Examining Procedural and Legal Exclusion of Employees in Malaysian Corporate Insolvency

This paper examines the procedural and legal exclusion of employees during corporate insolvency in Malaysia, highlighting gaps between statutory protections and practical outcomes. Despite being recognized as preferential creditors under the Companies Act 2016, employees often experience significant delays, lack of procedural inclusion, and partial or no compensation. Using organisational justice theory as an analytical lens, the paper explores how principles of procedural and distributive fairness are compromised within Malaysia’s insolvency framework. Doctrinal analysis of statutes, case law, and judicial interpretation reveals a persistent creditor-centric approach reinforced by rigid formalism and fragmented legal provisions. Comparative insights from Australia and France demonstrate the importance of institutional safeguards, particularly wage protection funds, which Malaysia currently lacks. These findings underscore that statutory recognition alone is insufficient without mechanisms that ensure timely enforcement and participation for employees. The paper argues that aligning insolvency processes with justice-based principles can enhance institutional legitimacy and public trust. Policy recommendations include the establishment of a wage protection scheme, procedural integration of employee representation, and judicial training to promote fairness-oriented decision-making. This conceptual analysis contributes to Malaysian insolvency scholarship by reframing employee protection as a question of legal interpretation, procedural justice, and social responsibility rather than mere statutory hierarchy. This conceptual paper provides policy recommendations to enhance fairness and institutional trust in insolvency law.