I THINK the country’s bankruptcy laws are antiquated and hinder the progress of this country.

And I certainly agree with C.Y.L. of Kajang (”Do not punish those who fail” - NST March 18) that we should re-think the way we treat bankrupts.

There used to be a time when entrepreneurs who borrowed but failed and could not repay bank loans just went to another state or branch and borrowed again and made a comeback.

This is not possible now as a result of wired banking system and credit-referencing agencies. Today, there is no second chance.

In Malaysia, you must succeed in the first instance, for failure would mean a life of ruin with no comeback.

This cannot bode well for a young and inexperienced economy such as ours as no individual, no matter how creative and intelligent, would want to take risks.

In a world economy that is interlinked, businesses are interdependent and no amount of calculated risks will guarantee success.

With no one wanting to do business for fear of failure and bankruptcy, Malaysia will have to depend on blue-chip companies and government-linked companies.

When the economic crisis hit this country in 1997, many businesses were ruined.

The government came to the rescue of banks but not individuals. In a porous legal system such as ours, where laws are stacked in favour of banks, it is easy for a business or an individual to be bankrupted when economic uncertainty strikes.

Failure to pay rentals on time can result in a distress order being issued and premises sealed or auctioned off.

An individual who owes more than RM30,000 to anyone or a lending institution can have a bankruptcy notice served on him by substituted service without the individual even knowing about it.

Even multi-million ringgit businesses can be wound up by an unsecured creditor. Our bankruptcy laws are definitely not pro-business.

When the Bank of England came to the rescue of Northern Rock during the sub-prime mortgage financial crisis, there was much criticism.

However, the bank’s governor, Mervyn King, stood his ground and probably saved thousands of homeowners from losing their homes and possibly be bankrupted.

Northern Rock’s problems arose from its difficulties in raising funds in the money markets, caused by the sub-prime crisis in the United States.

In the US, businesses can seek refuge from creditors under Chapter 11 of bankruptcy laws, so that businesses can put their house in order and make a comeback.

That is how you save jobs, learn from your mistakes and grow.

When the government wanted to create an entrepreneur-driven society under the New Economic Policy, it encouraged many Bumiputeras to enter business.

But one of the pitfalls of new businesses, apart from inexperience, is poor financial management. Banks lent and that was it. There was little guidance.

Most banks took the easy way out when businesses got into trouble by taking away that proverbial umbrella and shooting out letters of demand and following up with winding-up and bankruptcy petitions.

New entrepreneurs were sitting ducks if they defaulted on loan repayments as a result of poor business management or economic uncertainties.

Even though entrepreneurs may be good at what they do, this wasn’t enough to run a business.

Bumiputera entrepreneurs are now known to be averse to taking risks and some just do an Ali Baba deal and let others take the risks for life could indeed be doomed if you are a bankrupt in Malaysia.

Apart from the social stigma, you cannot open a bank account.

You cannot run a business and international travel is restricted.

Everything you own can be taken away and attempts by the official assignee to discharge you in court are blocked by your creditors.

There are only two options: live the life of a bankrupt till you die as there is no automatic discharge, or leave the country.

The Insolvency Department must advise and make recommendations to parliament regarding the financial realities of a global economy and make sure that bankrupts get to make a comeback quickly.

Incarcerating bankrupts who hold a wealth of experience may be a greater loss to the nation.

Our bankruptcy laws must change in keeping with the times.

Making anyone a bankrupt should be made difficult and if he is made bankrupt, automatic discharge within six and 12 months should be mandatory.

The aim is to get bankrupts to be useful to society instead of burying them deeper in red tape.

Z. IBRAHIM, Klang

Source: NST – April 1, 2008