MALAYSIA'S INSOLVENCY ACT: WHAT YOU NEED TO KNOW ABOUT SOCIAL GUARANTORS AND BANKRUPTCY
Bankruptcy proceedings can be daunting, both for borrowers and their guarantors. However, did you know that there are certain types of guarantors who are exempt from bankruptcy proceedings? These are social guarantors, defined as individuals who provide guarantees for loans without the intention of making any profit.
If you're curious to know more about social guarantors and how bankruptcy proceedings work against them, keep reading. In this article, we'll explore the concept of social guarantors in Malaysia, under the Insolvency Act 1967 and provide examples for each type of social guarantor.
1. As per Section 5 of
the Insolvency Act, a creditor cannot commence bankruptcy proceedings
against a social guarantor. But who is a social guarantor?
2. Section 2 of
the Insolvency Act defines a social guarantor as someone who provides a
guarantee for a loan, scholarship, grant for educational or research
purposes, hire-purchase transaction of a vehicle for personal or
non-business use, and a housing loan transaction solely for personal
dwelling, without the intention of making any profit.
3. Let us now understand the concept of bankruptcy proceedings against a borrower and a social guarantor.
4. If a creditor has obtained a judgement against a borrower for failure to repay the loan, the creditor can enforce the judgement against the borrower by way of bankruptcy proceedings if he so desires. But the creditor
cannot do so against a social guarantor, even if the borrower defaults
on the loan.
5. There are
three types of social guarantors - educational, hire-purchase, and
housing loan guarantors. Let's take an example of each to understand
their roles in bankruptcy proceedings.
Educational Guarantor: Mr. Lim guaranteed a loan for his nephew's higher education. Unfortunately, his nephew is unable to repay the loan. Even though the creditor can take legal action against Mr. Lim to recover the money owed by his nephew, they cannot initiate bankruptcy proceedings against him.
Hire-Purchase
Guarantor: Mrs. Tan guaranteed a hire-purchase transaction for her friend's car. Unfortunately, her friend defaulted on the payment. While they can take legal action against her to recover the money owed by her friend, the creditor cannot initiate bankruptcy proceedings against Mrs. Tan.
Housing Loan Guarantor: Mr. Chong guaranteed a housing loan transaction for his sister's personal dwelling. Unfortunately, his sister is unable to repay the loan. Although the Creditor can take legal action against him to recover the money owed by his sister, they cannot initiate bankruptcy proceedings against Mr. Chong.
SUMMARYIn Malaysia, social guarantors are individuals who provide guarantees for loans without the intention of making any profit. The Insolvency Act in Malaysia prohibits creditors from initiating bankruptcy proceedings against social guarantors, even if the borrower defaults on the loan. However, the creditor can still take legal action against the social guarantor to recover the money owed by the borrower. There are three types of social guarantors: educational, hire-purchase, and housing loan guarantors. This article provides an overview of social guarantors and their role in bankruptcy proceedings, along with examples for each type of guarantor.
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Disclaimer: This article is published for the purpose of awareness and general knowledge. Any part contained in this article should not be considered as a guide to initiate legal action independently without first consulting an experienced lawyer.
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Nor Hafeez adalah seorang peguamcara sivil yang beramal sebagai seorang peguam dan pemilik penuh sebuah firma guaman yang mempunyai pejabat kecil di pinggir Kuala Lumpur. Beliau mengendalikan pelbagai kes-kes sivil dan pelbagai masalah berkait dengan undang-undang sivil Malaysia seperti kes saman malu, langgar kontrak, hutang peribadi dan korporat, pencerobohan tanah, penceraian bukan islam, harta pusaka, pemecatan kerja, konsultan tuntutan CIPAA dan sebagainya. Di masa lapang, beliau berkongsi ilmu melalui penulisan blog dan sekali sekala menggunakan telefon untuk mengambil dan mengedit gambar secara amatur. Beliau juga adalah seorang glory hunter yang meminati Manchester City dan juga segelas Nescafe Ais diwaktu pagi.
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