The International Association of Insolvency Regulators' (IAIR) website notes that individual insolvency matters in Malaysia are governed by the Malaysian Bankruptcy Act 1967, while corporate insolvencies are settled under the 1965 Companies Act. The judicial system in Malaysia offers the following solutions for companies in distress: liquidation of corporate entities, court approved schemes of arrangement, and private and court appointed receivers (and managers). The Corporate Law Reform Committee (CLRC), established in 2003 by the Companies Commission of Malaysia to reform the corporate law, in its report titled "Reforming the Corporate Insolvency Regime" concludes that the insolvency framework in Malaysia focuses mostly on liquidation which, in many cases, is the "only viable option for companies which are insolvent." As a part of its activities, the CLRC is contemplating adoption of a uniform insolvency law covering both individuals and entities. Most importantly, the new insolvency regime, according to the CLRC, should protect the rights of stakeholders of the company in financial distress, while at the same time making liquidation process less complicated. There is, however, insufficient publicly available information regarding Malaysia's compliance with the Principles and Guidelines for Effective Insolvency and Creditor Rights Systems developed by the World Bank.

General Overview

The International Association of Insolvency Regulators' (IAIR) website notes that individual insolvency matters in Malaysia are governed by the Malaysian Bankruptcy Act 1967, while corporate insolvencies are settled under the 1965 Companies Act. Per the IAIR website, the Companies Act 1965 allows for various corporate insolvency procedures, including arrangements and reconstructions; receivers and managers; and winding up. The legal system in Malaysia allows for three different procedures under liquidation: members' voluntary liquidation, creditors' voluntary liquidation, and compulsory winding-up by the court. The second insolvency option, court approved schemes of arrangement, is a restructuring process initiated by the debtor but has to be sanctioned by the court. This route is usually chosen for companies that want to reach a debt settlement with their creditors; however, the processes involved are regarded as costly and cumbersome. Receivership, the third alternative, does not require court involvement and is widely used by banks as it permits them to take control of their securities relatively fast. An additional insolvency option, according to Nathan & San Peen, was the Special administration by Pengurusan Danaharta Nasional Berhad (or Special Asset Management Corporation) but it ended its operations in 2005. Overall, the Corporate Law Reform Committee (CLRC) in its report "Reforming the Corporate Insolvency Regime" observes that "while most of the general principles of corporate insolvency law are found in company's liquidation provisions within the Companies Act 1965, the present framework is very much focused on the liquidation or winding up of a company. Liquidation has also often been seen as the only viable option for companies which are insolvent" (pp. 2-3).

The Companies Commission of Malaysia (CCM) established the CLRC in 2003 to review the Malaysian corporate law, the Companies Act 1965. The Committee divided the work into four Working Groups. Working Group D is assessing the law as it is presently, as well as practices relevant to corporate securities and insolvency. The CLRC is considering, among other things, whether there should be one insolvency law covering both individuals and entities. The CLRC issued a report stating that certain views favor the enactment of a single insolvency act as the present corporate liquidation or winding up framework is too complex given that large cross-references are made to the different bankruptcy principles and rules provided for in the Bankruptcy Act 1967. For instance, one such confusion arises from the implementation of section 53 of the Bankruptcy Act 1967 under section 293 of the Companies Act 1965 for undue preference transactions. The application of this section has created confusion, and at times failed to provide a clear understanding of the corporate insolvency regulatory framework. Furthermore, the same report notes that most importantly, the new insolvency regime should protect the rights of stakeholders of the company in financial distress, while at the same time making the liquidation process less complicated.

The World Bank's 2008 Doing Business in Malaysia snapshot of closing a business evaluates the effectiveness of the insolvency regime in Malaysia along three dimensions: the average time (in years) to complete a bankruptcy proceeding, the average cost of such proceedings (as a percentage of the estate), and the recovery rate to creditors (expressed in cents on the dollar). For Malaysia, the time averages 2.3 years, and the cost is, on average, 15% of the estate. Creditors recover, on average, 38.3 cents on the dollar. By comparison, member states of the Organization for Economic Cooperation and Development average 1.3 years, 7.5% of the estate in costs, and a recovery rate of 74.1 cents on the dollar, respectively.