It is presumed that banks including Islamic banks (IB) are too big to fail. Despite the evidence to the contrary, this presumption is still predominant. The evidence shows that the consequences of banks insolvency is part and parcel of the business risk involving banks, albeit it can be prevented or mitigated with sound insolvency regime. The objectives of this research are to: explore the concept of insolvency under Shari'ah; examine the insolvency regime applicable to IB in Malaysia; study the instances in which Islamic financial institutions (IFI) have been insolvent and insolvency framework applied in actual cases of failed IFI; and find out the compatibility of current insolvency framework for IB in Malaysia with Shari'ah by identifying the gaps. Needless to say that the operation of IB must comply with Shari'ah requirement from 'cradle to grave'. In other words, its establishment and dissolution should not just be mere technicality but has to be backed by Shari'ah force. In pursuant to these objectives, a qualitative study that prescribed a doctrinal and empirical method has been employed. The findings of this research identifies several gaps that are: absence of reference to iflas concept, absence of recovery and resolution planning (RRP), absence of international Shari'ah standards on IB insolvency and reliance on conventional international standard on bank insolvency, absence of mechanism for effective communication and training among the stakeholders, absence of Shari'ah ruling by SAC related to insolvency of IB's and recommended the followings: acknowledge the term iflas in laws related to IB in Malaysia and embedded into insolvency regime for IB in Malaysia; opinion from SAC must be sought on procedure related to insolvency of IB; include RRP in insolvency regime for IB in Malaysia; advocate for the formulation of international - standards on IB insolvency and remove full-reliance on conventional international standard on bank insolvency; establish a communication channel and lastly provide adequate training to related stakeholders involving in IB insolvency. It is anticipated that the outcomes of this research would contribute to Malaysia to attain a comprehensive insolvency regime for IB that is compatible with Shari'ah. The regulator, supervisory authority, resolution authority, policy makers and law makers can use this research as a basis to further enhance and/or amend the related policy and laws that might hinder the orderly recovery and resolution process of insolvent IB in Malaysia.