What is a Voluntary Arrangement (VA)?
One prominent change under the revised Insolvency Act 1967 (Act 260) (“the Act”) can be seen in the introduction of a pre-bankruptcy rescue mechanism known as voluntary arrangement. Section 2A of the Act defines voluntary arrangement as-
“composition in satisfaction of a debtor’s debt or a scheme of arrangement of a debtor’s affairs”.
In simpler words, it is basically a rescue mechanism that is devised to give debtors an opportunity to negotiate a plan to repay outstanding debts with their creditors. It serves as ‘second chance’ to debtors before being adjudged bankrupt.
Though, it is important to note that Section 2B of the same Act provides that the voluntary arrangement mechanism does not apply to an undischarged bankruptcy or a limited liability partnership.
Procedure For Voluntary Arrangement
The procedure for voluntary agreement is laid out in both the Act and the Insolvency (Voluntary Agreement) Rules 2017 (P.U. (A) 304/ 2017) (“VA Rules 2017”).
The infographic below highlights the VA procedure in a simple manner:
1. Appointment of a Nominee
According to Section 2C(2)(a) of the Act, the first step that shall be taken by a debtor who intends to propose a voluntary arrangement is to appoint a Nominee to either act in relation to the voluntary arrangement or to supervise the implementation of said voluntary arrangement (“Nominee”).
The Nominee may be a registered chartered accountant, an advocate and solicitor or any other persons determined by the Director General of Insolvency (DGI). The list of registered Nominees under the Act can be accessed through the Official Portal of the Malaysian Department of Insolvency (http://www.mdi.gov.my/index.php/public / http://www.mdi.gov.my/images/documents/registerednominee.pdf).
2. Application for Interim Order
Next, Section 2C(2)B of the same Act provides that a debtor who intends to propose a voluntary arrangement shall make an application to the court for an interim order and submit a copy of the same application to the DGI. Such interim order will basically grant the debtor protection in which no bankruptcy petition and no legal proceedings may be made against him.
Rule 7 of the VA Rules 2017 lays down that such interim order must be made through a summons in chambers, found in Form 4 and supported by an affidavit found in Form 5 of the VA Rules 2017. A copy of form 3, a list of the debtor’s creditors, the estimated amount of debt and a copy of Nominee’s consent form shall also be exhibited in the affidavit.
3. Interim Order
Upon receiving the application for the interim order, the court shall make an interim order for voluntary arrangement if the court is satisfied that-
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- The debtor has not filed such an application within the last 12 months prior to the present application; and
- The appointed Nominee is willing to act in relation to the proposal.
- The interim order shall then be valid for a period of ninety days (90 days) from the date the order is made and cannot be extended. The High Court in the case of Re Lim Cheng Pow; v ex parte Maybank Investment Bank Bhd & Anor [2021] 8 MLJ 517 further reaffirmed this, where it was held that there must be meticulous compliance with the law more so in regards to the interim order made under Section 2 of the Act, where the limited time of 90 days shall not be extended pursuant to Section 2D(3) of the Act.
The debtor is then required to notify the Nominee regarding the commencement of the interim order within 7 days from the date the order is made. Next, within 7 days after such notification, the Nominee shall notify all of the debtor’s creditors regarding the commencement of the interim order.
To add, due to the interim order, no bankruptcy petition may be made or proceeded with against the debtor and no other proceedings, execution or other legal process may also be commenced or continued against the debtor within the 90-day period without the court’s permission.
4. Debtor’s Proposal
Once the interim order has been made and before the Nominee may summon the Meeting of Creditors, Section 2I(2) of the Act provides that the debtor must first submit a statement of his affairs which contains the particulars of his assets, creditors, debts, other liabilities as well as such other information as may be prescribed to the Nominee. The reason being, is to enable the Nominee to prepare the debtor’s proposal. To add, if the debtor is a firm, a statement on the particulars of the firm as well as each of its partner(s) must be submitted to the Nominee. Similarly, such statement must include the assets, creditors, debts, other liabilities and other information as may be prescribed by both; the firm and its partner(s).
5. Meeting of Creditors
Next, as according to Section 2I(1) of the Act, the Nominee must also summon the debtor’s creditor(s) to a meeting to approve the debtor’s proposal for a voluntary arrangement, within the 90-day period (“Meeting of Creditors”).
The Nominee must secure the creditors approval by way of special resolution, which is a resolution that is decided by a majority in number and at least 3/4 in value of the creditors who are present.
However, this Meeting of Creditors shall not affect the rights of secured creditors without their consent. Debtors should also take note that any false representation or fraud in obtaining his creditors’ approval to a proposal for a voluntary arrangement is an offence that is punishable by imprisonment not exceeding 2 years or a fine not exceeding RM5,000 or both.
6. Report of Decisions to Court
After the conclusion of the Meeting of Creditors, the Nominee shall report the decision of the meeting to the court and serve a copy of the report containing the terms of the voluntary arrangement under the seal of the court to the debtor and creditors.
Once the proposed voluntary arrangement is approved, it shall bind every person who had notice of and was entitled to vote at the Meeting of Creditors, regardless of whether such person was present or represented at the meeting.
Furthermore, the duty to supervise the implementation of the voluntary arrangement falls upon the Nominee. If the debtor or creditors are dissatisfied by any act, omissions or decisions of the Nominee in said duty, the debtor or creditor may apply to the court to review such act, omission or decision. It is also important to know that if the Meeting of Creditors has declined to approve the debtor’s proposal, the court may set aside any interim order which is in force in relation to the debtor. Lastly, if a debtor fails to comply with his obligations under a voluntary arrangement as approved by the court, any creditor bound by the voluntary arrangement may file a bankruptcy petition against the debtor.
To conclude, entering into a voluntary arrangement is a valid option if you are ever in the brink of facing bankruptcy, where your debts are piling and you need to restructure it. With the right action and planning, you can manage your debts with confidence and avoid financial ruin.
Prepared by,
Misyail binti Othman
Adlina Helwany binti Azizul Rahman (Intern UKM, 2021)
Messrs. Misyail Othman & Co
