to the threshold

A comparison to the Commonwealth nations within the region would highlight that this new threshold of RM 100,000 is the highest within the region in commencing bankruptcy proceedings with Singapore’s being SGD$60,000 (up from the previous threshold of SGD$15,000) and Australia being AUD$20,000 (up from the previous threshold of AUD$5,000).

Arising from this there ought to be a substantial decrease in the filing of bankruptcy proceedings. The downside, however, is that there may be a severe influx of cases within the coming weeks where creditors issue their bankruptcy notices to the debtors to ensure that they fall within the ambit of the present threshold of RM 50,000 before the Bill takes effect. If this does occur, it would be a severely unfortunate consequence of the Bill which goes against the very purpose it is being tabled.

ii.       The failure to amend the timeline for compliance

Notwithstanding the above, it is worth noting the Bill does not encapsulate any amendments to the present 7-day timeline for compliance of the bankruptcy notice once the same has been served on the debtor.

It begs the question as to why this was not considered seeing as this was a key amendment in our neighboring jurisdictions and also was the temporary timeline for compliance afforded to companies in Malaysia to comply with a statutory notice of  demand pursuant to the Companies Act, 2016 (previously 21 days now 6 months). 

Raising the debt threshold without an amendment to the timeline for compliance once said bankruptcy notice is served, runs contrary to the objective of the Bill. For reference, both in Singapore and Australia, the timeline for compliance with a bankruptcy notice is now 6 months (pursuant to the respective temporary provisions) which when in comparison to the present 7-day timeline in the Act, makes our existing provision intended to be passed not reflective of the struggles faced by the people in the current economic situation.

CONCLUSION

Good, but not good enough.

The failure to propose amendments to the timeline is of concern as it was the more important issue to be tackled. Notwithstanding, the substantial increase in the threshold ought to be applauded for it acts as a safeguard from an influx of personal insolvency proceedings in the coming months as the economic effects of COVID-19 really start to be felt.

The next few sittings in Parliament would be of utmost importance in determining the outcome of the Bill and the discussions raised therein. Notwithstanding the substantial delay in the tabling of the same, this is a good initiative and a much needed one to ease the burden of the people.

Only time will tell if the Bill is effective in easing the upcoming financial struggles as a result of COVID-19.

The firm will be posting further updates in relation to the Bill in the coming days.