Raising the threshold in order to prevent bankruptcy is only part of the solution. There has to be an effective mechanism to prevent and rescue people from bankruptcy as well.
Although 13 amendments have already been made to the Insolvency Act, this law as a whole needs an overhaul.
Besides annulment, the “second chance” opportunity of discharge under Sections 33, 33A and 33C of the Act does not differentiate or make any provisions whatsoever for young bankrupts between the ages of 25 and 44.
Furthermore, there is no provision for people who were declared bankrupt prior to 2017.
The second chance for bankrupts to re-start only begins after the person has obtained his discharge under the said Act. Between the time when the bankruptcy order is made and when the bankrupt is discharged, there exists a dark period for him.
During this period, a bankrupt has to pay a fixed monthly instalment into his insolvency estate, have his property sold and pay the dividends to his creditors from his insolvency estate on a pari passu (equal footing) basis.
This dark period may last a long time and would cause real suffering to the bankrupt.
The problem could be overcome by identifying “potential bankrupts” and assisting them in the post adjudication order period. The Credit Counselling and Debt Management Agency (AKPK), which helps individuals to take control of their financial situation, should be given more power to handle this matter. It only has an advisory role now.
Potential bankrupts should be categorised as:
> Middle; and
> Unsustainable (chronic abuser) or bankrupts prior to the amendment of the Act.
AKPK would have to identify potential bankrupts from specific categories like credit card debts, personal loans, car loans and small business loans.
If these individuals begin to accumulate debts and are found to fall under the “sustainable” or “middle” category, AKPK could take charge of their finances and prevent them from being brought to court for judgement and later declared bankrupt.
If a person falls under the “chronic abuser” category or is bankrupt prior to the amendment, he will have to go through the normal process of bankruptcy but should be given a rescue mechanism.
This experience will perhaps teach these individuals to be cautious in their financial matters, but they must be reintegrated into work or business. In this case, the second chance begins during the dark period and not after the discharge from bankruptcy has been obtained.
Under the watchful eyes of the AKPK or a similar agency, and with the consent of the director-general of Insolvency, deserving talented young bankrupts could be given skills training or financial grants to allow them to start small businesses and earn incomes to contribute towards their insolvency estate.
This is a win-win situation for the bankrupts and their creditors.
ARIFF SHAH R.K