Malaysia Enacts Cross-Border Insolvency Act 2026

Introduction

Malaysia has enacted the Cross-Border Insolvency Act 2026 (Act 877) (“Act”), which received Royal Assent on 20 January 2026 and was published in the Gazette on 30 January 2026. The Act will come into operation on a date to be appointed by the Minister charged with responsibility for law by notification in the Gazette.

The Act adopts the principles of the UNCITRAL Model Law on Cross-Border Insolvency dated 30 May1997, representing a significant modernisation of Malaysia's insolvency regime.

Key Objectives

The Act's objectives include fostering cooperation between Malaysian and foreign courts, providing legal certainty for trade and investment, ensuring fair administration of cross-border insolvencies, maximising debtor property value, and facilitating the rescue of financially troubled businesses.

Scope of Application

The Act applies to corporations as defined in the Companies Act 2016 and the Labuan Companies Act 1990, but expressly excludes individuals under the Insolvency Act1967, limited liability partnerships, and registered businesses under various state and federal business licensing statutes.

Notably, the Act contains significant carve-outs for regulated financial institutions. It does not apply to licensed financial institutions, Islamic financial institutions, development financial institutions, member institutions under the Malaysia Deposit Insurance Corporation Act 2011, stock exchanges, derivatives exchanges, clearing houses, central depositories, and various Labuan-licensed entities including Labuan banks, investment banks, insurers, reinsurers, takaful operators, trust companies, and foundations.

Recognition of Foreign Proceedings

The Act defines "foreign proceedings" as collective judicial or administrative proceedings in a foreign State, including interim proceedings, under the law relating to insolvency in which the property and affairs of the debtor are subject to control or supervision by a foreign court, for the purposes of reorganisation or liquidation. This broad definition encompasses a wide range of insolvency-related processes, whether formal court-supervised proceedings or administrative procedures, provided they involve collective creditor participation and supervisory oversight over the debtor's property and affairs. Importantly, interim or provisional proceedings also fall within the definition, enabling foreign representatives to seek recognition even while foreign insolvency proceedings are at an early stage.

A foreign representative may apply directly to the High Court in Malaya or the High Courtin Sabah and Sarawak for recognition of foreign proceedings. Applications for recognition must be accompanied by a certified copy of the decision commencing the foreign proceedings and appointing the foreign representative, or a certificate from the foreign court affirming the existence of the foreign proceedings and the appointment. The High Court is required to determine applications for recognition at the earliest possible time.

Effects of Recognition and Relief

Upon recognition, individual actions concerning the property, rights obligations or liabilities of the debtor is stayed, execution against debtor property is stayed, and the right to dispose of debtor property is suspended. These have the same effect as a winding-up order under Malaysian law.

The Court may also grant discretionary relief upon recognition of any foreign proceedings, including orders staying actions, suspending property disposal rights, directing examination of witnesses, and entrusting property administration to the foreign representative or a Malaysian insolvency office-holder.

Access Rights

Foreign representatives have direct access to Malaysian courts and may appear in person or through an advocate. Foreign creditors have the same rights as Malaysian creditors and cannot be ranked lower than general unsecured creditors solely due to their foreign status, though foreign tax, social security, and superannuation claims may be excluded.

Cooperation with Foreign Courts and Representatives

The Act mandates cooperation between Malaysian courts and insolvency office-holders with their foreign counterparts to the maximum extent possible, including direct communication and information sharing. Cooperation may include coordinating administration of debtor property, implementing agreements on coordination of proceedings, and managing concurrent proceedings.

Concurrent Proceedings

After recognition of foreign main proceedings, Malaysian insolvency proceedings are generally limited to property located in Malaysia. Where concurrent proceedings exist, the Court must ensure consistency between relief granted and Malaysian proceedings and that automatic stays do not apply if foreign main proceedings are recognised after Malaysian proceedings have commenced.

Protection of Creditors and Interested Persons

In granting relief, the Court must ensure adequate protection for creditors (including Malaysian creditors, secured creditors, and hire-purchase parties) and may impose conditions such as requiring security. Transferring property outside Malaysia requires court leave and certification that Malaysian creditors' claims below a prescribed threshold have been satisfied.

Public Policy Exception

The Court retains discretion to refuse any action or relief that would be contrary to the public policy of Malaysia.

Avoidance Actions

Upon recognition of foreign proceedings, a foreign representative has standing to apply to the Court for avoidance actions under relevant provisions of the Companies Act 2016 and the Labuan Companies Act 1990. These include actions relating to preferences, floating charges, and other transactions that may be detrimental to creditors. However, this power does not apply retrospectively to transactions entered into before the Act comes into operation.

Regulatory Restrictions

The Act contains important restrictions where regulatory authorities are involved. Recognition, relief, and cooperation under the Act are not permitted if theywould be prohibited by certain provisions of the Financial Services Act 2013, Islamic Financial Services Act 2013, Malaysia Deposit Insurance Corporation Act 2011, or Capital Markets and Services Act 2007.

The Act also protects the finality of payment and netting arrangements under financial services legislation and the enforceability of netting provisions in qualified financial agreements. Additionally, where regulatory authorities such as Bank Negara Malaysia, the Securities Commission Malaysia, or the Labuan Financial Services Authority have issued specific directions or orders in respect of a person for purposes of financial stability or systemic risk management, recognition and relief under the Act require the prior written approval of the relevant authority.

What This Means for Local Players

Malaysian corporations and insolvency practitioners now have a structured framework for dealing with cross-border insolvencies involving foreign counter parties. Local creditors benefit from explicit statutory protections as the Act mandates that Malaysian courts must ensure their interests are adequately protected before granting relief to foreign representatives, and any transfer of debtor property outside Malaysia requires prior court leave and certification that Malaysian creditors below a prescribed threshold have been satisfied. This offers meaningful safeguards against value leakage in cross-border restructurings.

Malaysian insolvency office-holders are expressly authorised to cooperate and communicate directly with foreign courts and representatives. This legitimises cross-border coordination efforts and should reduce uncertainty when Malaysian proceedings run concurrently with foreign proceedings. However, where concurrent proceedings exist, Malaysian proceedings will generally be limited to assets located in Malaysia, which may constrain the reach of local office-holders in complex group restructurings.

For local financial institutions, the broad carve-outs in the Schedule are significant. Licensed banks, insurers, securities market operators, and other regulated entities remain subject to their sector-specific resolution regimes under the Financial Services Act 2013, Islamic Financial Services Act 2013, and the Malaysia Deposit Insurance Corporation Act 2011, rather than this Act. This preserves regulatory control over systemically important institutions and ensures continuity in how their distress situations are managed.

What This Means for Foreign Investors

Foreign investors and multinational groups with Malaysian subsidiaries or assets now have a clear pathway to seek recognition of foreign insolvency proceedings in Malaysia. The Act grants foreign representatives direct access to the Malaysian High Courts without requiring submission to full local jurisdiction, removing a significant procedural barrier. Applications for recognition must be determined at the earliest possible time.

Once foreign main proceedings are recognised, the Act provides automatic stays on individual creditor actions and executions against the debtor's Malaysian assets, mirroring the effect of a local winding-up order. This is a substantial benefit for foreign insolvency practitioners seeking to preserve asset value and prevent a race to enforcement by local creditors. Foreign representatives may also apply for discretionary relief, including orders entrusting the administration of Malaysian assets to them or examining witnesses and gathering evidence.

Foreign creditors are afforded equal treatment with Malaysian creditors in terms of participation rights and cannot be ranked lower than general unsecured creditors solely by reason of being foreign. However, foreign tax claims, social security claims, and superannuation claims may be excluded from Malaysian proceedings, which investors should factor into recovery expectations.

Critically, cooperation and recognition under the Act may be refused or subject to prior regulatory approval where financial stability concerns are engaged. Foreign investors dealing with Malaysian financial institution counterparties should be aware that the Act's benefits may not extend to situations involving regulated entities or where Bank Negara Malaysia, the Securities Commission, or the Labuan Financial Services Authority has issued specific directions.

Conclusion

The Cross-Border Insolvency Act 2026 aligns Malaysia with international best practices under the UNCITRAL Model Law. Stakeholders should familiarise themselves with the Act and monitor for its commencement date.

Please contact us if you have any questions regarding the Act's implications for your business.

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