Saturday, January 11, 2014

1103) RAKYAT NEWS 10/1/2014 BANKRUPTCY LAW TOO STRINGENT AND OUTDATE...WASTING HUMAN CAPITAL


KUALA LUMPUR -- Every financial decision Mohd Samran (not his real name) ever made had been well-scrutinised. He believed in avoiding the pitfalls of accumulated debts.

Although he held a high position in a company, he was frugal in his spending. He did not believe in spending outside his means.

However, despite his cautious financial habits and thrifty lifestyle he was declared bankrupt six years ago.

It was all due to his becoming a guarantor to his nephew's wife, who failed to service her loan.

Another victim of similar circumstances was Fakhrul (not his real name). He had been cheated by his business partner and was declared bankrupt as a result.


Both victims have now found themselves bound and shackled by bankruptcy at a young age - not because of irresponsible spending, but because they had misplaced their trust.

NO GOOD DEED GOES UNPUNISHED

What happened to Mohd Samran and Fakhrul are only among the many cases of fraud and good intentions gone awry that lead victims into the black hole of bankruptcy.

Borrowers who fail to service their loan often land their guarantors in hot soup.

Many may blame the victim for taking the risk of becoming a guarantor in the first place. However, the situation is not always clear-cut. The victim may have been emotionally blackmailed into the position due to kinship or prior agreements.

Whatever the reasons may be, becoming social guarantors is a serious gamble for many people.

Social guarantors make up the fifth highest number of people declared bankrupt in Malaysia, as 5,781 of the 116,488 declared bankrupts based on records from 2007 to September 2013.

It is a raw deal for these people who have to unfairly carry the burden of debt of another.

GOVERNMENT HELP

The Prime Minister Datuk Seri Najib Tun Razak acknowledged their situation during his winding up speech on the last day of the 2012 Umno General Assembly.

He said the government would come up with a new legislation because the current bankruptcy laws were deemed too strict.

"We will find ways to help the affected individuals but not all of them as some owe millions. We will help where we can.

"Sometimes they are declared bankrupt through no fault of their own, but by becoming guarantors," Najib was quoted as saying in a news report.

Other causes of bankruptcy are vehicle hire-purchase (26.14 percent), housing loans (17.62 percent), personal loans (15.5 percent) and business loans (12.39 percent).

STIGMA

Life as a bankrupt is no bed of roses. In addition to social stigma, they are also denied of many facilities and privileges.

"A bankrupt can lose his right to do many things, such as becoming a member of Parliament.

"They would also be prevented from leaving the country, except with the permission of the Insolvency Director General," said Lim Kui Lee, the Insolvency Director of the Bankruptcy Division, to Bernama.

Information on the Malaysia Department of Insolvency website revealed that all of the assets and properties of the bankrupt will be vested upon the Insolvency Director General, as stipulated under section 24 (4) of the Bankruptcy Act 1967.

Once a person is declared bankrupt, his/her existing account would be deactivated. However, the person may open a new account or continue using his existing account for reasons such as crediting salaries with the permission of the Insolvency Director General.

Bankrupts are also barred from working in the company belonging to a spouse, children or relative or enter into any business alone or in partnership without the permission of the Insolvency Director General or the court.

THE NEED FOR A NEW ACT

The implications of bankruptcy on a person could be severely unjust, especially if they were victims of circumstances.

Cognisant of this, the Malaysian Muslim Consumers Association (PPIM) formed the Bankruptcy-Free Secretariat to help those declared bankrupt due to technicalities, scams or due to being social guarantors.

The secretariat chairman Datuk Sohaimi Shahadan said there was a need to review the Bankruptcy Act 1967 as many of the laws were now seen as irrelevant.

Under the current act, victims of fraud where their signatures are forged or identity cards stolen, could also find themselves bankrupt.

In light of that, the secretariat came up with several proposals to be forwarded to the government in overhauling the law.

This includes doing away with the guarantor system in all loans and allowing for current guarantors to withdraw themselves from the contract.

AUTOMATIC DISCHARGE

The Bankruptcy Act 1967 is currently under legal reform to allow for easier discharge of bankrupts.

Minister in the Prime Minister's Department Nancy Shukri was quoted as saying that the draft of the bankruptcy bill has been forwarded to the Attorney General's Chambers.

"The Bankruptcy Act 1967 is too outdated and will be replaced with a new act which will include, among others, automatic discharge of bankrupts.

"As for the allowance for discharge, among the allowances proposed is for automatic discharge after a case has been adjudged, in a specified period of time," she said.

Based on the current act, there are three ways a bankrupt can be released from bankruptcy status, which is by discharge through a court order, with a discharge certificate from the Insolvency Director General or by annulment through a court order.

"We ask for those who fulfill the set criteria and are consistent in their monthly payment to the department to be discharged automatically after three years. This would help young bankrupts, such as entrepreneurs, get a second chance," said Sohaimi.

The current act is deemed too stringent as an individual can be declared a bankrupt if his debt reaches RM30,000. The secretariat is proposing that the bankruptcy threshold to be raised to at least RM100,000, he said.


The new act is a much-anticipated one for some 251,209 bankrupts (data from 1924 to September 2013), as its implications would understandably be life-changing

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