Malaysia’s business landscape is dominated by micro, small and medium enterprises (MSMEs), which accounted for 96.2% of all business establishments in 2025, according to the latest figures from the Department of Statistics Malaysia (DOSM). Their prevalence underscores the importance for an enabling ecosystem to support MSMEs and mechanisms that can help viable businesses survive commercial disputes and financial distress that threatens their continued operations. As the engine of growth for entrepreneurship to thrive, MSMEs occupy a special place as the backbone of corporate Malaysia, acting as the primary engine for economic growth, innovation and widespread employment. MSMEs keeps the Malaysian economy resilient and dynamic, contributing significantly to Malaysia’s GDP.

While MSMEs account for the vast majority of business establishments, the challenges they face when commercial difficulties arise can differ significantly. For some, resolving a dispute may be enough to ease the pressure, while for others, financial distress may call for a more structured form of intervention.

The global system faces a converging web of geopolitical tensions, geoeconomic confrontation, climate change risks, trade wars and economic uncertainty that amplify structural vulnerabilities. Global order is reshaped with these deeply interconnected drivers. Businesses in Malaysia are not insulated from these global shocks. Consequently, business failure is not always a question of whether a business has value. A company may face mounting debts, cash flow constraints or creditor pressure while solidly retaining an established customer base, valuable contracts and the capacity to recover. Where the underlying business remains viable, its collapse may destroy value that could otherwise be preserved, affecting not only the company and its creditors, but also shareholders, employees, suppliers, stakeholders and other businesses within its whole ecosystem.

Support for MSMEs should begin before financial distress becomes acute. A disputed payment or contractual obligation can strain cash flow and disrupt business relationships, while the costs of pursuing a claim may place a further burden on smaller businesses.

The government-supported AIAC pro bono commercial mediation initiative offers a refreshing solution. Launched by the Asian International Arbitration Centre (AIAC) on 18 May 2026, it provides eligible applicants with a full waiver of AIAC mediation costs and mediator fees. For quantifiable disputes, the amount in dispute must not exceed RM250,000.00, and the dispute must arise from a written contract or agreement and meet the AIAC’s eligibility criteria. Although not limited to MSMEs, the initiative may be especially valuable to smaller businesses, for which the cost of resolving a dispute can weigh heavily against the amount claimed.

The commercial value is straightforward: a business may have a valid claim, yet find litigation commercially disproportionate once legal costs, longer time frame and management timelines are factored in. Mediation allows parties to explore a negotiated settlement through their own volition with a neutral mediator instead of pursuing court action. It offers businesses a chance to resolve the dispute on terms acceptable to both sides, potentially preserving cash flow and preserving the goodwill in an ongoing commercial relationship. As mediation is voluntary, it may not necessarily guarantee settlement, but it allows parties to explore a possibly win-win situation, a negotiated outcome with the right mindset, before (if necessary) court litigation or to finally settle via arbitration. Many contracts contain multi-tier dispute resolution clauses which value adds to the company as a structured solution.

The AIAC’s initiative has attracted professional support. By July 2026, 158 pro bono mediators had registered to participate, signalling substantial professional interest in the scheme. However, reported case registrations remained modest in its early months. The challenge now is to turn that capacity into greater awareness and uptake for MSMEs in Malaysia.

For MSMEs, the initiative promises to make settlement a practical option to explore before a commercial disagreement escalates into costly arbitration or litigation. More broadly, it highlights the importance of accessible mechanisms that can help businesses manage commercial difficulties before they threaten wider operations. Mediation presents mutually beneficial advantages to parties. The Judiciary encourages mediation. Concrete discussions to make mediation mandatory have been discussed at the recent International Malaysia Law Conference 2026 organised by the Malaysian Bar. In any event, many organisations’ contracts have multi-tier dispute resolution clauses embedded and it becomes commonplace for mediation to be the central focus as a starting point, to be finally resolved through arbitration.

Yet, resolving a dispute is not the same as addressing a company’s underlying financial distress. Where a business faces mounting debts and needs more than a negotiated resolution to remain viable, formal corporate rescue mechanisms may become relevant.

One such mechanism is judicial management under the Companies Act 2016. It provides a statutory route for an eligible company to seek rehabilitation under the supervision of a court-appointed judicial manager. The objective is to create a structured opportunity for rehabilitation where there is a credible prospect of success.

Judicial management is not available simply because a company is in financial difficulty. The court must be satisfied that the company is, or is likely to become, unable to pay its debts and that there is a reasonable prospect of achieving a statutory purpose. That purpose may be to preserve the business as a going concern, secure a compromise or arrangement, or achieve a better realisation of assets for creditors than winding-up.

The practical question is therefore whether judicial management offers a credible route to preserving value.

The statutory moratorium in place can prevent enforcement actions from dismantling a viable business through uncoordinated actions, whilst preserving the company’s status quo. Nonetheless the moratorium is justified by the prospect of a genuine rescue, not by delay for its own sake.

The balance between rescue and creditor rights is particularly important given the limits on creditor participation. In Desa Tiasa Sdn Bhd v CME Group Berhad & Anor (2026), the Federal Court on 27 October 2026 dismissed an unsecured creditor’s appeal (even with a judgment debt and an unsatisfied statutory notice of demand), confirming that unsecured creditors have no automatic right to intervene in judicial management proceedings. The decision provides greater clarity on the procedural position of unsecured creditors, although in exceptional circumstances the Court’s discretion can still be exercised. Ultimately the architecture of the Companies Act 2016 and the Companies (Corporate Rescue Mechanism) Rules 2018 prevails.

Malaysia’s corporate rescue framework should be judged by the outcomes it enables, not simply by the number of companies placed under judicial management. A successful process may preserve a viable business and produce a better recovery for creditors than winding-up.

A second chance is justified where there is a credible business worth saving and a realistic path towards doing so.

Mary-Ann Ooi Suan Kim is managing partner of O S Kim & Associates, barrister of Lincoln’s Inn, advocate and solicitor of Malaya, adjunct professor of Practice, Sunway University, external adviser (industry) Board of Studies, Faculty of Law, Universiti Kebangsaan Malaysia, member of the board of advisers, University of Sheffield School of Law, member of the legal profession advisory panel, Taylor’s University, member of the board of directors of the Malaysian Institute of Management and Royal Institution of Chartered Surveyors accredited mediator.