Some info on the bankruptcy process.

 

When a debtor owes moneys to a creditor and does not pay him, the latter (creditor) may 
take the matter to court. If the creditor (plaintiff) is successful, he will eventually 
obtain a Judgement Order from the court. If the debtor (defendant) subsequently refuses or
is unable to settle the debt, one of the options of the creditor is to pursue bankruptcy
proceedings against him. 
There are phases to a bankruptcy process that one must go through before a person
is made a bankrupt. A bankruptcy action begins with a bankruptcy notice. However, 
the issuance of this notice does not mean a person is bankrupt. It only means that 
the person has to pay the amount demanded in the notice. If he fails to do so, he
 has committed what is known in law as an “act of bankruptcy”. After the act of 
bankruptcy is committed, the creditor will file for a petition of bankruptcy,
 known as a creditor’s petition. This must be filed within 6 months. In Malaysia, 
the law has been amended in 2020 to increase the minimum debt required for the 
presentation of a bankruptcy petition from RM 50 000 to RM 100 000 (for a period 
of one year). The creditor’s petition is a way of starting a hearing in court. 
Upon obtaining a hearing date, the creditor’s petition must be heard by the court.
Upon completion of the hearing process of the case, and if the court is convinced
that the person is to be declared a bankrupt, then the court will issue the
bankruptcy order. Only upon issuance of this order can a person be labelled as
a bankrupt. 

 

Conditional Hibah – A Unique Gift for All

 

                           

                                                   

1.       Hibah is the concept of voluntary transfer of assets as gifts during the lifetime of the donor. It is very much part of Islamic practice, for the purposes of financial and estate planning. Having been transferred during lifetime of the donor, the asset does not form part of the estate at the time of his death and therefore, not subject to the faraid rules of distribution.

 

2.   The Islamic Financial Services Act 2013 modified this traditional concept of hibah and introduced what is known as Conditional Hibah in takaful contracts.

 

3.  In family or personal accident takaful contracts, the participant (owner of the contract) can choose a nominee and declare that person to receive the death claim proceeds as the beneficiary of a conditional hibah. 

4.       The features and benefits of this arrangement of a conditional hibah in the contract, which are indeed unique, are as follows:

i)                 The participant of a contract may be a Muslim or a Non-Muslim.

ii)          The nominee appointed may be a Muslim or Non-Muslim. Thus, a Muslim participant may appoint a Non-Muslim nominee and vice versa (traditionally a Non-Muslim is not entitled to inherit from the estate of a Muslim).

iii)       The nominee receives the claim moneys and is beneficially entitled to all of it, as the proceeds are not subject to the faraid rules.

iv)         The participant has the right to change the name of the nominee at any time prior to his death, without the need of consent of the said nominee.

v)              The death claim proceeds do not form part of the estate of the participant for purposes of creditors in a bankruptcy action, laying a claim to it (creditor proof). If the participant is a Muslim, this is the only asset that has this unique benefit as provided by legislation (traditionally the concept of “creditor proof” does not apply to Muslims).

Establishing a Trust Fund using Insurance or Takaful Funds

 

Summary of features of the arrangement.

1.  Objective: To create a fund upon the death of a policy owner (PO) or participant (P), whereby the moneys are professionally managed by trust company. It is to be gifted to the beneficiaries over a period of time, according to the wishes and intention of the PO or P. 

2.  The PO or P must create the fund by purchasing a suitable life insurance policy or family takaful contract. The initial sum assured will represent the basic fund value. 

3.    Discussions must be held with a chosen trust company (trustee) as to the intentions of the PO or P (settlor) and all the relevant terms and conditions of the trust which will be stated in the trust deed which will be prepared by the trust company. 

4.      A trust deed is therefore an agreement between the settlor and the trustee.

 As part of the arrangement, the policy or contract must be absolutely assigned to the trustee. 

6.     There are initial fees and expenses to be paid to the trustee and when the claim arises, management fees and expenses will be charged. This will depend on the trust company. 

7.     The trust funds thus established, will not be considered as part of the estate of the policy owner. 

8.    The trust created will usually be an irrevocable trust ie. it cannot be revoked without the consent of the trustees. 

9.    The fund established may only be deemed “creditor proof” only if it satisfies the relevant bankruptcy rules – as an example and in simplest terms, the trust should be created at least 5 years prior to any bankruptcy proceedings commenced against of the settlor.

 The documents required for this arrangement include an absolute assignment, a trust deed, a power of attorney and others as required by the trust company.

Social Guarantors and bankruptcy

 

Social guarantors and bankruptcy…

 

1.    When a person takes a loan from a bank, it will usually require one or more persons to be guarantors.

2.    If the borrower defaults on the loan, the bank may eventually proceed to take legal action to recover the debt. If it succeeds, it will obtain a judgement order from the courts.

3.    Upon obtaining the judgement order, the bank will proceed to enforce it against the borrower or the guarantor or the both of them. Very often, when it is determined that the borrower is unable to repay the loan, the bank will seek to enforce the judgement against the guarantor.

4.    There are several ways to enforce the judgement and if the debt exceeds the minimum amount of RM 100 000 effective 23^rd October 2020 (this is expected to be a year only), (previously RM 50 000 and prior to that RM 30 000), the bank may initiate a creditor’s petition for bankruptcy against the guarantor.

5.    In the past, many individuals were declared bankrupt because of such circumstances. However, after 6^th October 2017 when the Bankruptcy Act amendments came into effect, creditors are prohibited from commencing bankruptcy proceedings against “social guarantors”.

6.       Social guarantors are persons who are said not to have profited from the loans taken by borrowers, for which they stood as guarantors including education loans, hire purchase loans for personal or non-business uses, and housing loans for personal dwelling.

Budget 2019: Separation of tax relief good move, says LIAM

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·         The Star- Friday, 2 Nov 2018

LIAM president Anusha Thavarajah said on Friday the insurance body supported the separation into RM 4,000 for EPF and RM 3,000 for life insurance/takaful.

KUALA LUMPUR: The Life Insurance Association of Malaysia (LIAM) welcomes the tax relief on the separation of EPF and the life insurance/takaful as proposed by the government.

LIAM president Anusha Thavarajah said on Friday the insurance body supported the separation into RM 4,000 for EPF and RM 3,000 for life insurance/takaful.

Previously, tax relief was RM 6,000 for EPF and life insurance/takaful combined.

“This tax relief separation, we believe, will give life insurance the right focus and encourage individuals to purchase life insurance as a form of protection that is critical for all Malaysians. 

 “The savings in the EPF will meet individuals’ retirement needs while life insurance will ensure that the family is financially protected if the breadwinner meets with an unfortunate event,” she said.

Anusha said based on Bank Negara Malaysia's 2016 BNM Financial Stability and Payment Systems Report, the penetration rate of insurance and takaful was about 55% for the past five years.

Eliminating multiple ownership of life insurance/takaful policies, this figure reduces to 35% of population insured.

Out of this, only 4% of households in the lower income group has some form of life insurance/takaful cover.

“Therefore, the separation of the EPF and life insurance tax relief would certainly benefit the rakyat by encouraging them to buy life insurance for themselves and their loved ones and help to increase Malaysia’s insured population to 75%,” she said.

Anusha also said LIAM thanked the government for waiving the stamp duty for the purchase of Perlindungan Tenang products.

“This is extremely encouraging as Perlindungan Tenang products have been specially developed to incentivise the youth, young families and B40 household segment to purchase life insurance,” it said.

The premiums for Perlindungan Tenang products has been specially priced at premiums from as low as RM3 per month.

“We welcome the public private partnership announced by the Government via the setting up of a Critical Illness Fund called Dana Perlindungan Kesihatan Nasional B40,” she said.

Finance Minister Lim Guan Eng, had in his Budget speech, emphasised insurance and takaful could act as a safety net by providing financial support and enabling households to get back on their feet especially for the lower income groups.

“In partnership with the private insurance industry, the Government will pilot a national B40 Health Protection Fund to provide free protection against top 4 critical illness for up to RM8,000 and up to 14 days of hospitalisation income cover at RM50 per day starting Jan 1, 2019. In other words, hospitalisation income of RM700 per annum is available.

Great Eastern Life Insurance has agreed to contribute the initial seed funding of RM2bil to this Fund to be managed by Bank Negara Malaysia. 

Lim said the government expects the fund size to grow with more partnership and contributions with other insurance companies.

“This is a big step for Malaysia because for the very first time, together with the Employees Provident Fund and the Social Security Organisation, we are starting a more comprehensive social welfare protection coverage, particularly for the middle- and lower-income groups,” he said.

Identifying Insurance & Takaful Needs of Business Owners

In identifying insurance and takaful needs for business owners we need to be aware that in Malaysia, there are now four basic business organizations. They are sole-proprietorships, general partnerships, limited liability partnerships (introduced in 2012) and of course companies.

The death of owners of each of these businesses will give rise to several types of specific challenges to the families, as well as their fellow owners in the case of partnerships and companies.

Insurance and takaful solutions, carefully planned and arranged, can definitely minimise these problems and difficulties which will affect all the concerned parties.

There are 4 main objectives in these types of arrangements and they are as follows:

1. To provide for the continuity of the businesses;
2. To minimise the loss of a “Key-Person” in the business organisation (this is most commonly seen in limited companies);
3. To avoid partners of general partnerships and directors of limited companies becoming liable for the debts of their businesses upon the death of a specific individuals; and
4. To provide incentives to directors or selected individual in providing “benefits-in kind”.

To promote these insurance and takaful solutions to business owners so that suitable funds are made available, intermediaries must know the:

1. Appropriate approach and presentation skills, as well as the relevant knowledge of business organizations and their structures;
2. Legal and estate planning principles involved upon the death of business owners;
3. Tax implications involved, both of the premiums or contributions, as well as the death claims or benefits payable in insurance and takaful contracts;
4. Specific agreements (prepared by lawyers) among the relevant parties to be arranged when necessary.

Detailed knowledge and study of the above would require two to four-day interactive workshop sessions. It is pleasing to know that several insurance companies, takaful operators, educational institutions and organisations in the industry are placing greater emphasis on such types of trainings and making it available to intermediaries.