A Creditor’s Guide To Winding Up Rules In Malaysia (Updated For 2025)
Winding up a company in Malaysia is a process strictly governed by Malaysian law, requiring adherence to the Companies Act 2016. It’s vital for all stakeholders to understand the step-by-step process to avoid legal pitfalls. A winding-up order is used as a last resort when the petitioner has supposedly exhausted all the alternate means to obtain payment. Of course, this is a time consuming and costly process.
In a winding-up process, all the assets of the company are sold off and distributed to its creditors. The remaining ones will be distributed among the shareholders/partners.
Below, we explain the process in full, though of course, readers are welcome to skip the guide and reach out for a free recovery assessment!
Voluntary vs compulsory winding up
Overall, the process of winding up a business and the associated expenses can differ depending on how complicated it is.
There are two main types of winding up – voluntary and compulsory.
Voluntary winding up can be initiated by the company itself even if solvent. Compulsory winding up is typically initiated by creditors or the court when the company is insolvent.
Voluntary winding up involves:
Directors declaring the company can pay debts in full within 12 months
Members passing a resolution for voluntary winding up
Appointing a liquidator to oversee the process
Liquidator selling assets, settling debts, and distributing remaining assets
Filing a winding up petition in court, which decides whether to allow it
Advertising the winding up order in the gazette and newspapers once a petition is filed
Court appointing liquidator to take over company affairs
Liquidator selling assets, settling debts, and distributing assets per priority
During winding up, employees’ rights are protected by law to ensure they receive what they are owed. Former directors are legally obliged to assist the liquidator in the proper closure of the company’s operations.
Compulsory winding up rules in Malaysia
Winding up procedures are a critical aspect of Malaysia’s corporate landscape, and as of November 2025, if the debtor is a company, winding-up proceedings can only be initiated if the company owes the debtor an amount of RM50,000 and above.
Additionally, the debt must undisputed (e.g. judgment has been obtained against the debtor) and the company fails to pay within 21 days of a statutory demand under Section 466 of the Companies Act 2016 served at its registered office.
To initiate the process, a winding-up petition has to be presented to the court, who will generally take four to five months to review and approve the request. After the court has approved the petition, a winding-up order is issued, forcing the company into compulsory liquidation. The entire company’s assets are then sold off in an auction to pay off the debts.
The latest update in winding up Provisions 2023
As per section 615 of the Companies Act 2016, the minister is allowed to exempt any person, company or class of companies from all the provisions of the Companies Act 2016.
The Minister of Domestic Trade and Consumer Affairs has exercised his power under section 615 of the CA 2016 and produced the exemption order.
On 22.04.2020, the Federal Government gazetted the Companies (Exemption) Order 2020 (“the Order”) under Section 615 CA 2016.
As per the order, an exception is given to all companies who fail to satisfy a statutory notice of demand within 21 days upon receiving. As per the usual definition, a company would be deemed unfit if it failed to reply to a letter of demand within 21 days upon reception.
Please note that the exemption is valid only for the duration of the company to respond. Other legal actions can still be taken against the debtor company.
Statutory demand under Section 466
A statutory demand is a statutory notice under Section 466 of the Companies Act. Once served, it gives debtor companies 21 days to settle the debt or they will be presumed insolvent credtiors may initiate compulsory winding-up proceedings. It is not the same as the letter of demand typically issued by lawyers as a precursor to filing a lawsuit!
Defining the role of a liquidator
In a compulsory winding up, a liquidator is a licensed insolvency professional appointed by the court to effectively replace the company’s directors, granting them full oversight into company finances that allows them to collect and sell company assets, investigate transactions made before winding up, recover improperly disposed assets, and distribute payments to creditors and shareholders.
Creditors file Proof of Debt (POD) forms with the liquidator to claim what they are owed, and the liquidator will distribute proceeds based on a set hierarchy.
Order of priority in debt repayment
The Companies Act 2016 sets the order in which debts are repaid during a liquidation under Sections 527–531, and for the convenience of our readers, here’s a list of parties from highest to lowest repayment priority:
Costs of liquidation including liquidator and court expenses
Employee wages, benefits, and taxes owed within the past 12 months
Secured creditors with charged assets
Unsecured creditors, and
Shareholders
This order must be strictly followed, and payments unfairly favoring one creditor may be voidable by the liquidator to ensure fair distribution among all creditors.
When to use a compulsory winding up petition
For unsecured creditors in particular, a compulsory winding-up is most effective as a pressure tool to encourage solvent debtor companies to repay their debts. This is because an actual winding up is only effective as a direct debt recovery tool when the debtor company has:
substantial assets, and
few or no tax / employee liabilities and secured creditors
In practice, most indebted companies do not meet these conditions, while companies that do are unlikely to allow themselves to be liquidated! For creditors seeking to follow through with legal enforcement, there are often more practical legal enforcement options than pursuing a winding-up petition.
Instead, treat winding up as a strategic tool against legitimate companies through the statutory demand, where the mere threat of a petition can often prompt payment within 21 days.
Fortuna Injunction
If a creditor persists to threaten to petition for a winding-up, the legal remedy of Fortuna Injunction can be sought.
In general, an injunction order means an authoritative order, directed by the court to do, or not do something.
Fortuna injunction is a specific order of injunction from the High court temporarily restraining the creditor from filing a winding-up petition against the debtor company after the final letter of demand has been served.
If the debtor company successfully obtains an injunction order, the creditor won’t be able to file a winding-up order against the company.
What are the grounds on which a Fortuna injunction can be granted?
The grounds for Fortuna Injunction is established in the famous case of Fortuna Holdings Pty Ltd v Deputy Federal Commissioner of Taxation [1978] 2 ACLR 349
The court stated that a company under debt could be granted an injunction under two conditions.
First condition: The winding-up petition if presented has no chance of success or is sure to fail.
Second condition: The winding-up petition, if presented by the creditor, is sure to bring irreparable damage to the company. The better option will be to follow some of the alternate options available.
Key Takeaways
The threshold for commencing winding-up proceedings against a debtor company for inability to pay debts has increased from RM10,000 to RM50,000. A creditor may now only initiate such proceedings if the debtor fails to satisfy or secure a debt exceeding RM50,000 within 21 days after receiving a statutory demand.
Winding up a company involves distinct voluntary and compulsory procedures. Voluntary winding up occurs when shareholders pass a resolution to wind up, while compulsory winding up is court-ordered.
Employees’ rights are prioritised during winding up. Their wages and employment claims take precedence over unsecured creditors.
Finally, proof of debt must be submitted within three months of a winding-up order, ensuring all creditors have the opportunity to prove claims against the company.
Bottom Line
Winding up has far-reaching commercial implications for the business environment in Malaysia. The economic climate can significantly impact the frequency and nature of winding-up proceedings.
For example, the COVID-19 pandemic has undoubtedly shaken the pillars of many companies in Malaysia. Being a country where small and medium scale businesses are one of the significant sources of income, the recent update in the winding-up rules are sure to provide some relief to small and medium scale business owners.
Let Rule & Co secure your winding up petition
If you’ve sent reminders and been ignored or simply don’t want the hassle of chasing payments, Rule & Co is a debt recovery law firm that focuses on helping creditors recover debts through legal strategies that minimize upfront cost and maximise recovery while protecting your reputation.
FAQ
Can a company continue to operate after a winding-up order has been made?
Once a winding-up order is made, the company must cease its business operations, except as necessary for the beneficial winding up of the company.
How are the company’s assets distributed during winding up?
The company’s assets are liquidated, and the proceeds are used to pay off creditors in a specific order: secured creditors, preferential creditors (including employees), and then unsecured creditors.
What is a statutory demand?
A statutory demand is a formal request for payment issued to a debtor company. If the company fails to pay, comply, or reach an agreement within 21 days, it can be used as grounds for a winding-up petition.
Are there alternatives to winding up for debt resolution?
Yes, alternatives like debt restructuring, negotiation with creditors, or schemes of arrangement can be explored to avoid winding up.
How can a winding-up order be contested?
A winding-up order can be contested on various grounds, such as disputes over the debt or the procedure followed. Legal advice should be sought immediately due to the time-sensitive nature of these proceedings.
What happens after the winding up is complete?
After the winding-up process is complete, the company is formally dissolved and no longer exists as a legal entity. Any surplus funds after paying off debts are distributed to shareholders.
