a case study on an individual at 23 facing bankrupty in malaysia

Family, Business, & Bankruptcy: A Cautionary Tale for Malaysians

In Q1 2023 alone, The Malaysian Department of Insolvency recorded 1,392 new bankruptcy cases across Malaysia. (in fact, the entire document is quite a fascinating, if terrifying, look at Malaysian bankruptcy statistics) 

Of those, 57 cases concerned individuals below 30 years old!

a young bankrupt person in Malaysia

Difficult as bankruptcy is to overcome, it becomes a truly monumental challenge when faced by individuals so early in life – at a time when their peers are building a foundation of financial security, these young people are burdened with crushing debt.

And though bankruptcy is always the result of mistakes, what a bitter pill to swallow when said mistake is trusting someone you loved. 

That is precisely what happened to the subject of our post.

Trusting family led to bankruptcy at 23

Muflis Bankrupt di Malaysia is a 54,000 strong Facebook group with the goal of helping Malaysian brankrupts climb out of bankruptcy. Recently, a Malaysian man recounted how he had allowed his father to register a company under his name when he was just 18. 

facebook post of an individual who is now a bankrupt in malaysia due to trusting family
At 23, Bankruptcy can be a financial death sentence.

The business was ultimately unsuccessful and closed down six years later, leaving the man with a RM100,000 debt to clear at the age of 23. 

How many 23 year olds do you know have RM100,000 lying around?

The man had to declare personal bankruptcy, and now 33, lamented his inability to secure a house loan or travel overseas for the past decade. 

What is personal bankruptcy?

We hope none of our readers will ever need to learn what this means, but here goes.

Bankruptcy is a process where a individual is declared a bankrupt following an Adjudication Order made by the High Court against the individual if they are unable to pay a debt of at least RM100,000.

(note: according to the recent Ekonomi Madani tabling, this figure may be raised to RM200,000 starting 2024)

It is considered a last resort because while it does relieve the debtor of their liability to the party owed, it comes with significant penalties that affect quality of life, namely:

  • Having all assets such as cash, vehicles, and properties taken away.
  • An inability to freely travel overseas.
  • Restrictions from certain professions, including accountants, doctors, and lawyers.
  • Extremely limited ability to borrow credit.

For a deeper dive, check out the government’s official description. 

Point is, you don’t want any part of bankruptcy!

Two crucial takeaways for Malaysians

It’s always better to learn from the mistakes of others rather than our own – and we see two crucial lessons from this unfortunate event.

1. Ideally, keep family and business separate

Blood is thicker than water, but things can get murky when you combine family with business.

Keeping these two aspects of your life separate is a preventive approach. Trusting family is human nature but remember, in the realm of business, you aren’t supposed to trust anyone to that extent. 

facebook post of an individual facing family issues with buying assets in their name
We barely had to scroll down to find another family-related issue on the Facebook page.

Whever possible, it’s better to keep professional relationships strictly professional and separate from personal ones.

It protects both your personal relationships and finances by allowing decisions to be made with your head rather than your heart!

2. Never enter into business with no contract

As young people begin to take their first forays into the world of entrepreneurship, having a partner to share the ups and downs can make the journey less daunting.

However, sometimes your partner IS the reason why the journey is so daunting!

two business partners arguing

Throughout our years as consultants, we’ve encountered numerous cases where family members or close friends went into business without a contract, choosing to rely on trust. 

Conflict took ages to resolve as the lack of rules to enforce behaviour meant both parties would give way to their emotions.

Remember, contracts in business aren’t just formalities. They serve as a legally binding document outlining roles and responsibilities. Without one, disputes, and exploitation can creep in – it’s why we’re strong advocates of Shareholders’ Agreements when incorporating a Sdn Bhd.

For example, you might want to clearly set out responsibilities for business debts, as we noticed that 294 of the 1,392 bankruptcy cases in 2023 were due to business loans!

So dear young people, if you’re going to start a business, get a professionally drafted contract!

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