Key takeaways

Application

The Bill is designed to apply only to corporate debtors, namely "corporations" as defined in Section 3 of the Companies Act, 2016 or Section 2 of the Labuan Companies Act 1990. It is not intended to apply to individuals, both foreign and local limited liability partnerships, persons engaged in registered or licensed business under the Registration of Businesses Act 1956, Trades Licensing Ordinance, Businesses, Professions and Trades Licensing Ordinance and Business Names Ordinance, or any persons specified in Part I of the Schedule.

Clause 3(1) of the Bill envisages for the mechanism to apply in four scenarios:

1. When assistance is being sought in Malaysia either by a foreign court or foreign representative;
2. When assistance is sought in a foreign jurisdiction in relation to a Malaysian insolvency proceeding;
3. When there are concurrent ongoing insolvency proceedings in Malaysia and another jurisdiction involving the same debtor; or
4. When foreign creditors are interested in commencing or participating in Malaysian insolvency proceedings.

Rights of foreign creditors and representatives

Under the Bill, foreign creditors and representatives are granted the same rights as Malaysian creditors to commence and participate in proceedings under Malaysian insolvency law (excluding certain claims, such as for social security, foreign tax and employee's superannuation or provident funds).

Where Malaysian law requires creditors to be notified about insolvency proceedings, then such notice should also be provided to all known foreign creditors.

Foreign representatives are granted the right to apply directly to the High Court of Malaya or the High Court of Sabah and Sarawak for the recognition of those proceedings, or to seek other relief available under the Bill.

Recognition of foreign proceedings by Malaysian Courts

The Bill if enacted, empowers the Malaysian High Court to recognize foreign insolvency proceedings, minus the protracted timelines and procedural hurdles. In this regard, the Bill distinguishes foreign "main" and "non-main" proceedings:

In both scenarios, the High Court will recognize the foreign proceedings provided that the application complies with the documentary requirements set out in the Bill. As there are measures under the Bill requiring the High Court to deal with such applications promptly, certain presumptions exist to further expedite this process. This includes the presumption of authenticity and validity of documents from the foreign proceedings and the applicant's appointment. The High Court nevertheless retains the discretion to refuse any application where contrary to public policy in Malaysia.

At the application stage, the High Court may also grant interim relief where urgent protection is required. Upon recognition of foreign "main" proceedings, automatic reliefs are applied. These include: (i) a stay on the commencement or continuation of individual legal actions or proceedings, (ii) a stay of execution against the debtor's property and (iii) a suspension of the debtor's rights to transfer or dispose of property.

The High Court may also grant additional relief, including but not limited to, examination of witnesses and production of information.

Protection of local creditors and interested parties

Additionally, any relief granted must on balance, ensure adequate protection of both local creditors as well as any other interested persons. For instance, before a debtor's property is transferred out of Malaysia following recognition of foreign proceedings, the foreign representative must obtain leave of the Malaysian High Court by demonstrating that the interests of local creditors and interested parties are adequately protected before cross-border distributions proceed. The High Court is also empowered to impose conditions or modify or terminate any relief granted, where it deems just and appropriate to do so.

Concurrent proceedings

Where there are concurrent Malaysian and foreign insolvency proceedings involving the same debtor, the Bill seeks to promote cooperation between the jurisdictions to ensure that there are no overlaps in proceedings and that the remedies are coordinated.

1. If the Malaysian insolvency proceedings are ongoing at the time foreign recognition is sought, any relief granted must be consistent with those granted in the Malaysian proceedings.
2. If the Malaysian insolvency proceedings come after the filling of the foreign recognition application, the Court may also review, vary, or even set aside the relief granted if inconsistent with the Malaysian insolvency proceedings.
3. After recognition of foreign main proceedings, any Malaysian insolvency proceedings relating to the same debtor will be limited to the debtor's Malaysian-based assets.
4. The Bill also prevents creditor(s) from double-dipping and receiving disproportionate payments in Malaysia if it has already been partially paid under foreign insolvency proceedings, subject to security claims and rights in rem, under the equitable distribution rule.

Concluding remarks

The Bill represents a timely and progressive development in Malaysia's legal landscape, addressing a longstanding gap in cross-border recognition. Malaysia's adoption of the UNCITRAL Model Law brings about strategic opportunities and clearer avenues, in particular, for corporations with cross-jurisdictional operations and creditors, to seek recognition and relief at the Malaysian High Court on a more level playing field. Join us in our webinar to acquaint yourself with this new mechanism and discover how these provisions, once enacted can be fully leveraged on by your business in the various cross-border scenarios.

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Rachel Tey, Senior Associate, has contributed to this legal update.

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