Malaysia’s Restructuring Reforms:
A New Chapter in Corporate Rescue
July 2025
Malaysia’s restructuring landscape has undergone a significant transformation following the enactment of the Companies (Amendment) Act 2024. The amendments to the Companies Act 2016 (“CA 2016") represent a concerted effort to align the country's corporate rescue with international restructuring standards.
These reforms aim to address longstanding limitations in Malaysia's scheme of arrangement framework, including procedural inefficiencies, restricted moratorium protections, and limited tools for addressing dissenting creditors. By introducing mechanisms such as pre-packaged schemes, automatic moratoria, super-priority financing, and cross-class cram downs, the amendments place Malaysia on a markedly improved footing.
Number of Bankruptcies in Malaysia Between Feb 2024 and Jan 2025
Hover over the points to find out more
Source: CEI
Malaysia’s restructuring landscape has undergone a significant transformation following the enactment of the Companies (Amendment) Act 2024. The amendments to the Companies Act 2016 (“CA 2016") represent a concerted effort to align the country's corporate rescue with international restructuring standards.
These reforms aim to address longstanding limitations in Malaysia's scheme of arrangement framework, including procedural inefficiencies, restricted moratorium protections, and limited tools for addressing dissenting creditors. By introducing mechanisms such as pre-packaged schemes, automatic moratoria, super-priority financing, and cross-class cram downs, the amendments place Malaysia on a markedly improved footing.
Number of Bankruptcies in Malaysia Between Feb 2024 and Jan 2025
Click the points to find more
Source: CEI
A New Beginning: Automatic Moratorium and Restraining Orders
A New Beginning: Automatic Moratorium
and Restraining Orders
Among the notable key amendments is the introduction of an automatic moratorium upon the filing of a restraining order application. Under the new Section 368(1A), a distressed company is granted an immediate two-month stay on creditor action or until the court disposes of the restraining order application, whichever occurs earlier.
A restraining order effectively suspends a wide range of creditor actions against the company. This includes a prohibition on winding-up proceedings, the appointment of receivers, the commencement or continuation of legal actions (except with leave of court), enforcement of security interests, execution or distress proceedings, and the exercise of re-entry or forfeiture rights under leases.
If the court grants the restraining order, the statutory moratorium is extended by three more months under Section 368(2), with the possibility of a subsequent nine-month extension. This mechanism permits a maximum protection period of 14 months.
Among the notable key amendments is the introduction of an automatic moratorium upon the filing of a restraining order application. Under the new Section 368(1A), a distressed company is granted an immediate two-month stay on creditor action or until the court disposes of the restraining order application, whichever occurs earlier.
A restraining order effectively suspends a wide range of creditor actions against the company. This includes a prohibition on winding-up proceedings, the appointment of receivers, the commencement or continuation of legal actions (except with leave of court), enforcement of security interests, execution or distress proceedings, and the exercise of re-entry or forfeiture rights under leases.
If the court grants the restraining order, the statutory moratorium is extended by three more months under Section 368(2), with the possibility of a subsequent nine-month extension. This mechanism permits a maximum protection period of 14 months.
Key Timeframes in Applying and Extending a Restraining Order
Click to find out more
Key Timeframes in Applying and
Extending a Restraining Order
Hover over the points to find out more
Safeguarding the Integrity of the Process: Cooling-Off Measures
Safeguarding the Integrity of the Process:
Cooling-Off Measures
Section 368(3B) of the Companies Act 2016 introduces a twelve-month cooling-off period to address concerns over repeat or abusive filings. A company that has previously obtained a restraining order under Section 368(1) or relief under Sections 368A, 368B, 368D, or 369 is barred from applying for a fresh restraining order within 12 months of the order or relief being granted.
In Martin Bencher (Malaysia) Sdn Bhd v Sapura Energy Berhad & Ors, the Court of Appeal clarified that this period runs from the date of the initial order, regardless of any subsequent extension. As a restraining order may be extended from three to 12 months, this interpretation allows a company to file another scheme almost immediately after the extended period expires, thereby limiting the practical effect of the cooling-off safeguard.
To mitigate this, the courts have imposed a higher threshold for successive filings. In KNM Group Berhad v Ann Joo Metal Sdn Bhd [2024] CLJU 1250, the High Court held that where a scheme has been rejected on its merits, a fresh application based on the same proposal without material amendments may amount to an abuse of process. Judicial discretion thus operates as a substantive check against the recycling of failed schemes, ensuring that the cooling-off period serves both procedural and substantive purposes.
The legislative objective is to deter serial applications that may prejudice creditors. While the precise operation of Section 368(3B) may evolve through judicial interpretation, the provision reflects a policy balance between restructuring flexibility and procedural discipline.
Section 368(3B) of the Companies Act 2016 introduces a twelve-month cooling-off period to address concerns over repeat or abusive filings. A company that has previously obtained a restraining order under Section 368(1) or relief under Sections 368A, 368B, 368D, or 369 is barred from applying for a fresh restraining order within 12 months of the order or relief being granted.
In Martin Bencher (Malaysia) Sdn Bhd v Sapura Energy Berhad & Ors, the Court of Appeal clarified that this period runs from the date of the initial order, regardless of any subsequent extension. As a restraining order may be extended from three to 12 months, this interpretation allows a company to file another scheme almost immediately after the extended period expires, thereby limiting the practical effect of the cooling-off safeguard.
To mitigate this, the courts have imposed a higher threshold for successive filings. In KNM Group Berhad v Ann Joo Metal Sdn Bhd [2024] CLJU 1250, the High Court held that where a scheme has been rejected on its merits, a fresh application based on the same proposal without material amendments may amount to an abuse of process. Judicial discretion thus operates as a substantive check against the recycling of failed schemes, ensuring that the cooling-off period serves both procedural and substantive purposes.
The legislative objective is to deter serial applications that may prejudice creditors. While the precise operation of Section 368(3B) may evolve through judicial interpretation, the provision reflects a policy balance between restructuring flexibility and procedural discipline.
Restraining Orders for Related Companies: Facilitating Group Restructurings
The introduction of Section 368A enables related companies, such as subsidiaries, affiliates, or holding companies, to apply for restraining orders, provided that:
- the related entity plays a necessary and integral role in the restructuring; and
- the creditors of that entity will not be unfairly prejudiced.
This provision is particularly significant in situations of group-wide financial distress, where a coordinated restructuring across multiple entities is essential. Its practical utility was demonstrated in the recent restructuring of the Sapura group, where simultaneous relief across affiliated entities was critical to the overall rescue effort.
Super-Priority Rescue Financing: Encouraging New Money
Sections 368B and 415A introduce a statutory framework for super-priority rescue financing in the context of scheme proceedings and judicial management, respectively. These provisions empower the court to confer preferential status on new funding to distressed companies. The court may:
- accord priority ranking immediately after liquidation expenses;
- authorize the creation of new security over previously unsecured assets; or
- permit the granting of security interests ranking equally with, or higher than, existing secured creditors, subject to adequate protection of their interests.
This reform addresses a key obstacle to rescue financing in Malaysia, namely the lack of statutorily sanctioned priority or security.
Binding the Dissenters: Cross-Class Cram Down
Section 368D introduces a cross-class cram down mechanism, enabling the court to sanction a scheme of arrangement even in the face of opposition from one or more creditor classes. For this provision to apply, the scheme must:
- be approved by at least 75% in value of all creditors present and voting, irrespective of class; and
- not unfairly discriminate against any dissenting class, and be fair and equitable overall.
This power significantly reduces the ability of minority creditors to derail an otherwise viable restructuring.
Restraining Orders for Related Companies: Facilitating Group Restructurings
The introduction of Section 368A enables related companies, such as subsidiaries, affiliates, or holding companies, to apply for restraining orders, provided that:
- the related entity plays a necessary and integral role in the restructuring; and
- the creditors of that entity will not be unfairly prejudiced.
This provision is particularly significant in situations of group-wide financial distress, where a coordinated restructuring across multiple entities is essential. Its practical utility was demonstrated in the recent restructuring of the Sapura group, where simultaneous relief across affiliated entities was critical to the overall rescue effort.
Super-Priority Rescue Financing: Encouraging New Money
Sections 368B and 415A introduce a statutory framework for super-priority rescue financing in the context of scheme proceedings and judicial management, respectively. These provisions empower the court to confer preferential status on new funding to distressed companies. The court may:
- accord priority ranking immediately after liquidation expenses;
- authorize the creation of new security over previously unsecured assets; or
- permit the granting of security interests ranking equally with, or higher than, existing secured creditors, subject to adequate protection of their interests.
This reform addresses a key obstacle to rescue financing in Malaysia, namely the lack of statutorily sanctioned priority or security.
Binding the Dissenters: Cross-Class Cram Down
Section 368D introduces a cross-class cram down mechanism, enabling the court to sanction a scheme of arrangement even in the face of opposition from one or more creditor classes. For this provision to apply, the scheme must:
- be approved by at least 75% in value of all creditors present and voting, irrespective of class; and
- not unfairly discriminate against any dissenting class, and be fair and equitable overall.
This power significantly reduces the ability of minority creditors to derail an otherwise viable restructuring.
Streamlining the Process:
Pre-Packaged Schemes
Streamlining the Process:
Pre-Packaged Schemes
Malaysia now recognizes pre-packaged schemes of arrangement, which allow companies to obtain court sanction for a scheme without convening a creditors’ meeting. This is permitted where:
- the proposed scheme has been fully negotiated with major creditors in advance;
- adequate disclosure is made to affected creditors; and
- the court is satisfied that the scheme would have been approved if a meeting had been held.
A recent example is the pre-pack scheme initiated by Pestech International Bhd, marking a significant milestone in Malaysian restructuring practice. In one of the earliest applications of Section 369C, read together with Section 366(3), Pestech secured approval in principle from creditors holding more than 75% of the scheme's debts in value. Pestech proceeded by issuing explanatory statements and ballot forms to its scheme creditors and then sought court sanction without convening a meeting.
This case highlights the practical value of pre-packaged schemes in minimising delay and cost while fostering creditor consensus prior to court involvement. It affirms the potential of Malaysia’s reformed framework to support timely and commercially viable restructuring outcomes in complex or time-sensitive scenarios.
Malaysia now recognizes pre-packaged schemes of arrangement, which allow companies to obtain court sanction for a scheme without convening a creditors’ meeting. This is permitted where:
- the proposed scheme has been fully negotiated with major creditors in advance;
- adequate disclosure is made to affected creditors; and
- the court is satisfied that the scheme would have been approved if a meeting had been held.
A recent example is the pre-pack scheme initiated by Pestech International Bhd, marking a significant milestone in Malaysian restructuring practice. In one of the earliest applications of Section 369C, read together with Section 366(3), Pestech secured approval in principle from creditors holding more than 75% of the scheme's debts in value. Pestech proceeded by issuing explanatory statements and ballot forms to its scheme creditors and then sought court sanction without convening a meeting.
This case highlights the practical value of pre-packaged schemes in minimising delay and cost while fostering creditor consensus prior to court involvement. It affirms the potential of Malaysia’s reformed framework to support timely and commercially viable restructuring outcomes in complex or time-sensitive scenarios.
Judicial Flexibility: Revotes, Clarifications, And Proofs of Debt
Judicial Flexibility: Revotes, Clarifications, And Proofs of Debt
Further reforms have expanded the court’s supervisory role in the scheme process through several key provisions:
Section 369A: The court may, under this provision, order a revote at the sanction stage to address procedural or classification issues without requiring the entire process to be recommenced. This concept was acknowledged by the Federal Court in MDSA Resources Sdn Bhd v Adrian Sia Koon Leng [2023] 5 MLJ 900.
Section 369D: This provision allows the company or a bound creditor to seek judicial clarification of the terms of a sanctioned scheme or to challenge the company's conduct following a sanction.
Section 369B: This provision introduces a formal proof of debt procedure, granting creditors the right to inspect other proofs of debt, subject to confidentiality safeguards. This marks a departure from earlier judicial precedent, which permitted inspection only where there was prima facie evidence of impropriety.
Enhancements to
Judicial Management
Enhancements to
Judicial Management
Judicial management is a court-supervised corporate rescue mechanism where control of a financially distressed company is temporarily assumed by a judicial manager appointed to rehabilitate the company or achieve a more advantageous realization of its assets than would be possible in a winding up. It serves as an alternative to liquidation by providing breathing space for restructuring.
Several refinements have strengthened the judicial management regime:
Section 403: This provision now broadens the eligibility criteria for obtaining judicial management orders.
Section 406: This provision now grants the court greater discretion to extend the term of judicial management beyond the previous six-month limit.
Section 411(5): This provision introduces a new right for secured creditors to recover movable property during judicial management, subject to notice and satisfaction of prescribed conditions.
Although less transformative than the scheme-related reforms, these amendments reinforce judicial management as a credible and flexible option for restructuring.
Although less transformative than the scheme-related reforms, these amendments reinforce judicial management as a credible and flexible option for restructuring.
Conclusion
The Companies (Amendment) Act 2024 marks a pivotal shift in Malaysia’s corporate restructuring landscape. By equipping the courts and stakeholders with a more sophisticated toolkit, including automatic moratoria, cross-class cram downs, super-priority financing, and pre-packaged schemes, the reforms enhance the credibility, accessibility, and commercial viability of domestic rescue proceedings. The courts, in turn, have responded with a pragmatic and purposive approach, reinforcing the substantive safeguards necessary to preserve creditor confidence while facilitating flexibility in restructuring.
Looking ahead, Malaysia is well-positioned to continue this trajectory. One of the anticipated developments is the potential adoption of a cross-border insolvency framework aligned with the UNCITRAL Model Law. This would enable the recognition of foreign restructuring and insolvency proceedings, facilitating cooperation between Malaysian courts and their international counterparts. Such a framework would not only support the restructuring of multinational corporate groups but would also further strengthen Malaysia's standing as a jurisdiction capable of managing complex cross-border distress scenarios in line with global standards.
As the Malaysian judiciary and restructuring community begin to apply and test the new statutory provisions, continued refinement through case law and practice is expected. Together, these reforms and forthcoming developments mark the beginning of a more robust, coordinated, and internationally harmonized corporate rescue regime in Malaysia.
The Companies (Amendment) Act 2024 marks a pivotal shift in Malaysia’s corporate restructuring landscape. By equipping the courts and stakeholders with a more sophisticated toolkit, including automatic moratoria, cross-class cram downs, super-priority financing, and pre-packaged schemes, the reforms enhance the credibility, accessibility, and commercial viability of domestic rescue proceedings. The courts, in turn, have responded with a pragmatic and purposive approach, reinforcing the substantive safeguards necessary to preserve creditor confidence while facilitating flexibility in restructuring.
Looking ahead, Malaysia is well-positioned to continue this trajectory. One of the anticipated developments is the potential adoption of a cross-border insolvency framework aligned with the UNCITRAL Model Law. This would enable the recognition of foreign restructuring and insolvency proceedings, facilitating cooperation between Malaysian courts and their international counterparts. Such a framework would not only support the restructuring of multinational corporate groups but would also further strengthen Malaysia's standing as a jurisdiction capable of managing complex cross-border distress scenarios in line with global standards.
As the Malaysian judiciary and restructuring community begin to apply and test the new statutory provisions, continued refinement through case law and practice is expected. Together, these reforms and forthcoming developments mark the beginning of a more robust, coordinated, and internationally harmonized corporate rescue regime in Malaysia.
Built with Shorthand