CROSS-BORDER INSOLVENCY BILL 2025: ALIGNING DOMESTIC PRACTICE WITH GLOBAL REALITIES

On 29 July 2025, the Dewan Rakyat passed the Cross-Border Insolvency Bill 2025 (“Bill”), marking a significant legislative milestone in Malaysia’s evolving commercial legal framework. The Bill introduces a dedicated regime for the recognition of foreign insolvency proceedings and the participation of foreign representatives in Malaysian Courts. When brought into force, the Bill will align Malaysia’s legal infrastructure with the UNCITRAL Model Law on Cross-Border Insolvency (“Model Law”), which has been adopted by over sixty jurisdictions worldwide.

 

This development comes at a time when corporate insolvency is increasingly influenced by international exposure, as Malaysian businesses are frequently involved in cross-border operations and financing arrangements. At the same time, foreign companies undergoing insolvency abroad may hold assets or maintain commercial relationships within Malaysia. A legal mechanism to accommodate these realities is not only desirable but necessary.

 

A.        Recognising Transnational Commercial Realities

 

The Bill addresses a longstanding void in Malaysian law. Previously, there has been no formal structure for recognising foreign insolvency proceedings or granting foreign insolvency representatives access to domestic courts. The absence of such a framework created uncertainty for both local and foreign creditors and hindered effective coordination between jurisdictions.

 

Under the new regime, a foreign representative may apply to the High Court of Malaysia for recognition of insolvency proceedings commenced in a foreign jurisdiction[1]. Once recognised, the Court will classify the proceeding either as a foreign main proceeding or a foreign non-main proceeding. This classification is significant, as it governs the scope and nature of relief available under Malaysian law. The determination hinges on the location of the debtor’s centre of main interest, or COMI, which serves as the anchor point for assessing the proceeding’s connection to the foreign jurisdiction[2] (as discussed in Part B below).

 

B.        Salient Features of the New Framework

 

(1)      Application and Exclusions

The Bill applies to corporate insolvencies under the Companies Act 2016 and the Labuan Companies Act 1990. It expressly excludes personal bankruptcy[3], limited liability partnerships[4], or entities regulated under financial sector legislation, including the Financial Services Act 2013, the Islamic Financial Services Act 2013, and the Capital Markets and Services Act 2007[5]. These exclusions are consistent with the Model Law's focus on commercial corporate insolvency, ensuring that regulated sectors remain subject to their bespoke frameworks.

 

(2)      Recognition of Foreign Proceedings

 

Where a proceeding is recognised as a foreign main proceeding, the Bill provides that a stay or suspension of proceedings is automatically triggered, including the rights to dispose of the debtor’s assets and the execution against the debtor's property.[6] This mirrors the relief granted in a domestic winding-up and operates without the need for further judicial order.

 

In contrast, recognition of a non-main proceeding does not trigger an automatic stay, but discretionary reliefs under Clause 21(1) may be granted upon application by the foreign representative.[7]

 

(3)      Centre of Main Interest (COMI)

 

The Bill introduces a rebuttable presumption that the debtor’s registered office is its centre of main interest, unless proven otherwise.[8] While the term is not expressly defined, Clause 2 adopts the Model Law's interpretive stance, allowing the Court to consider evidence of the debtor’s principal place of administration or location of central management, especially where it is ascertainable by creditors.[9] This presumption reflects international guidance and promotes commercial certainty.

 

(4)      Substantive Reliefs and Procedural Rights

 

Once recognised, a foreign representative may apply for relief under existing provisions of Malaysian insolvency law. This includes initiating a scheme of arrangement[10], applying to set aside antecedent transactions[11], or seeking redress in cases involving undue preference[12] or fraudulent trading[13]. This access ensures that foreign stakeholders may engage meaningfully with the domestic insolvency process.[14]

 

(5)      Equality of Treatment for Foreign Creditors

 

The Bill affirms that foreign creditors are to be accorded the same rights as local creditors when participating in Malaysian proceedings, subject to certain limited exceptions under local law[15]. This reinforces Malaysia’s commitment to principles of procedural equality and transparency in cross-border matters.

 

(6)      Public Policy Safeguard

 

The Malaysian courts retain the discretion to refuse recognition or relief where such action would be manifestly contrary to public policy.[16] This safeguard ensures that international cooperation does not come at the expense of domestic legal integrity or established creditor protections.

 

C.        Commercial Significance

 

Beyond recognition and relief, the Bill acknowledges the practical realities of cross-border insolvency by facilitating coordination between Malaysian Courts and their foreign counterparts. It empowers the Courts to engage in cooperation directly or through designated intermediaries and makes specific provision for the management of concurrent insolvency proceedings. These measures reflect the broader spirit of the Model Law, which promotes judicial communication, mutual assistance, and procedural efficiency in the administration of transnational insolvency cases.

 

Although the Bill operates separately from existing statutes such as the Reciprocal Enforcement of Judgments Act 1958, it nonetheless represents a complementary advancement in Malaysia’s legal architecture: one that strengthens the country’s commitment to cross-border cooperation, particularly in the specialised domain of insolvency and restructuring.

 

D.        Implementation and Outlook

 

The true significance of the Bill will depend on its implementation. Malaysian Courts will play a central role in developing jurisprudence around key concepts such as COMI, the scope of public policy exceptions, and the equitable treatment of creditors. Much will also depend on the readiness of local practitioners and institutional actors to navigate the procedural and evidential dimensions of cross-border cases.

 

If effectively administered, the framework has the potential to elevate Malaysia’s standing as a reliable and sophisticated forum for insolvency resolution in the region. Over time, it may also set the foundation for broader reforms, including the development of a regime for personal cross-border insolvency, which currently remains outside the scope of this legislation.

 

As global commerce becomes ever more integrated, the Cross-Border Insolvency Bill 2025 reflects Malaysia’s growing maturity in legal reform and its willingness to engage constructively with international norms. It is a welcome step that affirms the country’s commitment to modern, principled, and commercially responsive insolvency law.

 

 

* Please note that this article is not intended as legal advice for any particular case. Since the facts and circumstances of each case vary, specific legal advice is recommended. You are welcome to reach out to us for legal consultation tailored to your situation.