How to Make Someone Bankrupt in Malaysia: A Creditor's Guide

When can a creditor make a debtor bankrupt in Malaysia?

Only when the conditions in section 5(1) of the Insolvency Act 1967 (Act 360) are met. Bankruptcy applies to individuals, including sole proprietors and partners. A company that does not pay is wound up instead, as explained in our guide to the section 466 notice.

On 9 October 2026, the Budget 2027 speech announced that the threshold will rise to RM150,000 from 2027. As at October 2026 no amendment has been passed, so RM100,000 still applies. A creditor owed between RM100,000 and RM150,000 should take advice early, because the law may change before a petition is heard.

Step one: the bankruptcy notice

The usual first step is a bankruptcy notice: a court document, served on the debtor, demanding payment of a final judgment or order that has not been stayed. A creditor without a judgment must sue first; our guide to recovering unpaid invoices explains that stage.

• The notice must state the sums due exactly, including interest calculated to the date of issue.
• It is valid for three months from issue and must be served on the debtor personally within that time. If personal service is impracticable, the creditor can ask the court for substituted service.
• Under section 3(1)(i), a debtor who does not comply within seven days after service commits an act of bankruptcy.

The debtor can resist in two ways. Within the same seven days, the debtor can file an affidavit claiming a counterclaim, set-off or cross-demand equal to or greater than the judgment debt; no act of bankruptcy occurs until the court decides it. The debtor can also apply to set the notice aside on other grounds, such as a wrong amount, unquantified interest or defective service.

Old judgments need care. In Dr Shamsul Bahar bin Abdul Kadir v RHB Bank Berhad [2015] 4 CLJ 561, the Federal Court held that a creditor whose judgment is six years old or more must obtain the court's leave under Order 46 rule 2 of the Rules of Court 2012 before issuing a bankruptcy notice.

Step two: the creditor's petition and the bankruptcy order

If the notice is not complied with, the creditor may present a creditor's petition in the High Court. The key time limits are these.

The petition is verified by affidavit and served on the debtor. The debtor can file a notice to show cause setting out grounds of opposition, or apply to set the petition aside, for example because it was presented late or the debt is below the threshold. A counterclaim or set-off that belonged at the notice stage generally cannot be raised again now.

At the hearing, usually before a Senior Assistant Registrar, the creditor must prove the debt, the act of bankruptcy and proper service. The court may make a bankruptcy order, dismiss the petition, or stay it, for instance while an appeal against the judgment is pending.

A bankruptcy order changes the position of every creditor. Under section 8(1), the bankrupt's property vests in the Director General of Insolvency, and no creditor with a provable debt has any remedy against the bankrupt's property or person, except as the Act provides or with the court's leave. The petitioning creditor's claim joins everyone else's.

Can a creditor make a guarantor bankrupt?

Sometimes, but the Insolvency Act 1967 restricts it. Section 5(3)(a), added by the amendments in Act A1534, bars any bankruptcy action against a social guarantor, and section 5(3)(b) requires the court's leave before a petition is brought against any other guarantor.

A social guarantor is a person who stood as guarantor, not for the purpose of making a profit, for:

• a loan, scholarship or grant for education or research;
• the hire purchase of a vehicle for personal use, not commercial use;
• a housing loan for a home that is the borrower's own dwelling.

A bankruptcy notice cannot be issued against a social guarantor either, and a notice issued against one can be set aside.

A director who stands as guarantor for the company's bank facilities or trade account is usually not a social guarantor, because that arrangement supports a business. Even so, the creditor needs leave. Under section 5(4), the court must also be satisfied that the creditor has exhausted all modes of execution and enforcement against the principal debtor, the person or company that borrowed. In practice, the creditor should be ready to show the steps already taken against the borrower and why they did not produce payment. Under section 5(7), a petition that does not meet these requirements must be dismissed.

What happens after the order: the Director General and discharge

After a bankruptcy order, the Director General of Insolvency, the public officer who administers bankrupts' estates through the Insolvency Department, takes charge. Creditors must lodge a proof of debt to share in any distribution.

The Director General collects and sells the bankrupt's property and can require contributions from income. Under section 43, certain debts, including some rates and taxes and employees' wages up to a limit, are paid first. All other proved debts are then paid pari passu, meaning in proportion to their size. A secured creditor, such as a bank holding a charge over a house, normally looks to its security first.

The bankrupt faces restrictions. For example, under section 38(1)(c) an undischarged bankrupt may not leave Malaysia without the permission of the Director General or the court.

Bankruptcy is not permanent. Under section 33C, as amended by the Insolvency (Amendment) Act 2023 (in force 6 October 2023), a bankrupt is discharged automatically three years after submitting the statement of affairs, if the bankrupt has paid the sum the Director General sets and has rendered accounts. Discharge can be suspended for up to two years if the bankrupt has not complied with his duties. The Director General may also grant a discharge certificate under section 33A. Under section 35(1), discharge releases the bankrupt from all debts provable in the bankruptcy, so any unpaid balance is generally lost.

Will bankruptcy actually get you paid?

Not always. Bankruptcy is a collective remedy: it gathers the debtor's assets for all creditors, not just the one who petitioned. If the debtor has little property and modest income, the dividend may be small, and the petitioning creditor will have paid its own legal costs to reach that point.

Bankruptcy tends to make sense when:

• the debtor owns assets, such as land or shares, that are not fully charged to a bank;
• the debtor has strong reasons to avoid bankruptcy, such as running a business, holding a directorship or needing to travel, and is likely to settle;
• other methods, such as garnishing a bank account or seizing goods, have failed or are unlikely to work.

Before starting, check whether the debtor is already bankrupt, how old the judgment is, whether the debtor is a guarantor, and what assets exist. A bankruptcy notice often prompts an offer, so any settlement should be written, with the whole balance falling due if a payment is missed. Compare the other enforcement routes on our debt recovery page before choosing.

NZSK does not advise on a description alone. We review the judgment, the debt documents and what is known of the debtor's assets at a consultation, online or in person, before advising whether bankruptcy is the right tool.