Some key features of the Bill are highlighted below.

(1) Definition of Debtor

The Bill applies to corporations governed by the Companies Act 2016 and the Labuan Companies Act 1990, but it excludes the insolvency and bankruptcy of individuals, registered or licenced businesses under specific statutes[4], limited liability partnerships under the Limited Liability Partnerships Act 2012, and any person specified in Part I of the Schedule, such as financial institutions, exchange holding companies, central depositories, etc.[5]

 

(2) Application for Recognition of Foreign Proceedings

A foreign representative[6] may apply to the High Court for recognition of insolvency proceedings in a foreign state as “foreign proceedings”[7]. Such an application for recognition shall be accompanied by[8]:

(a) A certified copy of the decision commencing the foreign proceedings and appointing the foreign representative;

(b) A certificate from the foreign court affirming the existence of the foreign proceedings and the appointment of the foreign representative;

(c) In the absence of evidence referred to in paragraphs (a) and (b), any other evidence acceptable to the Court of the existence of the foreign proceedings and the appointment of the foreign representative; and

(d) A statement identifying all foreign proceedings and any proceedings under Malaysian insolvency law in respect of the debtor that are known to the foreign representative.

Upon satisfaction of the requirements for recognition, the Court shall recognise the foreign proceedings by making a recognition order[9], save and except where the recognition would be contrary to public policy of Malaysia.[10]

 

(3) Classification of Foreign Proceedings

Upon recognition, the Court may classify the foreign proceedings as either:

(a) Foreign main proceedings – namely foreign proceedings taking place in a foreign State where the debtor has its centre of main interest; or

(b) Foreign non-main proceedings – namely foreign proceedings other than foreign main proceedings taking place in a foreign State where the debtor has an establishment.

The classification will determine the type and extent of reliefs available to the foreign representative against the debtor company.

 

(4) Centre of Main Interest (COMI) vs Establishment

In determining whether a foreign proceeding qualifies as a foreign main proceeding, the fundamental question is the location of the debtor’s centre of main interest (“COMI”).[11]

Whilst COMI has not been defined in the Bill, the Bill contains a rebuttable presumption that the COMI is where the registered office of the debtor is located.[12] This presumption may be displaced where evidence indicates otherwise. Further guidance may be drawn from the UNCITRAL Guide to Enactment and Interpretation, which identifies two key factors in determining the COMI[13]:

(a) The location where the central administration of the debtor is conducted; and

(b) Which is readily ascertainable as such by creditors of the debtor.

As a debtor’s COMI may shift over time depending on a debtors’ affairs, the relevant date to determine the COMI is generally the date of commencement of the foreign proceedings.[14]

In contrast, for a foreign non-main proceeding, the foreign representative would have to demonstrate that the debtor has an establishment in the foreign state, namely any place where the debtor has property, or any place of operations where the debtor carries out non-transitory economic activity with human means and property or services.[15]

 

(5) Effect of Recognition and Reliefs Available

Subject to statutory exceptions, upon recognition of foreign proceedings as foreign main proceedings, an automatic moratorium will be triggered whereby[16]:

(a) The commencement or continuation of any individual action or proceeding in relation to the property, rights, obligations or liabilities of the debtor shall be stayed;

(b) Any execution against the property of the debtor shall be stayed; and

(c) Any right to transfer, encumber, or otherwise dispose of any property of the debtor shall be suspended.

In the event the foreign proceeding is recognised as a foreign non-main proceeding, there is no automatic moratorium. The foreign representative may nevertheless apply to Court to seek for necessary orders including those in (a) to (c) above to protect the property of the debtor or the interests of its creditors.[17]

Further, upon recognition, a foreign representative will also be clothed with the locus standi to apply to Court for reliefs under specific provisions of the Companies Act 2016, such as an application for scheme of arrangement under Section 366, an application for avoidance of dispositions of property under Section 472, and an application to challenge transactions for undue preference under Section 528 or fraudulent trading under Section 540[18].

 

Moving Forward

The Bill signifies a progressive step towards aligning Malaysia’s insolvency regime with international best practices. If passed, it will enhance Malaysia’s reputation as a jurisdiction supportive of cross-border commerce and creditor protection, and provide greater legal certainty in navigating multinational insolvency proceedings. It will be interesting to see how the Malaysian Courts, foreign and local insolvency practitioners, and regulators adapt to this new legal regime in practice.

For any inquiries, please contact the authors, Partner Wong Han Wey (whw@lh-ag.com) or Senior Associate Medha Ong Ann Ting (oat@lh-ag.com).

 

REFERENCES

[1] See https://www.parlimen.gov.my/bills-dewan-rakyat.html?uweb=dr&lang=en#

[2] See https://uncitral.un.org/en/texts/insolvency/modellaw/cross-border_insolvency/status

[3] Preamble, Bill

[4] Section 2(b), Bill – Registration of Businesses Act 1956, Trades Licensing Ordinance (Sabah Cap 144), Businesses, Professions and Trades Licensing Ordinance (Sarawak Cap 33), and Business Names Ordinance (Sarawak Cap 64)

[5] Section 2(b), Bill

[6] “Person or body appointed, including a person or body appointed on an interim basis, and authorized in foreign proceedings to administer the reorganization or liquidation of a debtor’s property or affairs or to act as a representative of the foreign proceedings”, Section 2, Bill

[7] “collective judicial or administrative proceedings in a foreign State, including interim proceedings, under the law relating to insolvency in which proceedings the property and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganization or liquidation ”, Section 2, Bill

[8] Section 15(2), Bill

[9] Section 17(2), Bill

[10] Section 7, Bill

[11] Definition of “foreign main proceedings”, Section 2, Bill

[12] Section 16(3), Bill

[13] UNCITRAL Guide to Enactment and Interpretation, pages 70 and 71

[14] UNCITRAL Guide to Enactment and Interpretation, page 75

[15] Definition of “foreign non-main proceedings” and “establishment”, Section 2, Bill

[16] Section 20(1), Bill

[17] Section 21(1), Bill

[18] Section 23(1), Bill