Tahniah to the Minister of Finance on taking the bold moves:
1. to release approximately 130,000 ordinary Malaysians with debts of less than RM50,000 from bankruptcy on March 1, 2023, and
2. to amend the Insolvency Act 1967 to release bankrupts automatically
On 26 Feb 2023, Azalina further clarified that 3 categories of bankrupts can now apply to the insolvency department to have their bankruptcy status lifted,
1. bankrupts with total debts of less than RM50,000,
2. cases where the declaration of bankruptcy had passed the five-year period from the date of the adjudication and receiving orders, and
3. bankrupts who have no court orders, court proceedings or investigative proceedings being conducted against them under the Insolvency Act.
During the announcement of the 2017 Budget, the then 6th Prime Minister said that the Bankruptcy Act 1967 would be amended in 2017.
The proposed amendments includes:-
1. Scholarship guarantors and others certified with chronic diseases as well as the elderly
2. Absolute protection for social guarantors from bankruptcy proceedings
3. Automatic discharge after 3 years of bankruptcy in certain circumstances
4. Raising the minimum debt needed to be declared bankrupt from RM30,000.00 to RM50,000.00
The present Minister was also the then Minister in the Prime Minister’s Department said the aim of the amendments is 2 fold:-
(a) to minimize the number of people being made bankrupt; and
(b) to allow bankrupts to have a “second chance” at life and business.
Yes, creditors are upset because they are owed money by these bankrupts previously. Despite demands and the debts remaining unpaid, it is natural that the creditors will pursue recovery of their debts through legal means.
Generally, the creditors knows that a lawsuit can be expensive regardless of the sums owed, and may cost more time and energy than expected. Creditors always consider the amount of debt owed to them and weigh it against the potential costs to recover the debt. For some such as where the prospect for recovery is extremely low, it may not be worth spending money to pursue the claim.
In fact, there is no benefit nor is it beneficial for the creditors to continue to incur additional legal costs solely by petitioning to bankrupt the individuals. Creditors generally will not pursue any further action against the individual debtors at that stage i.e the maximum action they will pursue is up to obtaining and enforcing the court judgment against the individual and if it still doesn’t result in any payment by the individuals, they will stop all actions.
So why does the creditors petitioned to have an individual declared a bankrupt when they know there is zero possibility that the debts owing to them by the individual will never be repaid either in part or in full?
Creditors generally petitioned to have the individual declared a bankrupt mainly for tax reasons i.e they want to claim deductions on waiver of debts on their tax returns from the Lembaga Hasil Dalam Negeri (LHDN).
In reality, if not for the need to show LHDN that the debt is irrecoverable for them to claim for a waiver from LHDN, majority of the creditors will not incur additional costs to engage a lawyer to bankrupt an individual especially when the debts are not secured.
Petitioning to bankrupt an individual or to wind up a company is an expensive legal affair.
LHDN scrutinize in details all claims for deductions by tax payers / creditors and the business decisions made by them for a waiver of the bad debts from their tax filing.
Under Section 34 of the Income Tax Act 1967 (Act), a taxpayer i.e the creditor has to satisfy two conditions in order to qualify for a waiver related tax deduction:
(a) 1stly, the debt is reasonably estimated to be irrecoverable; and
(b) 2ndly, it was previously treated as a gross income of the taxpayer.
In order for LHDN to determine the debt is reasonably estimated to be irrecoverable, they will take cognizance of whether reasonable efforts were made by the tax payers / creditors to recover the debt including whether legal action was initiated in a timely manner and not like few years from the time the debt remains outstanding as proof of their bona fide intention and genuine efforts to recover the debt. This includes issuing reminder notices, having a debt restructuring scheme, or if the debtor is bankrupt / wound up.
It is inadequate for the tax payers / creditors who wished to seek a waiver for writing off the bad debts to simply assert that it is pessimistic about the prospects of debt recovery from their debtors. Where tax payers / creditors can demonstrate genuine effort to recover the debts owing to them have been taken, the likelihood of them successfully claiming a deduction from LHDN increases.
Bankruptcy is more than just an inconvenience as bankrupts are not allowed to travel, are disqualified from being directors, and can only open a bank account with the approval of the Insolvency Department, for example.
In my opinion, the decision announced during the Budget 2023 presentation on 24 Feb 2023 is not really a fully helpful solution.
Does the government, in all honesty, really believe that a bankrupt can really repay even 10% of the debts owing by them to the creditors for their remaining lives when they can’t even get a job with a decent pay that is sufficient to pay for their household expenses? The monthly repayment agreed by them with the Insolvency Department is insufficient to even pay for the administrative charges of the office of the Insolvency Department let alone to repay the creditors.
In fact, if there is any returns or repayment from the debtors after they have claimed for deductions, these creditors / taxpayers has to submit and report to LHDN the repayments received as extraordinary income for which they need to pay taxes for.
Given the above reasons alone, why deprived the bankrupts from having a 2nd chance at life and business by still insisting that they must fulfil certain conditions before they are automatically discharged?
Yes, it was a good decision to release all those, approximately 130,000 ordinary Malaysians with debts of less than RM50,000 immediately. But for those who has been adjudged and declared a bankrupt for more than 5 years, regardless of the amounts they owed to the creditors, they should also be given an automatic discharge too.
5 years is punishment enough.
Insisting they continued with their bankrupt status is not going to help the creditors one single bit. In fact, the bankrupt individual and his family are the ones that will bear the burden and the suffering for another 10 years.
Offering them an automatic release for reasons of old age or health is no consolation. It only push them to the brink as in both cases, they need to incur additional costs in terms of medical fees and caregiving for themselves, something which they will not have as they were deprived of earning a decent job due to their bankrupt status in the preceding years.
The laws governing bankrupts are worse and more punitive on the individuals than those who committed white collar crimes like those purveyors of get rich quick schemes.
Bankrupts did not cheat or caused the loss of collapse of the business of the creditors unlike other crimes.
For other crimes, including those that were sentenced to life imprisonment, their punishment has a finite life. If good behavior and public holidays are included, they can return to society within a predetermined time. But for a bankrupt, they won’t know nor do they have an idea when their ‘punishment’ will end. It could continue until they reached 70 or certified to be of ill health by a government doctor before they are released, if the proposal under the new budget is implemented.
Creditors might argue that if bankrupts are given an automatic discharge, regardless of the amount owed within a fixed period, it will only encourage more individuals to be delinquent and not honor their debt obligations as they knew that they could get off automatically within a fixed period.
These individuals did not start off on the premise that they want to be a bankrupt even though it is only for a fixed period before they are discharged automatically.
And creditors themselves should also shoulder and take part of the responsibilities. If not for their greed, they would not have provided or extended the credit i.e loans or sales to the individuals. They should have understood and evaluated the risks of the borrowing individuals prior first.
The individuals did not force or conned these creditors into giving them loans or extended credit. It was always a willing buyer willing seller situation. But when the individual defaulted on the repayment, the creditors were merciless and want to punish the individuals to the maximum.
By doing so, they are depriving the country of its valuable resources too. These bankrupts would not be able to contribute to the country effectively anymore. They did not cheat, steal or rob the country of its resources.
So please consider granting an automatic discharge too for those who has been adjudged and declared a bankrupt for more than 5 years as at end of 2022 regardless of the debts owing by them to their creditors.
As a caveat, the automatic discharge is not applicable if they are adjudged a bankrupt the 2nd time after they are released from being a bankrupt earlier.
5 years is punishment enough. It is inhumane to punish a bankrupt for an infinite period.
Even though their actions are not criminal in nature and they are not jailed as compared to those who were jailed for their actions, life for a bankrupt is not any better and possibly worse. Give them a 2nd chance as the Minister in the Prime Minister’s Department said in 2 separate occasions albeit 6 years apart.
Bankrupts are not contagious.
Each of the individuals who are bankrupt now can still contribute positively to the development of this country.
If they are given a 2nd chance, they can immerse themselves bank into society and become a tax paying citizen and contribute towards the productivity the country. They can also add and contribute to the market consumption as they will be spending on food and beverages and other consumables, which they are unable to do so presently due to their restricted status.
Once released, the former bankrupts could be pursuing better jobs or business prospects, opportunities which they are deprived of previously due to their status as a bankrupt.
And resulting from that the country can enlarge their tax base from the contribution from these former bankrupts.
If the government did not even bankrupt any of the Felda settlers who owed the government in excess of RM8 billion but allowed them to restructure their debts and continued, why are the creditors in the private sector and certain government agencies so vindictive as to object to an automatic discharge for those who were bankrupted for more than 5 years regardless of the amount owing if there is a recommendation for it?
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