Insights

We make our friends; we make our enemies; but God makes our next-door neighbour. - Gilbert K. Chesterton

Interrelationship of Law and Society – The rule of Rylands v Fletcher

As humankind progressed from a nomadic hunter-gatherer existence to an agrarian society, and subsequently, toward an industrialised civilisation, a common feature emerged. We found ourselves living in increasingly close proximity. This led to the concept of “urbanisation”.

With increased human proximity, any actions gone awry have a higher risk of affecting our neighbours adversely. Common examples include dust, noise pollution, fallen trees, or fires-spreading whereas incidents which are less typical may be the escape of water or chemical substances causing floods or pollution.

When something does happen and it affects others, then these inconveniences may be actionable on a case-to-case basis under negligence, nuisance, rule of Rylands v Fletcher, or a combination of any of the above.

One of the main distinguishing factors under the Rylands v Fletcher rule is the requirement for an accumulation of dangerous substance which constitutes an unusual use of land. Once this has been established and there has been foreseeable damage due to the escape of the substance, the liability attributed to the defendant is of a strict nature,[1] i.e., the absence of fault or blame worthiness is immaterial.

Strict or selective liability?

The justification for strict liability was elaborated in the case of inception  ­̶  he who for his own purposes brings unto his lands and keeps there anything likely to do mischief must keep it at his peril.[2] In Rylands v Fletcher, the defendants had employed independent contractors to construct a reservoir on their land. While digging on the lands, the contractors found disused mines that they failed to seal properly. As a result, water flooded through the mineshafts into the plaintiff’s mines on the adjoining property.

As the activities of storage and accumulation of substances caught under the rule of Rylands v Fletcher by themselves are already potentially risky, it is only fair and right that such activities conducted intentionally and deliberately comes with a high price. This is reflected through the assignment of strict liability.[3]

The rule’s reasoning is easily relatable due to empathy towards the innocent victims. However, it is increasingly difficult for the rule to remain operative given the developments in judicial stance and concern that the rule is overly harsh towards defendants who may be similarly blameless.

Firstly, the creation of several defences and exceptions by the judiciary effectively restricts and restrains the applicability of the rule to a certain extent.

Secondly, the adjudication in Cambridge Water Co Ltd v Eastern Counties Leather plc[4] provides that the foreseeability of the type of damage is a prerequisite to liability. This appears to be an attempt to attribute a certain extent of culpability to the rule.

Thirdly, ever since the occurrence of industrial and scientific evolution, lands have been increasingly used for industrial processes. Gone are the days where land was used primarily for agricultural activities and human habitation. Advances in science and technology not only reduced instances of land used for natural purposes, but also mitigated previous reservations on using land for artificial or non-natural purposes.

There is no exception to the rule that every rule has an exception. - James Thurber

Types of Defences

Default of the plaintiff

If the damage is caused by the plaintiff’s own action or wrongdoing, he will not be compensated. In Ponting v Noakes,[5] the plaintiff's horse died after nibbling on some poisonous vegetation near the defendant's boundary. The English court held that the defendant was not liable for the horse’s own intrusion and action. Where the plaintiff is contributorily negligent, however, section 12 of the Civil Law Act 1956 will apply.

Consent of the plaintiff

In Malaysia, where the plaintiff had agreed to the non-natural use of land, he has no right of action unless he is able to prove negligence. This was seen in the case of Sheikh Amin bin Salleh v Chop Hup Seng,[6] which is in line with the English case of Kennard v Cory Bros & Co Ltd.[7]

Implied consent may also be raised if a tenant of the premise, allows the condition of adjoining premises to become such that the likelihood of an escape under the Rylands v Fletcher rule is probable, as decided in the English authority of Kiddle v City Business Properties Ltd.[8]

It is important to note that implied consent cannot be presumed just because the occupied land is situated near or adjacent to a premise where dangerous substances are accumulated on a daily/ordinary basis.[9] Similarly, occupation of a land in proximity to inherently dangerous and unsafe state of affairs or installations does not equate to implied consent.[10]

All of the above are not contradictory as the defence is only available within the context of a tenant-landlord relationship rather than just neighbours or tenants who are renting from the same landlord, as ruled in the case of Humphries v Cousins.[11] Parties who are neighbours are not deemed to have consented to inherently dangerous activities just by way of proximity.

Common benefit

Where the source of the danger is maintained for the common benefit of the plaintiff and the defendant, the rule under Rylands v Fletcher will not be established. This is by analogy similar to the defence of consent.

In the English cases of Carstairs v Taylor[12] and Dunne v North Western Gas Board,[13] the defendants were found to be not liable, subject of course, to the defendants’ non-negligence.

However, commentators no longer regard this as a defence. It is submitted that perhaps common benefit ought to be considered only as a factor in determining whether the plaintiff has consented to the risk of damage. This would eliminate common benefit as an independent defence and include it as an element of consent.[14]

Act of third party

The defendant is not liable where the escape of accumulated substance is due to an unforeseen act of a third party, provided that there is no negligence on the part of the defendant. In the English Court of Appeal case of Perry v Kendricks Transport Ltd, the court held that the basis of the defence is the absence of any control by the defendant over the acts of a stranger on his land.[15]

Notwithstanding that, a cause of action would succeed if the plaintiff could show that the act that caused the escape was one that the owner could have contemplated and taken reasonable precautions against. In Hale v Jenning Brothers,[16] the proprietor of a chair-o-plane was held liable for the escape of a chair caused by a passenger’s tampering that resulted in the plaintiff suffering severe injuries, whereas in North Western Utilities Ltd v London Guarantee & Accident Co Ltd,[17] the construction of a storm sewer beneath the defendant's underground gas pressure main caused it to crack and destroyed the hotel by fire.

However, academicians have argued that the legal doctrine upon which the cases ought to have been decided is mistaken as such cases involve common negligence and should not be classified as Rylands v Fletcher cases.[18] The reasoning is that the Rylands v Fletcher rule is a strict liability tort and therefore any negligence – as in breach of duty of care – on the part of the defendant is irrelevant in determining liability.[19] It should not matter that the defendant could or could not have reasonably foreseen the act of the stranger.

Act of God

An act of God refers to circumstances that are beyond anyone’s control which cannot be foreseen or guarded against. This defence will apply for natural disasters that is not within the foresight of the defendant.[20] Examples includes extraordinary rainfall, high wind and high tide tsunami, lightning, earthquakes, cloud burst and tornadoes.

Nonetheless, in situations where such natural disaster can be foreseen, the defence will not apply. In Kwan Sun Ming v Chak Chee Hing, it was held that in a towage contract, a storm must be expected and would have to be guarded against. For a storm at sea to be regarded as an act of God, it would have to be a storm that could not have been reasonably foreseen.[21]

It can be deduced that the objection against the defence for an act of a third party would similarly apply here since both are events with randomised probability beyond control. The Rylands v Fletcher rule is a strict liability tort and therefore it should not matter that the defendant could or could not have reasonably foreseen the act of God.

Statutory authority

Sometimes statutes, like section 95 of the Street, Drainage and Building Act 1974, affords state authorities or officers with immunity and exempts them from liability.  Whether they are exempted or not, and to what extent, is a question of statutory interpretation. For instance, sections 5, 6 and 7 of the Government Proceedings Act 1956 relating to proceedings by and against the Federal Government and the Governments of the States have been relied upon to establish legal actions against officers and vicariously, the government.

We must not look at a past incident with the spectacles from the future. - Lord Denning

Foreseeability of damage

The general tenor of Justice Blackburn's statement of principle Cambridge Water Co Ltd v Eastern Counties Leather plc is that knowledge, or at least foreseeability of the risk, is a prerequisite of the recovery of damages under the principle.[22]

What is unclear is whether it is only the kind of damage that needs to be foreseeable or that the escape must be foreseeable too. Lord Goff, in holding that the seepage of the chemical through the factory floor into the earth and subsequently into the water was unforeseeable, seemed to suggest that the escape too, need be foreseeable.[23]

In Malaysia, there is yet to be any case which relates specifically to the question regarding which element does foreseeability pertain to – the type of damage or the possibility of escape, but cases often quote the English judgment in verbatim, i.e. “it could not possibly have foreseen that damage of the type now complained of might be caused.”.

In Projek Lebuh Raya Utara-Selatan Sdn Bhd v Kim Seng Enterprise (Kedah) Sdn Bhd, the Court of Appeal stated that liability arose only if the defendant knew or ought reasonably to have foreseen that those things might, if they escaped, cause damage.[24]

Many academicians have also submitted that if the escape must also be foreseeable, the notion that the rule in Rylands v Fletcher connotes with it a strict liability would no longer hold true.[25] There will no longer be any element that is independent from the establishment of blameworthiness. The accumulation of dangerous substance which constitutes an unusual use of land, the foreseeability of type of damage and the foreseeability of escape will all be associated with fault. In Ellison v Ministry of Defence, it was suggested that it is only the type of damage and not the escape that must be foreseeable.[26]

What would be a nuisance in Belgrave square would not necessarily be so in Bermondsey. – Lord Justice Thesiger

Non-natural use of land

The judiciary has managed to keep up with the times when it comes to the development of the rule in Rylands v Fletcher. The case of Rainham Chemical Works v Belvedere Fish Guano[27] ruled that the use of land to build a factory for the manufacture of explosives was a non-natural use in 1920, but later in the 1940s, the House of Lords refused to consider itself bound by the same finding in light of the industrial activities during war time.[28]

Whether the use of the land is non-natural is a question of fact – factors such as time, location and ordinary activities of mankind must be taken into consideration.[29] Since storage of ammunitions is not a non-natural use of the land during wartime, the legal regime will not provide protection. Plaintiffs will have to resort to the tort of negligence, which is a separate cause of action with its own technicalities.

In British Celanese Ltd v AH Hunt (Capacitors) Ltd, the court refused to adjudge the manufacturing and storage of electrical and electronic components on a factory situated in an industrial area planned and laid out for the purpose of accommodating manufacturers in the year 1964 to be a special use of land.[30]

In Mason v Levy Auto Parts of England, the utilisation of land for the storage of spare parts for vehicles and other combustible materials was held by the judge to be non-natural because of three factors, one of it being the character of the neighbourhood.[31]

However, Lord Goff said in Cambridge Water Co Ltd v Eastern Counties Leather plc that “the storage of substantial quantities of chemicals on industrial premises should be regarded as an almost classic case of non-natural use”.[32] Malaysian academicians have expressed their reservations towards the statement and opine the decision to have been delivered by way of per incuriam.[33]

This was arguably settled in Transco plc v Stockport Metropolitan Borough Council where Lord Bingham made it clear that the rule will only apply to extraordinary and unusual use.[34] In line with majority of the cases mentioned above, it appears that locality is in fact a significant factor to be taken into consideration, similar to the quote under nuisance that “what would be a nuisance in Belgrave Square would not be so in Bermondsey”.[35]

Taking into consideration the Malaysian landscape, locality, custom and usual practice, the fact that city planning is mostly conducted based on functionality in most parts of the country (i.e., segregated into residential, business, and industrial areas), this would pose considerable challenge for plaintiffs as they need to establish that the use of land must be non-natural.

Commentary

The study of interrelationships explores the connections between people and system. In the context of law and society, this perspective examines how urbanization has prompted the establishment of and reforms to legal frameworks to address disruptions among neighbours in land-related matters. It emphasizes the evolving dynamics between people and the legal system in response to societal changes.

In the attempt to keep up with times, the rule in Rylands v Fletcher has been expanded gradually over the years through the evolving judicial stance and interpretation as well as introduction of defences. Unfortunately, this has led to various differing views and dissents among the judiciary.

The attribution of the element of fault increasingly blurred the lines between negligence claims and Rylands v Fletcher actions, thereby causing greater confusion and uncertainty in relation to the continued relevancy and applicability of the latter in this age and time. This phenomenon is reflected in the limited number of case authorities in this respect compared to other causes of action in Malaysia.

Some academicians have suggested for the rule to apply to instances of ultra-hazardous activities or extraordinary use of land to avoid the rule from becoming obsolete. It would be interesting to witness the fate of the rule in Rylands v Fletcher within the Malaysian landscape from hereon – whether it would fall into disuse and lead a quiet death or be revived and transformed by the judiciary to adapt with the times.

If you have any questions or require any additional information, please contact Jeyakuhan Jeyasingam or the partner you usually deal with at Zaid Ibrahim & Co (in association with KPMG Law). This article was prepared with the assistance of Viviana Goh Wen Li, a Trainee Associate in Zaid Ibrahim & Co (in association with KPMG Law).

This article is for general information only and is not a substitute for legal advice.

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[1] John Rylands and Jehu Horrocks v Thomas Fletcher (1868) LR 330 (HL).

[2] Ibid.

[3] Norchaya Talib, Torts in Malaysia (Sweet&Maxwell, 2021) p 442.

[4] Cambridge Water Co Ltd v Eastern Counties Leather plc [1994] 2 AC 264.

[5] Ponting v Noakes [1894] 2 QB 281.

[6] Sheikh Amin bin Salleh v Chop Hup Seng [1974] 2 MLJ 125.

[7] Kennard v Cory Bros & Co Ltd [1921] AC 521.

[8] Kiddle v City Business Properties Ltd [1942] 2 All ER 216.

[9] Thomas v Lewis [1937] 1 All ER 137.

[10] Prosser & Sons Ltd v Levy [1955] 3 All ER 577.

[11] Humphries v Cousins (1877) 2 CPD 239.

[12] Carstairs v Taylor [1871] LR 6 Ex 217.

[13] Dunne v North Western Gas Board [1964] QB 806.

[14] Donal Nolan and James Goudkamp, Winfield and Jolowicz on Tort (20^th edn, Sweet & Maxwell, 2020) at 16-019 and 16-027. Common benefit is not included as a defence in Christian Witting, Street on Torts (15^thedn, OUP, 2018).

[15] Perry v Kendricks Transport Ltd [1956] 1 WLR 85.

[16] Hale v Jenning Brothers [1938] 1 All ER 579.

[17] North Western Utilities Ltd v London Guarantee & Accident Co Ltd [1936] AC 108.

[18] Christian Witting, Street on Torts (15^th edn, OUP, 2018) pp 466 and 467.

[19] Supra note 3 at p 442.

[20] Dr Syed Ahmad S A Alsagoff, The Law of Torts in Malaysia (LexisNexis, 2017) p 423.

[21] Kwan Sun Ming v Chak Chee Hing [1965] 1 MLJ 236 at 237.

[22] Supra note 4.

[23] Supra note 3 p 438.

[24] Projek Lebuh Raya Utara-Selatan Sdn Bhd v Kim Seng Enterprise (Kedah) Sdn Bhd [2013] 5 MLJ 360 at [120].

[25] Supranote 3 at pp 438 and 439.

[26] Ellison v Ministry of Defence (1996) 81 BLR 101.

[27] Rainham Chemical Works v Belvedere Fish Guano [1921] 2 AC 465.

[28] Read v J Lyons & Co Ltd [1947] AC 156.

[29] Ibid at 176.

[30] British Celanese v Hunt [1969] 1 WLR at 963.

[31] Mason v Levy Auto Parts of England [1967] 2 QB 530.

[32] Supra note 4.

[33] Supra note 20 at p 420.

[34] Transco plc v Stockport Metropolitan Borough Council [2004] 2 AC 1.

[35] Sturges v Bridgman (1879) 11 ChD 852.

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Stamp duties are taxes levied on legal instruments, used by most governments to raise revenue. Usually, stamp duty laws are dry and boring with most amendments affecting only the amounts of revenue raised by governments from instruments chargeable with stamp duty.

Recently the Malaysian Stamp Act 1949 (“Stamp Act”) was amended by the Finance (No. 2) Bill 2023, passed during the second reading in Parliament on 13 December 2023. The proposed amendments are expected to come into force on 1 January 2024.

Updating of the Stamp Act

The amendments mostly update the Stamp Act for modern day stamp duty practice by removing references to adhesive stamps, postal franking and digital franking machines. More importantly the amendments give legal recognition to electronic instruments for the purposes of liability for stamp duty. This mean that stamp duty will only be payable electronically, and evidence of payment of stamp duty would be generated electronically. The use of adhesive stamps and franking machines have been and will be gradually phased out.

The current practice for submission for adjudication can generally only be done online on the Lembaga Hasil Dalam Negeri’s STAMPS website, with drop down boxes for selection of the relevant provision for the final dutiable amount. Long gone were the days when physical submission of documents involved verbal explanation, and to a certain extent convincing officers, on the basis of stamping under certain provisions of the Stamp Act.

Definitions of “writing” and “written” and removal of ceiling for foreign currency denominated loans and financings

This article addresses two specific amendments which may change the practice of banks and their customers in Malaysia with regards to cross-border foreign currency denominated loans and financings.

These amendments are: ‍‍

a) Deletion of the RM2,000 ceiling for foreign currency denominated loans and financing documents

This deletion equalizes the stamp duty payable between Ringgit denominated and foreign currency denominated loans and financings.

‍b) Definition of “written” and “writing” to include electronic documents

Stamp duty on a stampable document executed outside Malaysia is payable within 30 days after the document is first received in Malaysia. With the introduction of the definition of “writing” and “written”, defined to include “any record or transmission which is in electronically readable form”, scanned PDF copies of loan and security documents are technically stampable instruments.

Practical effect of the amendments on international cross border financings

International financings normally involve multiple jurisdictions and loan and security documents being executed and sent across borders.

The net effect of these two amendments are that any loan or financing document, although executed outside Malaysia and denominated in foreign currency, when is sent to Malaysia in electronic form (e.g. by email, or made available for download from a cloud storage), it would be subject to ad valorem stamp duty at the rate of 0.5% of the amount of the loan, payable within 30 days of the loan or security document first being received into Malaysia.

Typically, a Malaysian party to such a transaction would receive the original documents for stamping a few days or weeks after the documents have been signed. The 30-day time period starts running only after the original document is received in Malaysia. There may be days, weeks or even months between the signing of the loan and security documents and the actual drawdown of the loan or financing facility. With the amendments to the Stamp Act, sending a PDF copy of the signed loan or security documents to a Malaysian recipient would start the 30-day clock running.

The net effect of the amendments would be to increase the amount and speed up the collection of stamp duty on loan and security documents executed outside Malaysia, which is probably net positive for the government’s coffers.

Lawyers and bankers would need to be more vigilant the moment the loan and security documents are executed. They must be aware that scanned copies of documents circulated to parties to the transaction may attract Malaysian stamp duty liability when they are sent by email to or made available for download by a Malaysian party.

If you have any questions or require any additional information, please contact Loo Tatt King, Kellie Allison Yap or the partner you usually deal with in Zaid Ibrahim & Co. (in association with KPMG Law).

‍This alert is for general information only and is not a substitute for legal advice.

The ASEAN Handbook on Good Regulatory Practice (GRP) was launched to promote the adoption of GRP principles across ASEAN Member States. Our Partner and Head of the Government Advisory practice, Mohamad lzahar Mohamad lzham outlines the GRP principles in the handbook and advocates that the handbook be a catalyst for greater GRP adoption and implementation across the ASEAN region.

In a significant step toward its energy transition plans, the Energy Efficiency and Conservation Bill was passed by Dewan Rakyat in October 2023. The Bill is expected to come into force when passed by Dewan Negara. The Bill aims to regulate the consumption and conversation on energy, going further than the country’s earlier attempts to tackle electricity demand in the industrial, commercial, and residential sectors. In this article Amin Abdul Majid and Khoo Yu Lin, from the Infrastructure, Energy & Utilities practice group, go through the key measures under the Bill and provide comparison with current energy laws and regulations.

The impacts of climate change on global economies and businesses are no longer subtle, driving countries worldwide to transition towards renewable energy. With the Asia Pacific region's unique transition footprint, where the decline in the levelized cost of energy is unfolding at a time of emerging technologies, the region is rapidly transforming the renewable energy landscape. Solar as a renewable resource, in particular, is at the forefront, with many countries embracing solar solutions to meet their growing demands for renewable energy.

 In this article, Caera Lee Huan Yin, a Partner in the Infrastructure, Energy & Utilities practice group, provides an overview of the renewable energy landscape in the region and delves into the country-specific continual evolution and adoption of solar energy in Malaysia and its valuable contribution towards the nation’s energy transition pathway. Moving forward, the author expects to see a rising focus on integrated energy transition plans in the region’s renewable stories, ranging from the integration of innovative generation and storage solutions to opportunities for repowering the existing fleet of plants with new renewable solutions.

Bank Negara Malaysia (“BNM”) (Central Bank of Malaysia) has recently proposed standards and guidelines for sell and buy back agreements (“SBBA”) and collateralized commodity murabahah (“CCM”) transactions used as Islamic financial instruments in the Islamic Interbank Money Market (“IIMM”).  

BNM’s exposure draft of 2 October 2023 sets out these proposals. Industry players have been asked to provide feedback by 31 October 2023, after which BNM will formalize a policy document on 1 January 2024.

The objectives of the policy document are to:

1. outline the scope of the SBBA and CCM transactions;
2. provide the regulatory requirements and BNM’s expectations for such transactions;
3. promote sound risk management practices for the conduct of such transactions; and
4. ensure compliance with Shariah principles.

Policy document will supersede previous guidance notes on SBBA

When it comes into effect, the policy document will supersede the Guidance Notes on Sell and Buy Back Agreement (“Guidance Notes”), previously issued on 28 June 2013.

The Guidance Notes provided best practices governing the conduct of the SBBA transaction. The SBBA, which is akin to the conventional repurchase (“Repo”) agreement, was modified to comply with Shariah principles and approved by the Shariah Advisory Council of BNM as an Islamic financial instrument.

A Repo agreement is guided by the Repurchase Agreement Transactions Policy Document issued by BNM in 2019. The policy document defines a Repo as a transaction which involves the sale of securities with a simultaneous agreement to repurchase them on a future date and at a higher price. The repurchase price consists of the original price plus an interest rate on the cash leg of the transaction.

In the SBBA, there are two distinct contracts which are concluded at two separate times, namely, the sale of securities in the first contract and the repurchase of the securities in the second contract. In addition, there is no stipulated condition to repurchase the securities by the seller in the first contract. The Wa’d or promise to repurchase and/or to sell the securities in the SBBA overcomes the inter-conditionality issue in the Repo, as the promise is only made upon the conclusion of the first contract.

The SBBA is thus the answer to a Shariah compliant repurchase agreement.

Policy document will enhance features and provide clarity in SBBA

The proposed policy document enhances the features of the existing SBBA transaction, namely by providing clarity to its definition and transaction sequence as follows:

The element of promise or Wa’d in the SBBA arrangement prevents inter-conditionality between the sale and purchase transactions entered by the SBBA buyer and SBBA seller.

Key differences between the policy document and previous guidance notes

The key difference between the policy document and the Guidance Notes is the introduction of CCM as an alternative Islamic financial instrument for the IIMM. The CCM is an arrangement based on the Shariah principle of murabahah where a CCM pledgor buys commodity from a CCM pledgee on deferred payment terms. The CCM pledgor then pledges Shariah compliant securities as collateral for the deferred payment obligation under the murabahah contract.

Other salient differences between the Guidance Notes and the policy documents are set out below:

Conclusion

In 2014, the International Islamic Financial Market issued a Master Collateralized Murabahah Agreement (“MCMA”) which is a standard template used as an alternative to the Repo. The MCMA is based on the Shariah principles of murabahah and rahn and aims to address the issues and diversity in practices around the buying and selling of securities by the same counterparties at a future date.

Since then, international banking institutions, especially in the United Arab Emirates, have used the MCMA as a liquidity management tool.

Therefore, the introduction of CCM in this proposed BNM’s policy document may be more appealing to banking institutions that are less favourable towards the SBBA.

If you have any questions or require any additional information, please contact Lily Adelina Hashim, Raihan Naseeha Rafidi, or the Zaid Ibrahim & Co (in association with KPMG Law) partner you usually deal with.

This alert is for general information only and is not a substitute for legal advice.

In our previous article, we discussed the initiatives implemented by the Government to ease the process of discharge of bankrupts. This included the conditions and procedures for discharging bankrupts with small-scale debts, as well as proposed amendments to the Insolvency Act 1967aimed at enhancing the provisions for discharge of bankrupt and the administration of a bankrupt’s estate. 

The recent enactment of the Insolvency (Amendment) Act 2023 has now come into effect, implementing the proposed amendments.  

Below, we summarize the key amendments to Malaysian insolvency law.

Additional categories of bankrupt individuals eligible for discharge

Prior to the amendment, the discharge of a bankrupt under section 33A was at the discretion of the Director General of Insolvency (DGI), with a minimum waiting period of five years from the bankruptcy order and subject to section 33B, which allowed creditors to object to the discharge. However, the recent amendment expands section 33B(2A) of the Insolvency Act to include two additional categories where creditors are not permitted to object to the discharge, namely:

1. a bankrupt who is incapable of managing himself and his affairs due to any mental disorder, as certified by a psychiatrist from any government hospital;
2. a bankrupt aged seventy years and above and in the opinion of the DGI, is incapable of contributing to the administration of his estate.

Streamlined discharge process & enhanced powers for the DGI

The Amendment Act revises section 33C governing the automatic discharge of bankrupts. Previously, a bankrupt will be automatically discharged after three years if they fulfilled specific criteria, such as reaching the targeted contribution towards their provable debt and complying with obligations related to rendering an account of money and property.

Post-amendment, the financial capability of the bankrupt is taken into consideration, and the conditions for automatic discharge under section 33C are eased. The requirement to achieve the targeted contribution towards the provable debt is replaced with the obligation to pay a sum determined by the DGI for estate administration purposes, provided that the bankrupt has fulfilled his or her obligations under the Act.

In this regard, the Amendment Act introduces the suspension of automatic discharge for up to two years if the bankrupt fails to fulfil his or her obligations. The DGI is granted the power to suspend automatic discharge for a maximum of two years if the debtor does not meet his or her obligations. Additionally, the DGI may request further information regarding the debtor's income, expected income, and properties. The suspension, as per the newly inserted section 33C(1)(b), takes effect when the DGI serves a notice to creditors who filed a proof of debt within six months before the original three-year mark.

Furthermore, in line with the ‘second chance policy’, the amendments to sections 33C and 33B(2A) are applied retrospectively to cover individuals who had been declared bankrupt before the passing of this Amendment Act.

Adoption of remote communication technology and electronic communications

To align with the judiciary's transition to remote hearings, and in line with the insertion of section 15A of Court of Judicature Act 1964, the Act has been amended to accommodate remote communication technology in the administration of bankruptcy in Malaysia.

Communication pertaining to insolvency matters, including service of notices under the amended section 130 of the Insolvency Act, 1967, may now be carried out by electronic means, where consent has been obtained to do so.

It is also pertinent to note that, prior to the amendment, the Act only allowed the DGI to hold a meeting at such a place which the DGI considers to be convenient for the majority of the creditors.  Now, meetings of creditors under amended Schedule A of the Insolvency Act may be conducted through remote communication technology, among others, video link, video conferences, or any other electronic means of communication.

Dispensation of the mandatory requirement of holding the first meeting of creditors

Previously, section 15 of the Act made it mandatory for the first meeting of creditors to be held as soon as may be after a bankruptcy order is made. The meeting is confined to consider proposals for the composition or arrangement and the mode of dealing with the bankrupt’s property.

Post-amendment, the mandatory nature of the first meeting of creditors has been replaced with a discretionary power of the DGI. Nonetheless, the purpose of the section is maintained with the additional scope of any other purpose as prescribed by the Minister. The Amendment Act also replaced all references to the “first meeting of creditors” in the Insolvency Act 1967 with “meeting of creditors”.

Thus, pursuant to the Amendment Act, a meeting of creditors is no longer mandatory and will only take place upon request or when deemed necessary.

Other amendments

In addition to the above, the Amendment Act also introduces changes related to summary administration in cases where the debt is small. To provide greater flexibility in bankruptcy administration, certain monetary amounts specified in the Insolvency Act 1967 have been replaced with amounts to be prescribed by the Minister. This allows for adjustments based on prevailing economic conditions and circumstances without the need for legislative amendments.

For more information, please refer to the Insolvency (Amendment) Act 2023 and Insolvency (Amendment) Rules 2023.

Conclusion

The newly enacted amendments establish a more effective and inclusive bankruptcy administration system, aligning with the government's commitment to help bankrupt individuals secure a fresh financial start. While many are still grappling with their prior financial missteps, the enforcement of these amendments brings some relief. It is hoped that the government’s initiative to fostering bankruptcy administration will ultimately contribute to the nation’s economic development.

If you have any questions or require any additional information, please contact Khoo Kay Ping, Chuah Jo-Shua, or the Zaid Ibrahim & Co (in association with KPMG Law) partner you usually deal with. This article was prepared with the assistance of Chong Siau Fong, a Senior Associate at Zaid Ibrahim & Co (in association with KPMG Law).

This alert is for general information only and is not a substitute for legal advice.

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One topical area for reform that has constantly been of discourse of late is political appointments in Government agencies. It is not to say that political appointments are legally wrong, but what is important is that the appointments are merit based. Individuals appointed should possess the necessary experience and qualifications to add value as members of the appointed institutions.

In this publication, Nik Norzrul Thani, Mohamad lzahar Mohamad lzham, and Liya Saffura Ab. Rashid will explore these concerns in the context of public sector governance and propose an integrated approach with the emergence of a Public Sector Corporate Governance Act to consider for potential reform.