MALAYSIA Law and Practice Contributed by: Samantha Chiang Xin Li, Yee Yik Shien and Tay Zi Li, Zi Li & Partners
is resolved. Note that judicial management orders will not be granted if opposed by a secured credi- tor. If a judicial manager is appointed, a full statu- tory moratorium continues until discharge, staying all enforcement and legal proceedings unless the court grants leave. • Corporate voluntary arrangement – an automatic moratorium takes effect upon filing, lasting 28 days (extendable with creditor consent). The moratorium prevents any appointment of a judicial manager and the lenders are barred from enforcing security or commencing proceedings without leave of the court. Corporate voluntary arrangements are not available for a company that creates a charge over its property or any of its undertakings. 7.2 Waterfall of Payments Generally, creditors are paid in the following order of priority on a company’s insolvency. Secured Creditors Secured creditors have first priority over the secured assets on a company’s insolvency. Where more than one secured creditor has security over the same asset, priority is generally determined by the order of creation of the security interest, subject to registra- tion requirements, where applicable. If the proceeds are insufficient, a secured creditor may claim as an unsecured creditor for the shortfall. If the proceeds exceed the debt, they must pay the surplus (after interest of up to six months and after discharging any prior charges) to the liquidator. Preferential Creditors Under the Companies Act, preferential creditors are entitled to be paid in priority to all other unsecured debts. The following categories of claims are consid- ered preferential: • costs and expenses of the winding-up; • all wages and salaries; • all amounts due in respect of workers’ compensa- tion under any written law; • all remuneration payable to any employee in respect of vacation leave, or in the case of their death, to any other person in their place, accrued in respect of any period before the commencement of the winding-up;
• all amounts due in respect of social security con- tribution provident funds payable during the 12 months immediately before the commencement of the winding-up by the company; and • the amount of all federal tax assessed under any written law before the date of the commencement of the winding-up, or assessed at any time before the time fixed for the proving of debts has expired. Unsecured Creditors Creditors who do not hold any security interest over the company’s assets are generally paid only after secured and preferential creditors. All unsecured debts rank equally and are paid pari passu from the remaining assets. 7.3 Length of Insolvency Process and Recoveries In Malaysia, voluntary winding-up generally takes between six and 18 months, depending on the com- plexity of the company’s affairs, number of assets, and creditor negotiations. Compulsory winding-up by the court often takes longer, ranging from months to even years, due to court proceedings, verification of claims, and potential disputes among creditors or shareholders. Winding-up in Malaysia is generally effective for ensuring creditors receive repayments according to their statutory priorities as discussed in 7.2 Waterfall of Payments , with secured creditors with a strong security package being more likely to recover full or substantial face value. However, unsecured creditors often face lower recoveries, particularly in cases where company assets are limited or difficult to realise. 7.4 Rescue or Reorganisation Procedures Other Than Insolvency The Companies Act establishes a legal framework for financially distressed companies to restructure their operations and finances, allowing them to maintain business continuity, safeguard employment, and potentially avoid liquidation. The Companies Act pro- vides three principal corporate rescue mechanisms, as follows.
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