A Creditor’s Guide To Compulsory Winding Up Orders In Malaysia
- Rule & Co Editorial Team
- 4 days ago
- 5 min read
Updated: 2 days ago
Once creditors in Malaysia secure a court judgement against a debtor company, a compulsory winding up order under the Companies Act 2016 marks the end of the debtor’s existence.
Specifically, a court-ordered winding up places a debtor company in the hands of an impartial third party who liquidates and sells off its assets, then distributes proceeds among creditors.
Every month hundreds of companies across Malaysia are wound up by the courts, and for those contemplating a suit against a corporate debtor, our guide explains:
terms related to the process
requirements
main steps
key considerations, and
our practical observations
Alternatively, skip the reading and get in touch for a free recovery assessment.
Otherwise, let’s begin.
Compulsory vs voluntary winding up
For clarity, it’s worth briefly mentioning voluntary winding ups, initiated by the debtor company itself due to insolvency or strategic closure.
A compulsory winding up–the focus of our guide–is initiated by a creditor when a company can be proven to be insolvent, and it’s worth noting a recent ruling where a voluntary winding up was escalated into compulsory liquidation due to liquidator bias.
So, even if a corporate debtor initiates a voluntary winding up, as a creditor it’s still worth knowing what a compulsory winding up looks like!
Minimum debt threshold for winding up
Generally, three conditions must be met for a winding-up petition to be filed against a debtor company for inability to pay debts:
the debt is undisputed (e.g. judgment has been obtained against the debtor)
the company owes a debt exceeding the minimum amount prescribed by the Minister of Domestic Trade and Cost of Living, and
the company fails to pay within 21 days of a statutory demand served at its registered office
As of November 2025, the minimum amount is RM50,000 and may be revised in the future (the previous threshold was just RM10,000) at the Minister’s discretion. Whatever the current statutory threshold is, we must ensure the debt owed meets it.
Compulsory winding up procedure
A compulsory winding up proceeding typically has three main stages:
Statutory demand (Section 466 notice)
Filing and service of winding up petition
Court hearing and grant of winding up order
From start to finish, a straightforward case may take several months, though it can take longer for complicated cases or if the judgement debtor attempts to dispute or stay the order.
Stage 1: Serving of statutory demand
We first serve the judgement debtor with a statutory demand giving them 21 days to settle the debt, and at this stage, our firm will:
draft and serve the statutory demand to the debtor company’s registered office
document evidence of service and non-payment
The 21 days following a statutory demand is the best chance of an out-of-court-settlement as companies that are still operational tend to be highly incentivised to avoid liquidation if possible.
Failure to comply creates a legal presumption of insolvency allowing us to petition the court for winding up.
Stage 2: Filing and serving the winding up petition
If the debtor ignores or fails to adequately contest the statutory demand, we proceed to file a winding up petition in the High Court which sets out debt details, evidence of non-payment, and your right as creditor to seek liquidation.
Other than the courts, the petition must also be:
served on the company
served on the Insolvency Department, and
advertised in one national language and one English newspaper at least seven days before the hearing
Once served and advertised, the debtor company and other interested parties (namely secured creditors) may appear in court to oppose the petition.
These procedural steps are critical as non-compliance can cause the petition to be struck out.
Stage 3: Winding up hearing and order
At the hearing, the court will consider whether:
the debt is valid and undisputed
the statutory demand was properly served, and
the company is insolvent and unable to pay
If the court is satisfied, it may issue a Winding Up Order, officially placing the company into liquidation.
From this point, the company ceases operations. A liquidator takes control of the company, the company’s assets are sold and proceeds distributed to creditors based on priority.
What’s 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.
This grants the liquidator wide powers and oversight into company finances, allowing 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 and readers who want full details can see Sections 527–531.
But for your convenience, 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 such as banks
Unsecured creditors (where your claim likely falls), and
Shareholders
As unsecured creditors rank relatively low in the repayment hierarchy, it’s crucial to conduct thorough research and ensure the company has sufficient assets before pursuing a liquidation.
Additionally, 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
A compulsory winding-up petition is most effective as a pressure tool to encourage solvent debtor companies to repay their debts.
This is because for unsecured creditors, an actual winding up is only effective as a 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.
Alternative debt enforcement methods
Assuming we begin with a judgment debtor summons to get an accurate appraisal of the debtor company’s finances, different enforcement methods can work better depending on our findings.
Finding | Recommended enforcement method |
Debtor has bank accounts or cash | |
Debtor has movable assets (vehicles, equipment) | Writ of seizure and sale, charging order |
Company has a signed personal guarantee from directors |
And of course, if the debtor is willing, we always encourage out-of-court settlements.
Our thoughts
In our decade of experience as debt recovery lawyers, forced liquidation has rarely proven effective as a direct recovery method.
Assets are usually sold at forced-sale values, and debtor companies are often already deeply insolvent. Legal fees and liquidator costs are not cheap and take priority, so even secured creditors often recover only part of what they’re owed.
Anecdotally, one liquidator told us that in his 10 years of work, he had never seen an unsecured creditor recover 100% of amounts due. In that same amount of time, we ourselves have only encountered two such cases.
Instead, treat winding up as a strategic tool against legitimate companies, where the mere threat of a petition can often prompt payment within 21 days.
That’s it from us, and we wish you a smooth debt recovery 🙂
Let Rule & Co handle your debt recovery
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 via legal strategies that minimise upfront cost, maximise recovery, and protect your reputation.
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