(a) Are there instances of fraud in relation to a corporate debtor in this economy?

 

There are many instances of allegations of corporate fraud in Malaysia, but rarely large enough to be well publicized. The exceptions were the BMF - Carrian affair, which involved a Hong Kong, China subsidiary of one of the large Malaysian banks and the plight of Rakyat Merchant Bankers, a merchant bank, in the mid-1990's

(b) If so, is it usual that instances of such fraud will be revealed when a corporate debtor is in financial difficulty or becomes insolvent?

 

Instances of corporate fraud would tend to be disclosed or revealed when the corporation encounters financial difficulties.

(c) What is the attitude that is normally taken to such fraud in this economy?

 

Fraud is not tolerated either by the authorities or regulatory bodies. However, although criminal prosecutions as well as civil proceedings would follow, these have tended to be inconclusive or have yet to be completed.

(d) Is it the case, for example, that 'soft' fraud may be overlooked (or not pursued) and 'hard' fraud may more likely be pursued in this economy?

 

It is not the case that soft fraud may be overlooked; indeed it may be easier to get a conviction in the case of soft fraud rather than in the instances of big, complex cases of hard fraud, where investigations get bogged down through lack of manpower and expertise. The following may be said in connection with the response of the legal system in Malaysia:

If there have been instances of fraud:

(i) does the insolvency law (or other civil law) provide for possible recovery of the proceeds of (or damage caused by) the fraud;

 

The insolvency laws of Malaysia do provide for restitution from or by the wrongdoer, in particular the Companies Act 1965, for example, section 132F in relation to substantial property transactions involving directors, or section 300(1)(c)(i) to (vii) and (g) and (h) which deal with fraud in a corporate entity within 12 months of the commencement of winding up and section 305 dealing with fraud and misappropriation of property or money of a company.

(ii) does the criminal law provide for possible sanctions;

 

The criminal law provides sanctions in the form of section 378 of the Penal Code dealing with theft, sections 402 to 404 dealing with criminal misappropriation of property, and sections 405 to 409 dealing with criminal breach of trust and sections 421 to 424 dealing with fraudulent deeds and dispositions of property. The Court is empowered under the Criminal Procedure Code in criminal proceedings to make restitution orders.

(iii) how effective is the application of these laws in practice?

 

The success rate in the application of these laws tends to be rather disappointing, not for want of trying but more because of inadequate manpower and expertise.

(e) Would it be common or usual that instances of fraud would:

(i) be largely ignored;

(ii) settled by negotiation; or

(iii) pursued through either civil or criminal law sanctions?

 

Though it is not possible to generalize, as a matter of policy and practice, fraud is pursued both civilly and criminally, rather than settled and hushed up. Settlement (with restitution) of an act or a series of acts of civil fraud that also amounts to offences under the Penal Code is fraught with difficulties. This is because the acceptance of restitution in consideration of screening or not bringing a person to legal punishment is itself an offence under section 214 of the Penal Code.