KUALA LUMPUR (July 29): The Dewan Rakyat on Tuesday passed a new law that will allow official liquidators or administrators from other countries to access Malaysian courts to request recognition of foreign insolvency proceedings and seek appropriate relief, including orders to halt local legal actions or secure a debtor’s assets.

The Bill, known as the Cross-Border Insolvency Bill 2025, will also allow Malaysian insolvency practitioners to apply for recognition of local proceedings in foreign courts. The Bill was approved by a majority voice vote after being debated by 11 Members of Parliament.

Minister Azalina Othman Said explained that, until now, Malaysia didn't have a clear law for handling company bankruptcies that involve other countries. Instead, courts largely relied on informal understandings and mutual respect with foreign legal systems to decide if they would recognise judgements from abroad.

“This lack of clarity has led to delays in implementing corporate rescue mechanisms or winding-up proceedings, while increasing the risk of corporate assets being hidden or wrongfully transferred,” Azalina told the House when tabling the Bill for its second reading.

Insolvency proceedings typically refer to collective legal actions initiated by creditors or interested parties against a financially distressed company unable to meet its debt obligations, particularly when assets and liabilities span multiple countries.

The new law only applies to corporate entities, including government-linked companies, and excludes individual insolvency cases and statutory bodies. Azalina, in her winding-up speech, said the government would consider extending the scope to cover individual insolvency in a future phase, subject to further study and policy considerations.

This exclusion raised concerns among several MPs, including Syahredzan Johan (PH–Bangi), who remarked that “limiting this law to corporate entities means individuals with cross-border insolvency exposure are not affected by foreign proceedings”.

Sivakumar Varatharaju Naidu (PH–Batu Gajah) questioned whether Malaysian court decisions under the new law would be automatically recognised abroad, highlighting potential challenges in ensuring reciprocity despite the new framework. 

It should be noted that the new law grants Malaysian courts the discretion to refuse recognition of foreign proceedings or requested relief if they are deemed "manifestly contrary to Malaysia’s public policy".

Azalina has yet to answer this inquiry but indicated that a written answer would be provided due to time constraints limiting her ability to address all remaining questions.

The law minister emphasised that the legislation would “strengthen the role of Malaysian courts in addressing cross-border insolvency challenges in an orderly, prudent, and internationally credible manner”.

“The principles of coordination and cooperation under this law apply strictly to official communications between courts or administrative authorities, all of which remain subject to Malaysian law. Therefore, the question of compromising national sovereignty does not arise,” Azalina said.

In total, the Cross-Border Insolvency Bill 2025 comprises six parts and 35 clauses and will take effect once gazetted. The Malaysian Department of Insolvency will serve as the lead regulatory agency overseeing cross-border cases.

Over 60 countries have adopted similar laws based on a template called the UNCITRAL Model Law on Cross-Border Insolvency. This template was developed by the United Nations Commission on International Trade Law (UNCITRAL), an agency of the UN that works to harmonise international trade laws. Countries that have adopted this model include Japan (2000), South Africa (2000), Australia (2008), the Philippines (2010), Singapore (2017), and Myanmar (2020).

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