A novel question is now confronting Malaysian insolvency practice: can a company be wound up when the debts it owes are denominated in cryptocurrency rather than in ringgit? As digital assets move from the periphery to the core of many business models, creditors and debtors alike are grappling with whether obligations in cryptocurrency such as Bitcoin, Ether, or stablecoins are “debts” for winding-up purposes. The short answer is that Malaysian law is equipped to address this question using existing statutory tests and principles. The more nuanced answer is that the recent Singapore High Court decision in Loh Cheng Lee Aaron and another v Hodlnaut Pte Ltd [2023] SGHC 323 offers a cogent, closely analogous roadmap that Malaysian courts are likely to find persuasive. Hodlnaut confirms that crypto-denominated obligations can count as debts in determining insolvency and underscores a holistic, time-sensitive approach to assessing a company’s ability to meet liabilities as they fall due.
In Hodlnaut, the Singapore High Court ordered the winding up of a cryptocurrency lending and borrowing platform under ss 125(1)(e) and 125(2)(c) of Singapore’s Insolvency, Restructuring and Dissolution Act 2018 (“IRDA”). The central issues were whether cryptocurrency obligations owed to customers counted as “debts” for insolvency purposes and whether the company was unable to pay its debts on a cash flow basis.
The Court held, first, that obligations to deliver cryptocurrency to creditors are debts relevant to the insolvency analysis[1]. The contention that only fiat-denominated liabilities should be recognized, was rejected. The Court emphasized that the cash flow insolvency test is broad and holistic: it asks whether current assets exceed current liabilities such that debts can be met as they fall due within a 12‑month timeframe, expressly taking account of contingent and prospective liabilities. In that analysis, cryptocurrency liabilities do not cease to be liabilities simply because they are not legal tender[2] and they can be assessed and valued by reference to money or money’s worth, as with other non-cash assets and obligations.[3]
Second, the Court dismissed the argument that a withdrawal halt imposed by the company negated or deferred its liabilities. A withdrawal halt may restrict access to the asset, but it does not extinguish or necessarily postpone liabilities for the purpose of assessing cash flow insolvency.[4]
Third, applying the holistic test, the Court found the company to be cash flow insolvent: assets realisable within 12 months were insufficient to meet present and upcoming liabilities, and market improvements were unlikely to remedy a substantial net liability position[5]. The Court declined to exercise its discretion to postpone winding up for restructuring in light of weak prospects and limited creditor support, and appointed the interim judicial managers as liquidators.[6]
The ratio is thus twofold: crypto obligations are cognizable debts in determining insolvency, and the court’s assessment of ability to pay is a holistic, commercially realistic appraisal over a near-term horizon, taking account of contingent and prospective liabilities and allowing reasonable time for asset realisation.
The Singapore IRDA and Malaysia’s Companies Act 2016 (“CA 2016”) adopt materially similar frameworks for winding up on insolvency. In Singapore, section 125(1)(e), IRDA provides that a company may be wound up if it is unable to pay its debts; section 125(2) sets out circumstances in which a company is deemed unable to pay its debts, including where it is proved to the court’s satisfaction that the company is unable to pay its debts, with contingent and prospective liabilities to be taken into account. In Malaysia, section 465(1)(e), CA 2016 likewise permits winding up if the company is unable to pay its debts, and section 466(1) sets out mutually exclusive modes of proof, including subsection (c), which empowers the court to determine inability to pay and requires the court to take into account contingent and prospective liabilities.
Both regimes, therefore, contemplate two core routes often seen in practice: a statutory demand route for a definite money sum and a broader “proved to the satisfaction of the court” route that invites a holistic solvency analysis. Critically, Malaysia’s section 466(1)(c) mirrors Singapore’s section 125(2)(c) in requiring the court to consider contingent and prospective liabilities, aligning both jurisdictions with a test that is not limited to a narrow snapshot of liquid debts but instead embraces a commercial assessment of the company’s financial position and capacity to meet obligations as they fall due.
Malaysian courts approach winding-up petitions through the lens of sections 465(1)(e) and 466(1), with subsection (c) enabling the court to determine actual inability to pay by taking into account contingent and prospective liabilities. Although Malaysia has not yet squarely decided a Hodlnaut-style crypto case, the reasoning trajectory is aligned when one examines Malaysian authorities such as Sinohydro Corporation (M) Sdn Bhd v Kaj Development Sdn Bhd [2022] CLJU 1411.
In Sinohydro, the High Court dealt with a petition premised on ss 465(1)(e) and 466(1)(c), CA 2016. The Court reaffirmed that the three limbs in section 466(1) are disjunctive. A petitioner may rely on section 466(1)(c) without a statutory demand.[7] Critically for present purposes, under section 466(1)(c) the court must assess the company’s overall assets and liabilities, taking into account contingent and prospective liabilities, to determine whether the company is unable to pay its debts.
A temporary liquidity squeeze is insufficient[8]. Applying that holistic approach, the Court dismissed the petition because the evidence showed sufficient realisable assets; the petitioner had not made out a prima facie case of inability to pay.[9]
Given the substantive parallels between Malaysia’s CA 2016 and Singapore’s IRDA, Malaysia already possesses the statutory foundation to recognise crypto-denominated obligations as “debts” for insolvency purposes. While Sinohydro did not directly address the contention that non-fiat liabilities fall outside the scope of “debts,” the reasoning in Hodlnaut provides persuasive authority for overcoming that argument. The denomination of a liability, whether in ringgit or cryptocurrency, should not obscure the underlying obligation to pay or the company’s practical ability to do so.
Accordingly, under section 466(1)(c) of the CA 2016, Malaysian courts can and should adopt a commercially realistic, evidence-based assessment that captures the full spectrum of the company’s financial obligations, including those in cryptocurrency. The analytical focus remains on solvency in substance, not the form of denomination. When the issue eventually reaches the Malaysian courts, Hodlnaut offers a cogent roadmap for integrating crypto assets into existing insolvency principles without the need for legislative overhaul, ensuring that technological innovation does not erode the coherence or efficacy of insolvency law.
The grounds of judgment for the Hodlnaut and Sinohydro cases can be accessed here.
If you have any queries, please contact Partner Andrew Chang Weng Shan (cws@lh-ag.com), or his Associate Jason Koh Wei Siong (kws@lh-ag.com).
[1] Para 11, Hodlnaut Grounds of Judgment (“GOJ”)
[2] Para 9, Hodlnaut GOJ
[3] Paras 10 and 11, Hodlnaut GOJ
[4] Para 14 and 15, Hodlnaut GOJ
[5] Para 16, Hodlnaut GOJ
[6] Para 17, Hodlnaut GOJ
[7] Para 23, Sinohydro GOJ
[8] Paras 30 and 31, Sinohydro GOJ
[9] Paras 33 – 35, Sinohydro GOJ
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