Malaysia’s Adoption of the Cross-Border Insolvency Framework: Strengthening Cooperation in International Insolvency Proceedings

Background

In today’s globalised economy, companies often conduct business and hold assets across multiple jurisdictions. When such companies face financial distress or insolvency, the absence of a coordinated legal framework can lead to competing court proceedings, delays in asset recovery and uncertainty for creditors.

To address these challenges, Malaysia has introduced the Insolvency (Cross-Border) Act 2025 (“Act”), which adopts the UNCITRAL Model Law on Cross-Border Insolvency (“Model Law”) developed by the United Nations Commission on International Trade Law (“UNCITRAL”). The Model Law is intended to establish a unified framework for handling insolvency cases involving assets and creditors located in more than one jurisdiction.

The Act represents a significant milestone in Malaysia’s insolvency law reform. The Act was passed in March 2026 after being granted Royal Assent by His Majesty the Yang di-Pertuan Agong, marking an important step towards aligning Malaysia’s insolvency framework with international standards and improving cooperation in cross-border insolvency matters.

Application of the Act

The Act applies primarily to corporate debtors, namely corporations as defined under the Companies Act 2016 and the Labuan Companies Act 1990. It does not extend to individuals or limited liability partnerships.

The cross-border insolvency framework may apply in several circumstances, including where:

1. assistance is sought in Malaysia by a foreign court or foreign representative in connection with foreign insolvency proceedings;

2. assistance is sought in a foreign jurisdiction in relation to Malaysian insolvency proceedings;

3. there are concurrent insolvency proceedings taking place in Malaysia and another jurisdiction involving the same debtor; or

4. foreign creditors wish to commence or participate in insolvency proceedings in Malaysia.

Through these mechanisms, the Act facilitates greater cooperation between Malaysian courts and foreign courts in managing cross-border insolvency cases.

Recognition of Foreign Insolvency Proceedings

A key feature of the Act is the recognition of foreign insolvency proceedings by Malaysian courts. Foreign representatives, such as liquidators or administrators appointed in another jurisdiction, may apply directly to the Malaysian High Court for recognition of those proceedings.

Foreign main proceedings

These are proceedings taking place in the jurisdiction where the debtor has its centre of main interests (“COMI”).

Foreign non-main proceedings

These are proceedings in jurisdictions where the debtor has an establishment but not its primary centre of operations.

Recognition of foreign main proceedings triggers automatic reliefs, including a stay on creditor actions and a suspension of the debtor’s ability to transfer or dispose of assets. In contrast, recognition of non-main proceedings allows the court to grant discretionary reliefs where appropriate.

Rights of Foreign Creditors and Representatives

The Act also enhances the rights of foreign creditors and representatives in cross-border insolvency matters.

Foreign creditors are granted the same rights as Malaysian creditors to commence or participate in insolvency proceedings in Malaysia. Where notice of insolvency proceedings is required under Malaysian law, such notice must also be given to known foreign creditors.

In addition, foreign representatives are permitted to apply directly to the Malaysian High Court for recognition of foreign proceedings or to seek relief available under the Act.

Concurrent Insolvency Proceedings

The Act also addresses situations where insolvency proceedings are taking place simultaneously in Malaysia and another jurisdiction. 

In such circumstances, Malaysian courts may coordinate with foreign courts to ensure that the proceedings are conducted efficiently and without duplication. Where Malaysian insolvency proceedings are already underway, any relief granted in respect of foreign proceedings must be consistent with the domestic proceedings.

Similarly, if Malaysian proceedings commence after the recognition of foreign proceedings, the court may review or modify the relief previously granted to ensure proper coordination between jurisdictions.

Conclusion

The enactment of the Act represents a significant development in Malaysia’s insolvency framework. By adopting the Model Law, Malaysia joins a growing number of jurisdictions that have implemented internationally recognised mechanisms for managing cross-border insolvency cases.

The Act enhances cooperation between courts, provides clearer procedures for recognising foreign insolvency proceedings and strengthens legal certainty for businesses and creditors operating across borders.

As cross-border commercial activities continue to grow, the new framework will play an important role in supporting Malaysia’s position as a modern and internationally aligned jurisdiction for business and investment.