New law clears path for cross-border debt recovery

 

The borrower was wound up in Malaysia, and the two sides then pursued cases against each other in their respective countries. - Ai generated image (For Illustration Purposes only)

IMAGINE the complexity of cross-border insolvency cases prior to the enforcement of the new Cross-Border Insolvency Act 2026.

Here's a brief example: a bankrupt Malaysian corporation owns RM100 million in domestic assets and owes RM100 million to a Singapore bank, but is being chased by creditors from China.

In the expensive and lengthy litigation, creditors make a grab for every available asset, which loses value by the day. It's anybody's opinion as to which country's insolvency process should command primacy. Imagine the countries' respective courts making contrasting rulings on the same company, assets and debt.

There exists a unifying process: the United Nations Commission on International Trade Law recommends a model law that pre-empts unpredictable, time-consuming and poorly coordinated cross-border insolvency cases.

A 2021 case involving entities in Malaysia and Singapore shows the need for the new legislation. Here, a Malaysian company borrowed from a Singaporean bank, putting up its shares in another Malaysian company as security.

The borrower was wound up in Malaysia, and the two sides then pursued cases against each other in their respective countries.

The Singaporean court recognised the company's insolvency in Malaysia as a foreign proceeding under the UN model law, but did not halt the bank's proceedings in Singapore.

As the model respects secured creditors' rights, the Singaporean court permitted the bank to validate its security, showing that recognition of a foreign insolvency does not override underlying contractual protections.

It's the classic cross-border insolvency conundrum. According to Minister in the Prime Minister's Department (Law and Institutional Reform) Datuk Seri Azalina Othman Said, the Cross-Border Insolvency Act provides a dedicated mechanism to handle debtors, assets, creditors or proceedings in more than one jurisdiction.

As Malaysian firms expand abroad and foreign investors hold assets and conduct business domestically, the new law establishes a clearer mechanism for courts to recognise and assist foreign insolvency proceedings.

It also paves the way for cooperation with foreign courts and authorities. The thrust of the new law is boosting confidence among investors — they must know there is a credible mechanism for recovery when their interest tanks.

Nonetheless, it's only the beginning. Success depends on how courts, insolvency practitioners and enforcement agencies apply the new law and the level of cooperation with foreign counterparts.

The judiciary will develop expertise in handling complex multinational insolvencies while regulators must share information seamlessly. Malaysia must apply the new framework to strengthen its reputation as a predictable jurisdiction for international business. - NST