Discharge and pre-rehabilitation under bankruptcy law and Islamic law: a boon or a bane?

• Main Authors: Azmi, Ruzita, Ahmad, Siti Nur Samawati
• Format: Article
• Language: English
• Published: Routledge 2019
• Subjects: KZ Law of Nations
• Online Access: http://repo.uum.edu.my/26932/1/CLB%2045%202%202019%20189%20210.pdf; http://repo.uum.edu.my/26932/; http://doi.org/10.1080/03050718.2020.1724812
• Institution: Universiti Utara Malaysia

Repeated calls for a reform of the bankruptcy laws in Malaysia resulted in the renaming of the Bankruptcy Act 1967 (BA 1967) to the Insolvency Act 1967 (IA 1967), which came into force on 6th October 2017. Among the changes made by the IA 1967 are provisions relating to an automatic discharge of bankruptcy and a pre-rehabilitation scheme. Islam prohibits the cancellation of debt since it denies the rightful party from making a claim – however, it does encourage a creditor to be lenient to a debtor. In considering the changes made to the bankruptcy law, this paper examines the provisions on bankruptcy discharge and pre-rehabilitation including the new provisions of automatic discharge and voluntary arrangement (VA). Data for this study comprises primary and secondary data from statutes, case reports, textbooks, and articles from both law and non-legal journals. This paper also analyses the Islamic law’s view of debt, discharge of debt and the concept of pre-rehabilitation. The data for the Islamic component consists of verses from the Holy Quran, Islamic traditions and teachings of Prophet Muhammad PBUH as well as articles from Islamic journals. The paper concludes by showing that VA is the only form of bankruptcy pre-rehabilitation, statutorily granted and available for debtors in Malaysia to avoid bankruptcy, and the introduction of automatic discharge facilitates a quick way out of debt for a bankrupt and enables him to start afresh. The findings also show that the principle of discharge under Islamic bankruptcy law is applicable to debtors who genuinely face hardship to pay their debts. Islam encourages creditors and debtors to enter into negotiation for the settlement of debt instead of the debtors being declared bankrupt due to the inability to pay their debts.