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PETALING JAYA: The Covid-19 pandemic has caused large-scale business losses and closures, leading to many entrepreneurs losing the shirt off their back.
In just the first four months of this year, a total of 2,954 debtors have already been declared bankrupt.
The number would have been higher if not for the many financial packages introduced by the government to cushion the blow on businesses, but according to economists these rescue packages were merely a band aid.
Sunway University economist Dr Yeah Kim Leng had pointed out earlier that initiatives such as the loan moratorium only delayed the inevitable for many businesses.
“The moratorium only defers loan repayment to help financially troubled borrowers avoid bankruptcy. Once it is lifted, the loans will still have to be serviced, and there are bound to be more bankruptcies,” he said.
The number of bankruptcies in Malaysia has been on the decline since 2016. That year, 19,588 cases were reported. In 2019, the number of new bankruptcies dropped to 12,051.
Even in 2020, when the Covid-19 pandemic and the subsequent economic fallout that led to widespread business closures, the number continued to drop to just 8,351.
Lawyer Kevin Wu said several legislative steps taken recently have also helped to stem a drastic increase in the number of bankruptcies.
He said an amendment to the Insolvency Act 1967 that was passed last year raised the threshold for filing a bankruptcy petition from RM50,000 to RM100,000.
But even before the amendment was passed in October last year, the threshold had already been raised under the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (Covid-19) Act 2020, which was enacted in August last year but took effect only on March 18.
“Since the amendment was put in place, the increase in the number of bankruptcies has eased,” Wu told theSun.
He said that under the Insolvency (Amendment) Act 2020, a creditor must ascertain that his debtor owes RM100,000 or more before filing a bankruptcy petition.
However, several debtors may file a joint petition if the total amount owed to them is not less than RM100,000.
Once a person has been declared a bankrupt, his assets are immediately liquidated and the proceeds are paid to the creditor.
The director-general of insolvency is in charge of liquidating a bankrupt’s assets and distributing the proceeds to the creditors upon submission of a valid proof of debt to the Insolvency Department.
Certain requirements must be met before a person can be declared a bankrupt. For instance, the debtor has to be a Malaysian citizen.
A bankrupt is barred from holding elected or public office positions in statutory bodies and registered societies or organisations.
He/She is also not allowed to practise certain professions such as a lawyer, accountant, liquidator or quantity surveyor.
Neither are they allowed to leave Malaysia without the permission of the Insolvency Department or the court.
While full payment of the debt is a way to be discharged from bankruptcy, there are occasions when a person can be freed of the status without meeting all the obligations first. There are certain advantages to be declared a bankrupt, Wu said.
For a start, a court can put a stop to all pending legal action, execution or other legal procedures against the debtor’s property or person once he is declared a bankrupt.
When a bankruptcy order has been issued, no further legal action can be taken against the debtor by any creditor.
Source: https://www.thesundaily.my/local/lack-of-business-closures-causing-many-to-go-bankrupt-XX8275321