The increasing number of bankrupts actually stem from the fact that banks are lacking in good governance, says an economist.
The period of time to discharge a bankrupt also plays a role on keeping down the number of bankrupts.
To date, some 285,048 people were declared bankrupt up to June 2016, where domestic household debt at over 85% was one of the highest in the world.
Does Bang Negara Malaysia not have a good monitoring system that could have prevented this ‘phenomenon’, hence could have prevented debtors heading to the road of bankruptcy?
It was, however, reported recently that the government is considering to make improvements to the Bankruptcy Act 1967 (Act 360).
The Insolvency Department (MDI) stated that it was looking into matters related to the guarantor and the borrower.
While it is a good move by the government placing the guarantors’ burden as priority, its announcement on the consideration to reduce the discharge period of individuals who were declared bankrupt may just worsen the bankruptcy numbers in the country.
Before making a move to reduce the discharge period of bankrupt individuals, the government should perhaps tighten rules on loan creditors.
According to economist and Director of the Asean Strategy and Leadership Institute (ASLI), Tan Sri Ramon Navaratnam, good governance was indeed lacking.
“Otherwise the banks would not have loaned out so much or issued so many credit cards, and the individuals who take up these loans would have better financial guidance before committing to something which is out of their means,” he says.
Ramon who is also the chairman for Centre of Public Policy Studies says more studies need to be conducted before making such a decision as to reduce the years of a bankrupt’s ‘penalty’.
“What is the best practice around the world at the moment? The government needs to draw the line to those.
“If it is three years for Australia, then the government should study if it could work the same here,” says Ramon.
Currently in Australia, it takes three years for a bankrupt to be discharged.
There are however proposals and debates over reducing the period to a year, but has yet to see its government’s approval.
“They may be applying for that, but I don’t think Malaysia should even consider that. One year is definitely too short.
“If it is one year, I might as well consider becoming a bankrupt. It will be so easy for Malaysians to get away from debts.
“The current five years is a reasonable penalty to rehabilitate a bankrupt. It takes time for one to realise his financial mismanagement, and it is a fair punishment for negligence,” he adds.
Meanwhile, critics consider the five year period too long and that the Bankruptcy Act 1967 is ’archaic’ because it denies individual bankrupts a second chance to redeem themselves.
Under the Bankruptcy Act, there is no automatic discharge.
A bankrupt may pay off his debts consistently over a number of years and would still have to apply to the courts or director-general of Insolvency to annul his bankruptcy status or seek a discharge.
In the words of the Insolvency Department “only bankrupts with good conduct can be considered for a discharge”.
This covers, among others, cooperative behaviour, regular payments, submission of income and expenditure statements every six months, and compliance with restrictions outlined under section 38 of Bankruptcy Act 1967.
The discretionary power of the Director-General is absolute.
As a bankrupt, one is not allowed to have a bank account, have no right to run a business, nor permitted to accumulate any assets.
Even if an individual decides to run a business, he cannot receive payments while cheques have to be made in the name of proxies and there were some creative accounting and transfer of assets.
In other words, the system encourages you to cheat. One can hide as much assets as possible and if the individual earns anything, he can avoid any taxes.
“In cases of individuals who end up as bankrupts of circumstances, say one loses his job and is not able to pay his housing loan, this is a case where the individuals has overlooked the risks that surround him.
“He cannot assume that he would not run out of employment in the period of his loan repayment. You also cannot expect to build a castle at the very beginning of employment. Cut your coat according to your clothes.
“The government should also practise good discretionary values, whether or not it is a situation beyond an individual’s control or if there are evidence of poor financial governance,” Ramon adds.
Soo Wern Jun