What is Voluntary Arrangement?
The new Bankruptcy (Amendment) Act 2017 has named the existing Bankruptcy Act 1967 as the Insolvency Act 1967 (“Act”) which came into force on 6.10.2017 provides some drastic changes on Insolvency law. One of the significant changes of the new Act is the pre-bankruptcy rescue mechanism known as voluntary arrangement providing the debtor an opportunity to negotiate for an arrangement of repayment or settlement of the debt owed to his creditors prior from being adjudged as bankrupt. This arrangement was incorporated under Part I of the Act together with the Insolvency (Voluntary Arrangement) Rules 2017.
What are the procedures and how to apply for the Voluntary Arrangement?
1. Appointment of a Nominee
· The debtor shall appoint a nominee to act as an independent individual to supervise the implementation of the voluntary arrangement
2. Application of the Interim Order
· The debtor must make an application to the court for an interim order and the interim order shall be valid for a period of 90 days and shall not be extended
· The interim order will protect the debtor from any bankruptcy petition or other proceedings, execution or other legal process commence against the debtor with leave from the court
3. Notification of the Interim Order
· The debtor shall notify the nominee the commencement of the period and subsequently within 7 days, the nominee shall notify all the creditors of the commencement of the interim order
4. Proof of Debt
· Upon receiving the notification, the creditors shall file proof of debt in Form 8 within 21 days after receiving the notification
5. Statement of Affairs
· The debtor shall submit a statement of affairs in Form 7 to the nominee within 14 days from date of the interim order
6. Preparation of proposal
· The nominee shall prepare the debtor’s proposal in Form 9 within 21 days after receiving the statement of affairs
7. Summoning of meeting
· The nominee shall summon the meeting of the creditors within 14 days after preparing the debtor’s proposal
· Notice of the meeting shall be made in Form 10 together with the proxy form (Form 11), the copy of the debtor’s proposal and copy of the statement of affairs
8. Meeting of Creditors
· Must be held within 90 days from the interim order
· The nominee shall be the chairman
· Every creditor who has filed the proof of debt shall entitle to vote
· The meeting may by special resolution (75% votes) approved the proposed voluntary arrangement without modification
· If the creditors wish to approve the proposal with modification, the consent of the debtor is required
· The meeting shall not approve any modification to the proposal which will affect the right of the secured creditor
· The meeting may be adjourned but shall not be more than 14 days
9. Report of the Decision
· The nominee shall report the decision of the meeting to the court and serve the copy of the decision under seal to the debtor and creditors
· If the creditors disapproved the proposal, the court may set aside the interim order
What is the effects of the approval of the Voluntary Arrangement?
· The approved voluntary arrangement shall bind every person who had notice of and was entitled to vote at the meeting
· The interim order shall cease to have an effect within 30 days from the date the report was sealed by the court
· Where any bankruptcy petition has been stayed by the interim order, the petition shall be deemed to have been dismissed unless the court instructs otherwise
Can the meeting’s decision be reviewed?
Any debtor, nominee or person entitled to vote at the creditor’s meeting may apply to the court to review the decision on the ground of material irregularity or the arrangement prejudices the interest of the debtor or the creditors
What are the consequences of the failure by the debtor to comply with the voluntary arrangement?
Any creditors bound by the voluntary arrangement may file or proceed with a bankruptcy petition against the debtor