Introduction
Bankruptcy proceedings in Malaysia, including Sarawak, are governed by the Insolvency Act 1967 and the Insolvency Rules 2017. When a debtor fails to settle debts amounting to RM100,000.00 or more, a creditor may initiate bankruptcy action to recover the outstanding sum. This guide outlines the step-by-step process for filing and enforcing bankruptcy actions in Sarawak.
Step-by-step procedures
Step 1: Assessing the Debt and Eligibility for Bankruptcy Proceedings
Before filing for bankruptcy against a debtor, the creditor must ensure that:
- The debt owed is at least RM100,000.00.
- The debt is not secured by collateral (or if secured, the shortfall after realizing the security is at least RM100,000.00).
- The debtor is unable to pay the debt despite demands.
Step 2: Issuing a Bankruptcy Notice
If the debtor has failed to settle the outstanding debt, the creditor must issue a Bankruptcy Notice as a final demand before initiating bankruptcy proceedings.
Requirements for a Bankruptcy Notice:
- The notice must be based on a final judgment or order obtained from a court.
- The debtor is given seven (7) days to respond.
- The notice must be personally served on the debtor, or substituted service must be applied if the debtor cannot be found.
- Failure to comply with the notice allows the creditor to proceed with a bankruptcy petition.
Step 3: Filing a Bankruptcy Petition
If the debtor does not settle the debt within seven (7) days, the creditor can proceed with filing a Bankruptcy Petition at the High Court of Sarawak. The petition should include:
- The amount of debt and proof of non-payment
- A sworn Affidavit in Support detailing the debtor’s inability to pay
- A request for the court to adjudicate the debtor as a bankrupt
A filing fee must be paid, and a hearing date will be set by the court.
Step 4: Serving the Bankruptcy Petition on the Debtor
The petition must be personally served to the debtor. If personal service is not possible, the creditor may apply for substituted service, which allows the documents to be served via newspaper advertisements, email, or court-approved methods.
The debtor must respond before the hearing date or risk being declared bankrupt in their absence.
Step 5: Court Hearing and Adjudication of Bankruptcy
At the hearing, the court will examine the creditor’s claims and the debtor’s financial position.
Possible outcomes include:
- Debtor Settles the Debt – The case is dismissed.
- Court Grants a Restraining Order – The debtor may seek to delay proceedings for settlement negotiations.
- Bankruptcy Order Issued – If the court is satisfied that the debtor is unable to pay, a Bankruptcy Order is made.
Once declared bankrupt, the Director General of Insolvency (DGI) of Sarawak will take control of the debtor’s assets and financial affairs.
Step 6: Enforcement of Bankruptcy Order
Once a Bankruptcy Order is issued, enforcement actions include:
- Appointment of the Director General of Insolvency (DGI)
The DGI takes over the debtor’s financial affairs and investigates assets to repay creditors.
2. Freezing and Realization of Assets
The DGI has the power to:
- Freeze and manage the debtor’s bank accounts
- Sell the debtor’s properties and assets
- Collect outstanding receivables owed to the debtor
3. Restrictions on the Bankrupt
A bankrupt individual faces legal restrictions, including:
- Prohibition from leaving Malaysia without written approval from the DGI.
- Restrictions on borrowing more than RM1,000.00 without informing lenders of bankruptcy status.
- Inability to act as a director of a company or hold certain public offices.
Step 7: Discharge from Bankruptcy
A bankrupt can be discharged from bankruptcy through:
1. Automatic Discharge
Under the amendments to the Insolvency Act 1967, a bankrupt may be automatically discharged after 3 years, provided:
- They have cooperated with the DGI.
- They have met the repayment requirements set by the DGI.
2. Court Application for Discharge
A bankrupt may also apply to the High Court for an early discharge, subject to court approval.
3. DGI’s Discretionary Discharge
The DGI may release a bankrupt under exceptional circumstances, particularly for hardship cases.
Conclusion
The bankruptcy process in Sarawak follows the same general framework as the rest of Malaysia, with proceedings handled by the High Court of Sarawak and enforced by the Director General of Insolvency (DGI). Creditors should ensure compliance with procedural steps, while debtors facing bankruptcy should seek legal assistance to explore settlement options or discharge procedures.
