Necessity for Temporary Measures in Personal Insolvency (in light of COVID-19)

In these times of severe uncertainty in the global economic climate, a great possibility and danger arise of there being an influx in personal insolvency cases being brought before the Courts. Such a scenario can only bring negatives to the economy in such troubling times.

CURRENT THRESHOLD

The literature is abundant on what amounts to bankruptcy or an act of bankruptcy in Malaysia at present. Briefly, if an individual owes more than RM 50,000.00, is served with a Bankruptcy Notice and fails to make payment for the sum stipulated in the Bankruptcy Notice within 7 days, he or she commits an act of bankruptcy and the process kick starts from there whereby (if unopposed or set aside) the individual will ultimately be declared a bankrupt.

WHAT HAS THE GOVERNMENT DONE THUS FAR

The Government had taken active steps in the law of corporate insolvency when it increased the definition of a company’s ‘inability to pay its debts’ to RM 50,000 from what it was previously at RM 10,000. Further, the timeline to respond to a demand was also increased to 6 months from previously being 21 days. These changes are in place until 31.12.2020. The firm’s corporate insolvency team has previously written on this area and its implications and the detailed articles on the same can be found here and here.

This, however, is the extent of what the Government has done thus far. No laws or temporary measures have been enacted or passed to deal with the personal insolvency aspect and the current threshold as alluded to above remain as they are.

A LOOK ACROSS BORDERS

Singapore

Our neighbours across the causeway have taken a proactive approach in dealing with the pandemic and its economic implications. Parliament in Singapore convened and implemented the COVID-19 (Temporary Measures) Act 2020.

This act was to cover a multitude of areas and sectors that would be affected by the pandemic, including the corporate scene which had the insolvency debt threshold increased as well. On a personal insolvency front, the threshold for bankruptcy was increased to SGD$60,000 up from the prior SGD$15,000. Further, and more importantly, the statutory timeline to respond to a notice was increased to 6 months from the prior 21-day timeline.

Australia

Governed by the Bankruptcy Act 1966, the threshold for bankruptcy is AUD$5,000 and the timeline for compliance with a demand is 21 days.

However, in light of the pandemic, as of the 25^th of March 2020, Australia passed the Coronavirus Economic Response Package Omnibus Act 2020 which implemented temporary measures that increased the debt threshold for the issuance of a bankruptcy notice to AUD$20,000. The timeline for compliance was also increased to 6 months. The above would only be effective and applicable to bankruptcy notices issued after the 25^th of March 2020. The temporary measure would also be in place for a period of 6 months

PROPOSAL MOVING FORWARD

The above comparison on our close commonwealth neighbours shows that we are falling behind the curve. The solution seems relatively simple, increase the debt threshold, and increase the timeline for compliance.

The present 7-day timeline for the compliance of the bankruptcy notice is highly unreasonable in light of what other jurisdictions are doing and also when compared to the timeline afforded to companies in Malaysia to comply with a statutory demand (6 months). 

A further comparison would show that Malaysia’s personal insolvency threshold is already at a relatively high figure at RM 50,000 in comparison to some of our neighbours. Therefore, the government’s focus of the temporary amendment should be in tackling the present 7-day timeline for the compliance of a bankruptcy notice. A common position of 6 months to comply appears to be the way other countries are dealing with the situation.

NEED FOR PARLIAMENT TO CONVENE

Unlike when dealing with corporate insolvency provisions where the threshold in defining when a company is deemed to be ‘commercially insolvent’ and ‘unable to pay its debts’ is at the minister’s discretion under the Companies Act 2016, the threshold in determining personal insolvency is an Act of Parliament (Insolvency Act 1967) and can only be amended by Parliament for it to be valid and of full effect.

The recent announcement that Parliament will be convening on the 18^th of May for a 1 day sitting where motions will not be debated is of grave concern as the likelihood of a temporary measures provision gets pushed back further without any certainty.

CONCLUSION

Change is a necessity. The floodgates of personal insolvency are impending, and it is the government’s role to take the necessary steps to ensure individuals facing difficult financial predicaments are protected and not have their miseries compounded.