Should Bankruptcy Threshold Be Reviewed?

The bankruptcy threshold is to be reviewed amid the high number of such cases, especially among youths, says the Prime Minister. The Government had raised the bankruptcy threshold at the start of the Covid-19 pandemic. The threshold was raised from RM50,000 to RM100,000. The increase was aimed at strengthening the economy while allowing individuals to better manage their finances during a period of uncertainty due to the pandemic.

According to the Insolvency Department, a staggering 18 people were declared bankrupt every day in the first five months of 2022. The department’s data also showed that between January and May, a total of 2,694 people were declared bankrupt, bringing the number of bankruptcies in the country to 274,628. (It was 287,411 in another press report.)

Source:https://www.nst.com.my

Nearly 60 per cent of the 46,132 Malaysians who declared bankruptcy from 2018 to May 2022 were aged between 25 and 44, according to the latest data from the Insolvency Department.

The official data also showed that nearly 42 per cent of those who declared bankruptcy in the last four-and-a-half years cited personal loans as a factor leading to bankruptcy, followed by nearly 15 per cent who listed vehicle purchase as a factor, and more than 13 per cent declaring bankruptcy because of a business loan.

Data from the Insolvency Department also showed a steady decrease in the number of bankrupts over the years. Those filing for bankruptcy totalled 16,482 in 2018; which fell to 12,051 in 2019; 8,351 in 2020; and 6,554 last year.

But the decrease could be attributed to the amendment in the Insolvency Act in 2020 which raised the bankruptcy threshold to RM100,000.

The highest number of bankruptcy declarations up to May 2022 comes from Selangor with 72,608 cases, followed by the three Federal Territories of Kuala Lumpur, Putrajaya and Labuan combined (46,876) and Johor (32,441).

If we increase it to RM150,000 and the situation does not improve, should we increase it to RM200,000? We need better solution than that! Moving the goal post is not a solution. More job opportunities, control of inflation and improving financial education are possibilities to reduce bankruptcies.

If moving the goal post is the answer, then we could change the CPI/food inflation index, GDP computation, NPL treatment and a whole host of other things so the results do look good. Isn’t that a false sense of confidence and an assault on integrity? 

 

References:

Review on bankruptcy threshold, Rahimy Rahim, The Star, 27 June 2022

Raising bankruptcy threshold is ‘data manipulation’, many still in financial straits, say financial experts, Aliza Shah, The Star, 15 July 2022

Insolvency Dept data shows 60pc bankrupts between age 25-44; personal loan is top reason, The Malay Mail, Zarrah Morden, 23 June 2022