Macroeconomic Cycles

The Central Bank of Malaysia (Bank Negara Malaysia or BNM) reduced the Overnight Policy Rate (OPR) by 25 basis points to 2.75% on 9 July 2025 and maintained it at 2.75% on 4 September 2025, reflecting easing inflation and steady domestic demand. These moves are intended to lower funding costs and support loan growth.

Reference Rate Reform

A key structural change in the loan market has been the transition from KLIBOR to MYOR/MYOR-i as the primary reference rate. The BNM issued a 2024 discussion paper and roadmap, confirming a phased cessation of KLIBOR in new contracts ahead of its eventual discontinuation. Most new syndicated and bilateral loans now incorporate MYOR-based pricing or fallback language, aligning Malaysia with global benchmark reform trends.

Capital Market Depth

The Securities Commission Malaysia (SC) reported that the Malaysian capital market achieved a record MYR4.2 trillion in 2024, driven by strong growth in corporate bonds and sukuk issuances. Malaysia’s well-established base of domestic institutional investors complements the banking system and provides borrowers with refinancing alternatives. The SC continues to promote Sustainable and Responsible Investment (SRI) bonds and sukuk, which contribute to the broader sustainability trend across the Malaysian loan market.

The BNM commented that heightened global policy uncertainty and trade tensions could weigh on Malaysia’s external sector and growth, even as domestic demand remains resilient. In its recent monetary policy statement, the BNM highlighted escalating trade tensions and a cloudy global outlook as headwinds for activity and financial markets.

Malaysia’s corporate bonds and sukuk market remains heavily skewed towards investment-grade issuers and local institutional demand. New long-term corporate bonds and sukuk issuance in 2024 was approximately MYR124.2 billion, and the SC reported no public-market issuer defaults, underscoring the high-quality bias. The key rating agencies in Malaysia, RAM Rating Services Berhad and Malaysian Rating Corporation Berhad, similarly reported no defaults in their rated corporate portfolios for 2024.

Alternative credit channels have seen notable growth in recent years, driven by new entrants such as digital banks and fintech lenders, alongside a strong regulatory push to expand consumer and SME access to credit while strengthening oversight.

Digital Banks

Five digital bank licences were awarded by the BNM in 2022, with all five banks commencing operations by 2025. Their mandates are focused on underserved retail and SME segments, offering low-ticket, data-driven products. While the balance-sheet scale of these banks remains modest relative to incumbent banks, they are increasing competition for deposits and SME lending. Traditional bank lending continued to account for over 90% of SME financing in 2024. Loan products offered by digital banks are likely to feature shorter tenors, simplified documentation, and dynamic pricing models based on behavioural and transactional data, rather than traditional collateral.

Consumer Credit Bill 2025

Malaysia’s Consumer Credit Bill 2025 (the “Proposed Act”), administered by the Consumer Credit Oversight Board (CCOB) was passed by the Dewan Negara (Senate) in September 2025. The Proposed Act seeks to bring non-bank credit providers (including buy-now-pay-later (BNPL) operators), moneylenders and leasing companies under a single licensing and supervisory framework, and will be implemented in phases, subject to regulatory-roll out. The Proposed Act provides a clearer regulatory footing, particularly for fintech lenders and BNPL operators, which should allow greater formalisation of alternative credit channels. For traditional banks, this creates both competition from better-regulated non-banks and opportunities for partnerships and co-lending.

Alternative credit providers are seen to be driving innovation in pricing, user experience, and product design, particularly in unsecured consumer and micro-SME lending. While traditional banks remain dominant in mid to large-corporate lending, the rise of alternative channels is expanding credit access to underserved segments and fostering competition. Importantly, the BNM’s oversight of digital banks, together with the CCOB’s regulatory framework for non-bank credit providers, ensure that emerging players operate within a prudentially supervised environment.

Hybrid instruments are an important feature of Malaysia’s financing landscape. Issuers regularly tap the market through perpetual bonds and sukuk, which combine equity-like features (no fixed maturity, discretionary distributions) with fixed-income investor appeal. In particular, the SC noted that the sukuk market is “innovating with perpetual and sustainability-linked structures to meet corporates’ capital management needs while offering investors attractive risk-return profiles”. Malaysia’s sukuk market, valued at MYR1.9 trillion in 2024, provides a deep pool of institutional demand for perpetual sukuk, particularly from pension funds and insurers. These investors view hybrids as a recognised asset class, strengthening the link between corporate borrowers and long-term capital providers.

Malaysia has positioned itself as a regional leader in sustainable finance, with the SC driving product innovation through the introduction of the SRI Sukuk Framework in 2014, and its expansion into the SRI-Linked Sukuk Framework in 2022. These frameworks facilitate the issuance of sukuk that finance projects aligned with ESG criteria.

In its 2024 annual report, the SC reported that SRI sukuk issuances had reached MYR20.7 billion cumulatively since inception, reflecting growing corporate appetite for sustainable instruments. Under Malaysia’s Capital Market Masterplan 3 (CMP3), the SC has set out its long-term ambition for sustainable and inclusive growth, with ESG principles integrated into capital-raising and fund-management activities.

Generally, no person may conduct money-lending business as a moneylender in Malaysia without a licence under the Moneylenders Act 1951 (the “Moneylenders Act”) unless exempted under the Moneylenders Act. Such restriction would apply to any lending of money at interest, with or without security, and proof of a single loan at interest will raise a presumption that the lender is carrying on the business of moneylending, until the contrary is proved. The exemptions under the Moneylenders Act include, among others, financial institutions licensed under the Financial Services Act 2013 (FSA). Under the FSA, a bank is required to apply to the BNM for a banking business licence to provide financing.

Foreign lenders are not expressly exempted under the Moneylenders Act, however, it is unclear whether the Moneylenders Act would apply to foreign lenders given that the act generally applies only within Malaysia. In practice, when providing loans to Malaysian entities, foreign lenders typically take the following measures to mitigate the risk of being considered as carrying on money-lending business in Malaysia:

• the facility or loan agreement is governed by foreign law;
• the finance documents are executed by contracting parties outside Malaysia; and
• the loan proceeds are disbursed offshore to a bank account opened by the borrower outside Malaysia.

Generally, there is no restriction on foreign lenders receiving security or guarantees from Malaysian entities.

However, when taking security over lands in Malaysia, restrictions on title to lands may either prevent security interests from being granted directly to a foreign lender or make this conditional upon state authority approval. In this instance, it is common practice for a Malaysian bank to act as a security agent to hold and enforce the security interests on the foreign lender’s behalf.

All foreign exchange transactions are prohibited under the FSA unless: (i) permitted under the Foreign Exchange Policy Notices (the “FEP Notices”) issued by the BNM; or (ii) prior written approval has been obtained from the BNM.

In terms of loans or debt securities, a resident entity is allowed to borrow up to MYR100 million equivalent in aggregate in foreign currency (computed based on the aggregate borrowing in foreign currency by the borrower and other resident entity with parent-subsidiary relationship) from foreign lenders. The borrower must obtain the prior written approval of the BNM for any borrowing that exceeds the MYR100 million limit.

There is no restriction on a resident entity providing security or a guarantee if the security or guarantee is to secure a borrowing obtained by a resident entity that is permitted under the FEP Notices or otherwise approved by the BNM. However, if the security or guarantee is to secure a borrowing obtained by a foreign entity, the BNM’s written approval will be required if: (i) the borrower is a special-purpose vehicle or if the borrowing is being utilised by the resident entity; or (ii) the resident entity is required to repay the borrowing in foreign currency other than under a call-upon by the lender in the event of default.

A borrower’s use of proceeds from loans or debt securities is subject to the terms of the underlying loan documentation and applicable regulatory requirements, including that:

• the proceeds will not be used for unlawful activities as described under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001; and
• for debt securities, the use of proceeds will comply with the relevant guidelines issued by the SC.

Agent and trust concepts are recognised in Malaysia and are commonly used in both syndicated loan and debt securities transactions.

Loan transfer mechanisms in Malaysia include:

• Assignment – the lender assigns its rights to receive loan repayments and its rights to the security interest created in its favour to the assignee. A notice of assignment must be given by the lender to the borrower for the assignment to be effectual at law. Obligations under the loan remain with the original lender.
• Novation – the lender transfers all its rights and obligations under the loan agreement and security documents to the transferee, subject to the borrower’s consent. The transferee becomes the new lender of the loan.
• Sub-participation – the lender transfers all or part of its risks under the loan to the sub-participant. There is no transfer of rights and/or obligations under the loan and security documents from the lender to the sub-participant.

Debt buyback is permitted, subject to the prepayment or early redemption terms in the loan documentation.

Under the Rules on Take-Overs, Mergers and Compulsory Acquisitions (the “Take-Over Rules”) issued by the SC, an offeror must have “certain funds” financing in place for public takeovers. Rule 9.10(4) of the Take-Over Rules requires the announcement of an offer in respect of a listed corporation to include confirmation by the main adviser that resources available to the offeror are sufficient to satisfy full acceptance of the offer. In practice, the main adviser would typically require the lender to provide a commitment letter and/or facility agreement or at least the facility agreement as evidence, and while there is no legal requirement for such documents to be publicly filed, the SC may require it to be provided as supporting evidence.

Outside of public deals, “certain funds” financing is neither legally required nor common, but it may be seen in complex private mergers and acquisition deals.

Notable legal developments in Malaysia in recent years which have impacted upon legal documentation include the following:

• the transition from KLIBOR to MYOR/MYOR-i as the primary reference rate will now require legal documentation to replace KLIBOR references with MYOR (or MYOR-i for Islamic facilities or sukuk), using compounded-in-arrears calculations instead of term rates, and to include robust benchmark replacement and fallback clauses; and
• the introduction of SRI Sukuk and SRI-Linked Sukuk, which requires sukuk terms to include sustainability-linked covenants and performance targets.

The Moneylenders Act provides that interest for a secured loan will not exceed 12% per annum and interest for an unsecured loan will not exceed 18% per annum. However, the Moneylenders Act does not apply to financial institutions licensed under the FSA, or to foreign lenders which do not carry out money-lending business in Malaysia.

While there is no statutory rate restriction applicable to foreign lenders, default interest which is exorbitant and punitive in nature may be challenged under Section 75 of the Contracts Act 1950, particularly if it was not agreed upon by the parties.

Generally, there is no legal requirement for a Malaysian entity to disclose its loans or debt securities transactions to the public, unless it is a listed company or a subsidiary of a listed company. Borrowing of funds is considered as an event which may require immediate disclosure by the listed company under the listing requirements issued by Bursa Malaysia Securities Berhad (the “Listing Requirements”). For issuance of debt securities, the listed issuer is required to announce certain information pursuant to the Listing Requirements, including any change in the terms of the debt securities, any redemption or cancellation of the debt securities, and any occurrence of an event of default.

Payments of principal to resident or non-resident lenders are not subject to withholding tax.

Interest derived from Malaysia and paid to a non-resident lender is subject to withholding tax, currently at the rate of 15% (or any other rate as prescribed under the double-taxation agreement between Malaysia and the country where the non-resident lender is tax resident).

Stamp duty is payable on loan agreements and security documents within 30 days after they are first executed in Malaysia or, if first executed outside Malaysia, within 30 days after first being received in Malaysia.

Ad valorem stamp duty is payable on the principal instrument (typically the loan agreement) at a rate of 0.5% of the loan amount. Where the underlying loan is denominated in a foreign currency, the same stamp duty rate applies, calculated on the MYR-equivalent of the loan amount. Fixed nominal stamp duty of MYR10 is payable in respect of each subsidiary instrument, including security documents and duplicate copies of any instrument that has already been stamped.

Instruments executed by a Labuan entity in relation to a Labuan business activity, or instruments effecting the transfer of shares in a Labuan entity, are generally exempt from stamp duty, subject to the fulfilment by the Labuan entity of the substance requirements prescribed by the Inland Revenue Board of Malaysia.

Malaysia has an extensive network of about 74 effective double-taxation agreements (DTAs). These treaties help prevent double taxation and often provide reduced withholding tax rates on cross-border interest payments. Accordingly, while the domestic withholding tax rate on interest to non-resident lenders is 15%, this may be lowered under an applicable DTA, provided the foreign lender furnishes a valid letter of certification from its home tax authority.

In Malaysia, assets typically available as collateral to lenders and the form in which they are taken include:

• Real property (land and buildings) – A fixed charge is created over real property, where a title document has been issued. Where the title document to the real property has yet to be issued, assignment over the rights, title and interests in the sale and purchase agreement is typically taken as a form of security.
• Tangible movable assets such as a plant, machinery and equipment – Security is commonly taken by way of a fixed charge or debenture over such assets.
• Inventories or stock-in-trade – A floating charge is created by way of a debenture to allow the security provider to continue dealing with such assets in the ordinary course of business until the occurrence of an event of default.
• Shares – A fixed charge is created over the shares (applicable to shares which are certificated or in scripless form).
• Bank accounts – A fixed charge is created over cash deposits and credit balances in bank accounts, and assignment is taken over such bank accounts for monitoring and control purposes.
• Other receivables and claims – An assignment is taken over rights, title and interests over receivables, and claims such as rights to receive moneys and claims to insurance proceeds.

The applicable formalities and perfection requirements include the following:

• Stamp duty is payable on a security document – see 4.2 Other Taxes, Duties, Charges or Tax Considerations. Failure to stamp renders the security document inadmissible in evidence, and late stamping will be subject to a financial penalty.
• Security granted by a company incorporated under the Companies Act 2016 (the “Companies Act”) is required to be lodged with the Companies Commission of Malaysia (CCM) within 30 days of the creation of a charge, together with a prescribed fee of MYR300. Failure to register renders the charge void against the liquidator and any creditor of the company as far as any security interests on the company’s property are conferred. Similarly, security granted by a company incorporated under the Labuan Companies Act 1990 is required to be lodged with the Labuan Financial Services Authority (LFSA) within one month from the date of creation of the charge.
• Where a power of attorney is granted under a security document, the security document must be authenticated in accordance with the procedure as prescribed under the Power of Attorney Act 1949, and stamped and registered with the High Court of Malaya for a nominal fee in order for the power of attorney to be valid.
• For a land charge, the charge must be registered with the relevant land office or registry within three months from the date of the charge, using the prescribed statutory form under the National Land Code (Revised 2020) (NLC); failing which, a financial penalty will be imposed. The registration fee and penalty differ depending on the state where the real property is located.
• For a legal assignment to be effective, it must be in writing, absolute and not appear to be by way of charge only, and it must be expressly notified in writing to the debtor of the receivables. Legal assignments grant the assignee the legal right to the debt and the ability to sue the debtor directly without involving the assignor.

A company may grant security over all its present and future assets by creating a floating charge, typically by way of a debenture. The debenture generally provides that the floating charge may be converted, or “crystallised”, into a fixed charge upon the occurrence, or in anticipation of the occurrence, of any event of default, after which the company will not be able to deal with such assets.

Generally, there are no restrictions on Malaysian entities giving downstream, upstream and/or cross-stream guarantees, subject to certain considerations, including the following:

• the constitution of the guarantor authorises the provision of such guarantee (in the absence of a constitution, the Companies Act provides that a company has full capacity to carry on or undertake any business or activity, which includes the ability to provide a guarantee);
• the directors of the guarantor must be satisfied that the guarantee is in the commercial interests of the guarantor;
• the guarantee does not constitute financial assistance under the Companies Act, or is regularised through the whitewash procedure available under the Companies Act – see 5.4 Restrictions on the Target;
• the guarantee is not given in connection with a loan made to a director of the guarantor, unless such guarantee falls within the exceptions prescribed under Section 224 of the Companies Act; and
• the guarantee is not given in connection with a loan made to a person connected with a director of the guarantor or of its holding company, unless such guarantee falls within the exceptions prescribed under Section 225 of the Companies Act.

See 3.3 Restrictions and Controls on Foreign Currency Exchange for certain restrictions on the ability of a resident entity to give a financial guarantee.

Section 123(1) of the Companies Act provides, among other things, that a company will not give any financial assistance, whether directly or indirectly and whether by means of a loan, guarantee or the provision of security or otherwise, for the purpose of a purchase or subscription made by any person for any shares in the company or any shares of its holding company.

The Companies Act provides for certain exceptions to the general prohibition, and allows financial assistance to be given if the company complies with the statutory whitewash procedure, which requires the following to be satisfied:

• a special resolution must be passed by the shareholders to approve the financial assistance;
• before the financial assistance is given, the directors must resolve that the company is permitted to give the financial assistance, that doing so is in the company’s best interests, and that the terms of the financial assistance are fair and reasonable to the company;
• each director who voted in favour of the financial assistance must make a solvency statement that complies with the provisions of the Companies Act;
• the aggregate amount of the financial assistance (together with any other financial assistance still outstanding) must not exceed 10% of the aggregate amount received by the company in respect of the issue of shares and reserves of the company, as disclosed in its most recent audited financial statements;
• the company must receive fair value in exchange for giving the financial assistance; and
• the financial assistance is given not more than 12 months after the day the solvency statement was made by the directors.

Prior consent from the relevant state authority may be required if the land title contains express conditions or restrictions-in-interest regulating the use or dealings with the land, and if it typically includes prohibitions on the charging of the land without state authority approval.

Applications for state authority approval are generally subject to administrative fees prescribed by the relevant state government.

Typically, security is released by way of a deed of release or discharge, or where applicable, deed of reassignment of a security asset or interests to the security provider.

Depending on the type of security, further steps will be taken to release the security, including the following:

• For a charge registered with the CCM, the company must lodge the relevant satisfaction and release-of-charge forms, as prescribed under the Companies Act with the CCM, within 14 days from the satisfaction of the debt. Similarly, for a charge registered with the LFSA, the company is required to lodge the relevant statutory-prescribed form with the LFSA within one month of the debt being satisfied.
• For a land charge, a discharge-of-charge form prescribed under the NLC must be filed with the relevant land office/registry.
• Where a power of attorney has been registered at the High Court of Malaya, the relevant deed of release stating the revocation of such power of attorney must be filed with the High Court.

In Malaysia, the priority of competing security interests is generally governed by statute and common law rules. Generally, priority will be determined by the time a security interest is created and the type of security interest. For example, fixed charges rank in priority according to the order of creation, while floating charges typically rank behind fixed charges.

Contractual subordination between lenders is commonly achieved through intercreditor agreements or subordination deeds, under which, priority can be contractually varied between lender groups or separate creditor classes. Such contractual subordination provisions are generally enforceable under Malaysian law, including in insolvency, provided they do not contravene mandatory statutory priorities.

In Malaysia, one of the most material security interests that may arise by operation of law and potentially prime a lender’s security interest, include the super-priority rescue financing provisions introduced under the Companies (Amendment) Act 2024 which are available to companies in a scheme of arrangement or under judicial management.

Such rescue financing may rank in priority over preferential debts and unsecured debts in a subsequent winding-up, permit the granting of new security interests over previously unsecured assets, and in certain circumstances, allow such new security to rank pari passu with or above existing secured creditors, subject to safeguards.

These provisions were enacted to encourage “new money” lending to distressed companies, addressing the reluctance of lenders to finance rescue efforts where their claims would otherwise be subordinated.

Lenders may manage the risk of court-approved priming liens through contractual and structural protections such as establishing contractual arrangements with other creditors that regulate the granting of further security, super-priority debt, and standstill periods, or existing lenders may themselves provide the rescue financing to preserve control over the capital structure, thereby ensuring that the priming lien risk is internalised within the lender group.

The enforcement of security is generally governed by the contractual provisions set out in the relevant security documents and is typically triggered by events such as an event of default or an acceleration event.

In the case of a land charge, an application may be made to either the High Court or the Land Administrator (depending on the type of land title) for an order for sale.

Depending on the terms of the security documents, a lender may also have the right to appoint a receiver, or a receiver and manager, to manage the secured assets and conduct the business arising from them. The powers and authority of a receiver, or receiver and manager, are those expressly or implicitly granted under the security documents, or by the court order appointing them. In addition, the Companies Act prescribes the minimum statutory powers of a receiver and manager, supplementing those in the security documents.

The choice of a foreign law as the governing law of the contract will typically be recognised in Malaysian courts, provided it has been made in good faith and is regarded as a valid and binding selection which will be upheld in the courts of such jurisdiction as a matter of the laws of such jurisdiction.

The irrevocable submission of a party to a foreign jurisdiction will generally be upheld, except where the Malaysian courts consider that Malaysia is the more appropriate forum and that the interests of justice would be better served by the dispute being heard in Malaysia.

A contractual waiver of sovereign immunity will also generally be recognised and upheld by the Malaysian courts, although this may not prevent the courts from declining enforcement if the waiver is inconsistent with the principles of public international law or domestic public policy.

Foreign Court Judgement

A foreign judgement which is final and conclusive may be enforceable by the Malaysian courts without re-examination of the merits if the judgement is given in the Superior Courts of a reciprocating country under the Reciprocal Enforcement of Judgments Act 1958 (REJA) and is duly registered in Malaysia in accordance with the provisions of the REJA. The reciprocating countries as prescribed in the First Schedule of the REJA include:

• the United Kingdom (including England, Scotland and Northern Ireland);
• the Hong Kong Special Administrative Region of the People’s Republic of China;
• Singapore;
• New Zealand;
• Sri Lanka;
• India; and
• Brunei.

A Malaysian court may register a foreign judgment provided that:

• the foreign court had jurisdiction in the circumstances of the case;
• the judgment was not obtained in proceedings in which the defendant did not (notwithstanding that process may have been duly served on him) receive notice of those proceedings in sufficient time to enable it to defend the proceedings, and it did not appear;
• the judgment was not obtained by fraud;
• the enforcement of the judgment will not be contrary to public policy in Malaysia; and
• the rights under the judgment are vested in the person by whom the application for registration was made.

Where a foreign judgment falls outside the scope of the REJA, it may only be enforced in Malaysia at common law. In such cases, the judgment creditor must commence an action in the Malaysian courts by suing against the foreign judgment as a debt due from the judgment debtor, subject to conditions including:

• it is final and conclusive for a fixed sum of money;
• it is enforceable by execution in that jurisdiction and has not been stayed or satisfied in whole;
• it was not obtained by fraud; and
• its enforcement would not be contrary to Malaysian public policy.

Foreign Arbitral Award

Foreign arbitral awards made in a contracting state that is a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958) (the “New York Convention”) are enforceable in Malaysia under the Arbitration Act 2005 (the “Arbitration Act”). The High Court may, on application by a party, grant permission to enforce such an award if the applicant produces:

• the duly authenticated original award or a duly certified copy; and
• the original arbitration agreement, or a duly certified copy.

The High Court may refuse enforcement of a foreign arbitral award only on the limited grounds set out in the Arbitration Act, including where:

• a party to the arbitration agreement was under incapacity, or the agreement is invalid;
• the party against whom enforcement is sought was not given proper notice of the arbitration or was unable to present its case;
• the award deals with disputes beyond the scope of the arbitration agreement;
• the composition of the tribunal or procedure was not in accordance with the parties’ agreement or the Arbitration Act;
• the award is not yet binding, or has been set aside or suspended by a competent court;
• the subject matter is not arbitrable under Malaysian law; or
• enforcement would be contrary to Malaysian public policy.

Except as noted in 3.2 Restrictions on Foreign Lenders Receiving Security, there are generally no other restrictions that might impact a foreign lender’s ability to enforce its rights under a valid loan or security agreement.

In Malaysia, the impact of insolvency proceedings on lenders’ enforcement rights depends on the type of process commenced.

In a winding-up (whether by court order or creditors’ voluntary resolution), there is no automatic moratorium on enforcement. Secured creditors have first priority over secured assets in the insolvency of the company and remain entitled to enforce their security in accordance with the terms of their security documents.

However, once a liquidator is appointed, all company property comes under the liquidator’s control and unsecured creditors cannot commence or continue proceedings without leave of the court. The liquidator has exclusive authority to realise assets and distribute proceeds in accordance with statutory priorities as set out in 7.2 Waterfall of Payments, though secured creditors may enforce their security independently.

By contrast, restructuring processes may impose moratoriums that restrict lenders:

• Scheme of arrangement – no automatic moratorium applies, but a court may grant a restraining order (up to three months, extendable) preventing enforcement or legal proceedings against the company while the scheme is considered.
• Judicial management – an interim moratorium arises immediately upon filing of a judicial management application, preventing enforcement actions (including by secured lenders) until the application is resolved. Note that judicial management orders will not be granted if opposed by a secured creditor. If a judicial manager is appointed, a full statutory 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.

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 registration 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 considered preferential:

• costs and expenses of the winding-up;
• all wages and salaries;
• all amounts due in respect of workers’ compensation 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 contribution 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.

In Malaysia, voluntary winding-up generally takes between six and 18 months, depending on the complexity 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.

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 provides three principal corporate rescue mechanisms, as follows.

Scheme of Arrangement

A scheme of arrangement is a court-ordered statutory mechanism that allows a company to restructure its debts, requiring the approval of 75% of the total value of creditors or members. Once sanctioned, the arrangement becomes binding on all creditors, all members, the company, or the liquidator, if the company is being wound up. The company continues to retain management control in a scheme of arrangement.

Judicial Management

Judicial management is a court-supervised rescue plan that places the management of a company under a judicial manager appointed by the court. It is available where the company is, or is likely to become, unable to pay its debts, and there is a reasonable prospect of rehabilitating the business, preserving it as a going concern, or achieving a better outcome for creditors than through winding-up. The judicial manager prepares and implements a workable proposal with the approval of 75% of the total value of the creditors.

Corporate Voluntary Arrangement

A corporate voluntary arrangement is a formal mechanism that enables a financially distressed company to propose an agreement with its creditors to restructure its debts and avoid insolvency, without requiring prior approval from the court. Management remains in control, but the mechanism is supported by independent oversight from a nominee, who is often an insolvency practitioner. The directors or official receiver must prepare and submit the terms of the proposed voluntary arrangement and a statement of the company’s financial affairs, which the nominee oversees.

Undue Preference

The Companies Act provides that a preference given to a creditor within six months prior to the commencement of winding-up may be set aside if it had the effect of granting that creditor a preference, priority or advantage over other creditors, unless the transfer or conveyance of the property was made for valuable consideration and without any actual notice of that undue preference.

Invalid Floating Charge

A floating charge over a company’s assets, created within six months prior to the commencement of the winding-up, will be invalid unless it can be proved that the company was solvent immediately after the creation of the charge. However, funds actually advanced to the company in consideration of the charge (and interest to the extent recognised in practice) are typically protected.

Inability to Recover Full Amount

Lenders’ recoveries depend on asset realisations and ranking of claims among creditors; secured creditors may still face shortfalls if the proceeds are insufficient or if applicable statutory priorities affect the waterfall.

Project finance in Malaysia continues to be a preferred structure for capital-intensive developments. The most active sectors include energy transition (particularly solar and hydropower) and large-scale infrastructure projects. More recently, project financing has expanded into digital infrastructure, including data centres and fibre optic networks.

In Malaysia, public-private partnerships (PPPs) serve as a mechanism for the government and private sector to jointly undertake and deliver projects related to public infrastructure. First introduced through the Malaysia Incorporated Policy and Privatisation Policy in the 1980s, PPPs are now facilitated by the Public Private Partnership Unit, Prime Minister’s Department, with guidelines and successive frameworks such as PPP 2.0 and PPP 3.0, and most recently, the Public-Private Partnership Master Plan 2030 (“PIKAS 2030”). PIKAS 2030 aims to:

• increase private investment to MYR78 billion;
• generate a GDP contribution of MYR83 billion; and
• create 900,000 new employment opportunities by 2030.

It introduces a refined PPP definition, new classifications (concession, privatisation, alternative mode), stricter project criteria with minimum project cost of MYR50 million, enhanced evaluation and monitoring processes, and expansion into new sectors such as renewable energy and smart agriculture.

Malaysia does not have a dedicated PPP law; instead, PPPs are governed by policies, guidelines and contracts (notably concession agreements). This creates legal uncertainty, compounded by the need to navigate overlapping land, financial and sector-specific laws and regulations, which may cause delays, added costs and jurisdictional complexity.

Parties are generally free to choose the governing law of the project documents, provided that the choice is made in good faith and not contrary to public policy.

In practice, Malaysian law is typically chosen as the governing law for project documents for projects involving only local parties, and instead of referring disputes to the local courts, parties may choose to resolve the dispute by way of arbitration in Malaysia or abroad. However, if there are any foreign parties involved in the project, it is not uncommon for project documents to be governed by foreign law and the parties may opt for a foreign arbitration seat, for example, any one of the countries which is a party to the New York Convention. This is because Malaysia is a member of the New York Convention and therefore arbitral awards from the other contracting states to the New York Convention would be recognised as binding and enforced in Malaysia provided that certain requirements are complied with – see 6.3 Foreign Court Judgments.

Acquisition of land by foreign entities is subject to the following restrictions:

• Prior approval of the relevant state authority if the land is subject to restriction-in-interest on transfer of real property. Such restriction, if any, is expressly endorsed on the issue document of title to the land.
• Prior approval of the relevant state authority pursuant to Section 433B of the NLC for acquisition of land by non-citizens or foreign companies respectively.
• Prior approval of the Economic Planning Unit (EPU) pursuant to the EPU’s Guideline on the Acquisition of Properties, for the direct acquisition of land valued at MYR20 million and above, resulting in dilution of ownership of property held by Bumiputera (Malays and other indigenous ethnic groups in Malaysia) and/or a government agency.

There is no “water rights” concept in Malaysia. Under the federal constitution, water supplies fall under the jurisdiction of both federal and state governments. For projects where there is a need to draw water directly from rivers, lakes or underground sources, the developers or contractors must obtain a permit or licence from the relevant state or local authorities. There is no general restriction under Malaysian law on foreign entities applying for a water permit or licence but this is subject to requirements and conditions as may be imposed by the authorities governing and regulating the water resources.

Typically, in a project-financing deal, the subject land will be charged in favour of a lender or security agent acting for and on behalf of the lender(s) as part of the security package, and registered with the relevant land office/registry. In an enforcement event, the registered chargee will be entitled to the power to sell or take possession of the land in accordance with the NLC. However, if the land is to be sold or taken possession of by a foreign entity, the transfer of land to the foreign entity will be subject to the restrictions as set out above.

Project Company

In Malaysia, projects are typically undertaken through a special-purpose vehicle which is incorporated as a private limited company by the project sponsors or joint ventures. Under the Companies Act, there is no minimum paid-up capital requirement for incorporating a company, and the paid-up capital is generally determined based on the company’s operational and financial needs. However, certain sectors or industries may be subject to minimum capital requirements imposed by the relevant government departments or regulators.

Foreign Ownership Limitations or Restrictions

Typically, policies on foreign investment participation in Malaysia are in the form of equity ownership restrictions. There is no general limitation imposed on Malaysian incorporated companies, but certain sectors or industries may impose restrictions on mandating minimum or majority equity ownership to be held by either local Malaysians or Bumiputera.

Foreign Exchange Considerations

Under the FEP Notices, a non-resident investor is free to undertake any type of investment in MYR assets in Malaysia (direct or portfolio investment) without any restriction, and to repatriate divestment proceeds, profits, dividends or any income arising from the investments in Malaysia, provided that repatriation is made in foreign currency. The equity financing provided by foreign project sponsors by way of capital injection into the project company constitutes a form of investment into MYR assets and is permitted under the FEP Notices. As for the debt financing proposed to be provided to the project company, see 3.3 Restrictions and Controls on Foreign Currency Exchange for the applicable foreign exchange rules.

Licences and Approvals

A project company must ensure that all licences and approvals required for development and construction activities have been obtained, such as the planning permission, development order or environmental impact assessment (EIA) approval (see 8.8 Environmental Health and Safety Laws). Where there is a proposal to erect a building, the building plan must be submitted to the local authority for approval and the certificate of completion and compliance must be obtained. The contractor engaged in carrying out the construction work must be registered with the Construction Industry Development Board (CIDB) and the project awarded must be declared to the CIDB.

The following types of project financings are permitted in Malaysia.

Bank Financings

Bank financings (bilateral or syndicated) remain the most common form of project financing in Malaysia. Other than commercial banks, projects in targeted strategic sectors such as infrastructure development are often funded by development financial institutions established by the Government of Malaysia with a specific mandate to develop and promote the targeted strategic sectors.

Project Bonds/Sukuk

Malaysia has one of the largest and most liquid sukuk markets globally and sukuk are the dominant form of project bonds in Malaysia, though conventional bonds are also common. Bonds/sukuk are frequently issued to fund projects in the energy sector, as well as large infrastructure and utility projects, and are typically rated and secured with project assets. ESG-labelled bonds/sukuk are increasingly common for issuers that aim to show their commitment to sustainability to the market.

Export Credit Agency Financings

Export credit agency financing in Malaysia is primarily offered through the Export-Import Bank of Malaysia, a government-owned institution, as an alternative short-term, pre and post-shipment financing to Malaysian direct/indirect exporters. This provides buyers’ credit, suppliers’ credit and guarantees for Malaysian contractors in overseas projects and for domestic projects with export links.

Natural resources projects in Malaysia are attractive, given the country’s diverse commodities, but investors face different issues and limitations depending on the type of natural resources.

Regulatory Complexity

Malaysia operates a dual federal-state regime in relation to natural resources. Under the Petroleum Development Act 1974, the federal government controls all petroleum resources via Petroliam Nasional Berhad (“PETRONAS”). Minerals other than petroleum fall within the jurisdiction of the states pursuant to the Mineral Development Act 1994 and relevant state mineral enactments. Licensing, leases and approvals are therefore granted at the state level. Forestry activities are regulated under the National Forestry Act 1984, though the states retain control of forest land. Agricultural commodities, particularly palm oil, are subject to additional statutory regulation and certification requirements.

Environmental Considerations

The Environmental Quality Act 1974 (EQA) requires EIAs to be conducted for mining, dams and logging activities as well as oil and gas facilities, which fall within the definition of “prescribed activity” under the EQA (see 8.8 Environmental Health and Safety Laws). The EQA also imposes obligations in respect of waste management and pollution control.

Export Restrictions

Malaysia imposes limitations on the export of natural resources through prescribing categories of goods that are absolutely prohibited from export and those that are conditionally prohibited, requiring licences or permits from the relevant authorities. In particular:

• minerals – there is an express prohibition on the export of rare earth raw materials, while the export of certain minerals, ores and core requires an export licence issued by the Ministry of Natural Resources, Environment and Climate Change;
• timber – logs and sawn timber may only be exported with an export licence from the relevant authorities, namely the Malaysian Timber Industry Board for export from Peninsular Malaysia and Labuan; the Sabah Forestry Department for export from Sabah; and the Sarawak Timber Industry Development Corporation for export from Sarawak;
• palm oil – the export of palm oil is not prohibited but is regulated through the imposition of export duties and levies;
• crude petroleum – the export of crude petroleum is subject to export duties; and
• petroleum products – the export of diesel fuel, petrol RON 95 and liquefied petroleum gas requires an approval letter from the Controller of Supplies, Ministry of Domestic Trade and Cost of Living under the Control of Supplies Act 1961.

Beneficiation Requirements

Generally, Malaysia requires that natural resources contribute to domestic industrial growth rather than being exported in raw form. Investors in mineral projects may be required to develop local smelting and refining facilities to obtain export approval. Similarly, export duties are imposed on the export of crude palm oil so that it can be channelled into domestic refining and downstream industries such as oleochemicals and biodiesel. The export of rare earth raw materials is banned, making local processing a condition of participation. In summary, the overall policy direction is to ensure that greater value addition takes place within Malaysia before resources are exported.

Environmental Laws

Under Section 34A of the EQA, any person intending to carry out a prescribed activity must appoint a qualified person to conduct an EIA and submit a report to the Department of Environment (DOE) for its approval prior to the commencement of such activity. The prescribed activities include a wide range of construction projects and it is the responsibility of the project company to check whether an EIA is required for the proposed development and construction project.

In addition, projects in Malaysia must also comply with other environmental regulations to prevent pollution. These include:

• the Environmental Quality (Clean Air) Regulations 2014 – which set limits and procedures for managing air emissions and controlling air pollution;
• the Environmental Quality (Industrial Effluent) Regulations 2009 – which control the discharge of industrial effluent, including wastewater generated from construction-related activities;
• the Environmental Quality (Scheduled Wastes) Regulations 2005 – which manage the classification, handling, storage, transport and discharge of scheduled waste;
• the Environmental Quality (Sewage) Regulations 2009 – which control sewage discharge, including from temporary workers’ accommodation at construction sites;
• the Guidelines for Environmental Noise Limits and Control – which regulate permissible noise levels from construction activities; and
• the Guidelines for Erosion and Sediment Control – which provide best practices for managing surface run-off and preventing sedimentation.

Health and Safety laws

The Occupational Safety and Health Act 1994 (OSHA) is the principal legislation governing occupational safety and health and applies to most places of work (including construction sites). No licences or certificates are issued by the OSHA. However, an employer has the general duty to ensure, as far as is practicable, the safety, health and welfare at work of all its employees.

For the construction sector, the Occupational Safety and Health (Construction Work) (Design and Management) Regulations 2024 set out the clear responsibilities of clients, designers and contractors in ensuring safety and health at construction sites. The Department of Occupational Safety and Health has also issued best practice guidelines as a reference for contractors.