MALAYSIA Trends and Developments Contributed by: Rabindra S. Nathan, Rodney Gomez, K. Shanti Mogan and Alexius Lee, Shearn Delamore & Co
Malaysia is a signatory to the New York Conven - tion and has incorporated the spirit and principles of the UNCITRAL Model Law (“Model Law”) into its arbitration framework. In recent years, Malaysia has emerged as one of Asia’s preferred seats of arbitra - tion, driven largely by the pro-arbitration stance con - sistently adopted by the Malaysian judiciary. Amend - ments to the Arbitration Act 2005 (“AA 2005”) have progressively brought Malaysia’s arbitration regime into closer alignment with the Model Law, underscor - ing the nation’s strong commitment to fostering an arbitration-friendly environment. Clarification of Interplay Between Arbitration Agreements and Insolvency Pursuant to Section 10 of the AA 2005, the court will stay court proceedings in favour of arbitration where an arbitration agreement exists between parties to the same unless the party making the stay application has taken other steps in the proceedings or the court finds the arbitration agreement is null and void, inoperative or incapable of being performed. Recently, the Federal Court and Court of Appeal in Malaysia have provided clarification on how arbitra - tion agreements interact with insolvency proceedings, particularly in the context of winding-up petitions and companies in liquidation. Arbitration agreements not an automatic shield to stay winding-up proceedings The Federal Court decision in V Medical Services M Sdn Bhd v Swissray Asia Healthcare Co Ltd [2025] 2 MLJ 744 marks a significant development in clarifying the conflict between enforcing arbitration agreements and the statutory regime governing insolvency. In this case, V Medical Services (M) Sdn Bhd (“V Medi - cal”) sought a Fortuna Injunction to restrain Swissray Asia Healthcare Co Ltd (“Swissray”) from presenting a winding-up petition against V Medical on the ground that the debt was disputed and there was an arbitra - tion clause in the agreement governing the transaction between the parties. The High Court granted the Fortuna Injunction by applying the lower threshold test of “prima facie dispute” pronounced in Salford Estates (No 2) Ltd v
Altomart Ltd (No 2) [2014] EWCA Civ 1575 (“Salford”) – ie, upon a prima facie consideration of the matter, if it appears that the debt is denied or disputed simpliciter, then the matter ought to proceed to arbitration. However, the Court of Appeal overturned this deci - sion and set aside the Fortuna Injunction granted by the High Court, holding instead that the proper test was that of the existence of a “genuine or bona fide dispute” pronounced in Sian Participation Corp (in liq- uidation v Halimeda International Ltd [2024] UKPC 16 (“Sian”) – ie, the test of whether a company was insol - vent was whether there was a genuine dispute of the debt on substantial grounds, irrespective of whether the parties had an arbitration agreement. The Federal Court endorsed the higher threshold “genuine or bona fide dispute” test set out in Sian and affirmed that a winding-up petition subject to an arbitration clause should only be stayed where the debt was genuinely disputed on substantial grounds. As explained by the Federal Court, the application of the Arbitration Act 2005 (AA) does not extend to the insolvency provisions under the Companies Act 2016 (CA), and ought not to be invoked in the exercise of discretion in determining whether to grant a Fortuna Injunction, or stay, dismiss or allow a winding-up peti - tion. Any such step would be contrary to the purpose and object of the AA and CA. The Federal Court emphasised that the court’s role in an insolvency proceeding is to ascertain whether the respondent or defendant to the winding up peti - tion is insolvent or otherwise, to enable the collective enforcement of debts for the benefit of unsecured creditors who would otherwise be prejudiced if the insolvent company were allowed to continue to oper - ate. Whether winding-up would render an arbitration agreement inoperative Previously, the High Court in Biaxis (M) Sdn Bhd (In Liquidation) v Peninsula Education (Setia Alam) Sdn Bhd (formerly known as Segi International Learning Alliance Sdn Bhd) [2023] MLJU 2938 held that an arbitration agreement becomes inoperative once one of the parties to the agreement is wound up. In that case, the liquidator of a company initiated an action
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