Bankruptcy in Malaysia. How much unpaid debt before one is declared a bankrupt?

Recently, I read this news article in “Tengku Razaleigh claims bankruptcy levels rising due to Covid-19 pandemic.” Former finance minister Tengku Razaleigh Hamzah today urged the government to take the socio-economic impact of the Covid-19 pandemic seriously. He said, “I have recently received news that the bankruptcy cases have increased from hundreds to 100,000.” Do read the article for more of what he shared yeah.

Let’s run through some facts about bankruptcy yeah. The below information comes from Malaysia Department of Insolvency as at 29th June 2021. Click here to read a lot more from their website.

What is personal bankruptcy?

Bankruptcy is a process where a debtor is declared a bankrupt pursuant to an Adjudication Order made by the High Court against the debtor if he is unable to pay his debts of at least RM50,000.00.

Who is a debtor?

A debtor is a person subject to the bankruptcy jurisdiction of the court within the definition of section 3(3) of the Insolvency Act 1967, and at the time the act of bankruptcy is committed:

  • Was personally present in Malaysia; or
  • Ordinarily resided or had a place of residence in Malaysia; or
  • Was carrying on business in Malaysia either personally or by means of an agent; or
  • Was a member of a firm of partnership which was carrying on business in Malaysia.

How a person can be made bankrupt?

The High Court makes a Receiving Order and Adjudication Order after a bankruptcy petition has been presented. It is usually presented either:

By creditor’s petition.

A creditor’s petition may be presented only upon the commission of an act of insolvency (section 3(1) of the Insolvency Act 1967) by the debtor which must have taken place within six months prior to the presentation. No creditor can present a bankruptcy petition against him unless the debtor:

  1. Is domiciled in Malaysia; or
  2. Within one year before the date of the presentation of the petition has:
    • Ordinarily resided in Malaysia; or
    • Had a dwelling house in Malaysia; or
    • Had a place of business in Malaysia; or
    • Carried on business in Malaysia personally or by means of an agent; or
    • Is, or has been within one year before the date of the presentation of the petition, a member of a firm or partnership which has carried on business in Malaysia by means of a partner or partners or an agent or manager.

To present a creditor’s petition the debtor must be owing the petitioning creditor a debt of not less than RM50,000.00.

By debtor’s petition.

A debtor’s petition is by itself an act of bankruptcy. The debtor’s petition is presented by the debtor to make himself a bankrupt in order to protect himself from his creditors’ claim that he knows he cannot satisfy. Unlike the creditor’s petition, there is no requirement that a minimum amount of debt must be owed before a debtor’s petition can be presented. After its presentation, a debtor’s petition cannot be withdrawn without the leave of the court.

The petition (Form 3 of Insolvency Rules 1969) is to be filed at the court of the State in which the debtor resides. Prior to the filing of the debtor’s petition, the debtor must first deposit with the DGI a sum of RM1,500.00 to cover the costs of administering your bankruptcy. The court will not accept the petition for filing unless the receipt of the DGI for the deposit is produced. A sealed copy of the debtor’s petition must then be served on the DGI by post or otherwise. On the hearing of the debtor’s petition, the Court will make a Receiving Order as well as an Adjudication Order. However, if you are absent at the hearing, the petition may be dismissed.

Please note that bankruptcy is a serious matter and should be considered as a last resort. There are many restrictions imposed on bankrupts such as restriction to go abroad, acting as a director, carrying on business and requirement to contribute to your bankruptcy estate regularly for the benefit of the creditors. You will also have to give up your assets including your home and cars. There is no automatic discharge from bankruptcy in Malaysia. You may be discharged from bankruptcy by the Court or the DGI subject to any creditor’s objection.

— end of information from Department of Involvency, Malaysia —

RM50,000 debt is all it takes to become a bankrupt

For the business owners, this amount is not very significant because the amount they deal with may be much larger than RM50,000. This is why entrepreneur is not a route for everyone. However credit card debts may also be one probable cause too. Many may not have a RM50,000 credit limit for their credit card but when it comes to many credit cards, then it’s probable. Remember, once we overspend and it’s all on credit cards, climbing back up the debt hole is likely to be hard. Hopefully, the number of cases do not increase exponentially as reported. Need the actual reports to know if this is truly happening. This was why the article stated that the bankruptcy increase is a claim by Tengku Razaleigh.

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