Higher bankruptcy threshold should be temporary

While a positive measure to ensure individuals don’t fall bankrupt in trying times, the amendments need to have a sunset clause

by NUR HANANI AZMAN/ graphic by MZUKRI

THE government is advised to fine-tune the amendments to the legislation on its proposed plan to raise the bankruptcy threshold currently set at RM50,000.

Lawyer Lim Wei Jiet said the government can ensure the increase of the bankruptcy threshold limit would have a sunset clause, or in other words a deadline, and acts as a temporary measure to alleviate the financial burden caused by the Covid-19 pandemic.

“This ensures that this protection is only temporary to weather the Covid-19 economic fallout and does not become a permanent fixture in our bankruptcy laws.

“Otherwise, it may be monumentally difficult for creditors from ever opting for bankruptcy to enforce their debts in future, which would lead to other dire economic consequences,” he told The Malaysian Reserve (TMR).

A bill to amend the Insolvency Act 1967 and double the minimum debt threshold for bankruptcy to RM100,000 was recently tabled for its first reading at the Dewan Rakyat. The minimum threshold was last increased from RM30,000 to the current amount in 2017.

Law Minister Datuk Takiyuddin Hassan said the ministry is conducting studies by comparing several legislations practised in countries such as the UK, Singapore and India.

Lim noted it is a positive measure by the government to ensure individuals do not fall into bankruptcy in these very trying economic times.

“As we all know, a bankruptcy affects a person’s life in very deleterious ways, especially when it comes to applying for loans, credit score and others.

“Often these effects are irreversible and may plunge an already struggling individual into a deeper financial abyss,” he explained.

That being said, the new threshold may make it harder for creditors to pursue their debts against individuals because it would be more difficult to file for bankruptcy.

“There are, however, many other legal ways to enforce a debt against an individual such as a writ of possession, writ of seizure and sale.

“Therefore, in my view, while we cannot satisfy all parties, the positive impact of raising the threshold of bankruptcy outweighs the disadvantages.”

Putra Business School economist Dr Ahmed Razman Abdul Latiff said it is vital for the government to raise the minimum debt threshold for bankruptcy to RM100,000 based on current situation faced by the country.

Should the current threshold remain, he feels more people will be declared bankrupt especially in light of the high unemployment rate and losses suffered by many businesses.

“By increasing the threshold, it gives more room and time for these individuals to recover from their financial difficulties.

“However, this move will mask the true situation on the ground with respect to the number of people who are facing dire financial conditions and are on the verge of bankruptcy,” he told TMR.

Rising the threshold will delay the efforts to help these individuals towards financial independence as they could already be suffering greatly in terms of their financial commitments even when the debt has yet to reach the RM100,000 ceiling, Ahmad Razman said.

“Therefore, even though the amendments on the Act will increase the minimum debt threshold and help reduce the number of bankrupts in the country, greater effort should be taken by government agencies.

“The Credit Counselling and Debt Management Agency and Jabatan Insolvensi Malaysia, for example, should start assisting and helping any individual facing financial problems, even when they have yet to be declared bankrupts.”