In Malaysia, businesses may suffer badly due to delayed payments from clients.
Companies often lose a considerable amount of money every year, since a good number of debts end up being written off because of late payers.
If all the methods to elicit the payment from your borrower have failed, it is time to take legal action.
In this article, we have selected some of the most common questions asked by the creditors and debtors regarding the process of debt recovery in Malaysia.
For creditors
Do I need to issue a Letter of Demand before initiating the legal proceedings to recover the debt?
No, it is not compulsory to serve a letter of demand before initiating any legal proceedings against the debtor.
A letter of demand will serve as the last warning to the debtor, beyond which the issue is handled by referring to Court.
The letter of demand clearly explains the details of the dispute and your reasons to pursue a legal remedy.
The main benefits of sending a letter of notice are:
- It serves as a reasonable notice (as an official document) for the debtor that legal action will be/can be undertaken against him.
- It serves as a shred of compelling evidence in building up a case.
- It gives the debtor one last chance to pay back.
- It helps to maintain a positive relationship and upholds the goodwill of the debtor.
Is there a time limit to commence legal action against the debtor?
Yes, the maximum time limit to commence legal action against a debtor is six years. After this period has lapsed, you cannot file a suit against the debtor. This limitation period of six years is as per the Limitation Act 1953,
Section 6(1)(a) of the Limitation Act states that:
“An action for an account shall not be brought in respect of any matter which arose more than six years before the commencement of the action.”
This applies to all civil suits involving banking, debt recovery, accident, medical claims, etc.
If an order of judgment is obtained against the debtor, you can enforce the order within 12 years from the date of judgment.
Is there a minimum amount owed before I can commence legal proceedings against the debtor?
No, there are no hard and fast rule regarding the minimum amount that the debtor should owe a creditor for him to take legal action.
If you wish, you can sue your debtor for any amount of your choice.
That said, the type of Court where you need to file for your claim will be dependant on the amount that the debtor owes you.
Make sure that you file your claim in the right Court as per the quantum below.
Up to RM100,000.00 : Magistrates Court
Up to RM1,000,000.00: Sessions Court
Above RM1,000,000.00: High Court
I can’t locate the debtor anymore, can I still take legal action to recover my money?
Yes, you can take legal action against the debtor for recovering your money, even when you cannot physically locate him.
You do so by suing the debtor in Court. If your evidence is clear, you are most likely to obtain a favourable order.
Malaysian law has various provisions for enforcing the judgment.
Upon receiving the judgment against the debtor, you then enforce the judgement against the debtor.
One popular method is to file a JDS (Judgment Debtor Summons). This is known to ‘drag’ the debtor to the Court and force him to reveal all the details of his financial status and assets. A Warrant of Arrest can be issued against the debtor to bring him to court.
Once a Judgment Debtor Summons has been sent, the debtor has to appear in Court with all the proofs of his assets and financial status.
The Court will usually issue an order after verifying the proofs directing the debtor to pay back the money in full or on an installment basis.
If the debtor fails to appear in the Court, or comply with the court order, he will be arrested and produced before the Court asking for a reasonable explanation as to why legal action should not be taken against him.
Can I sue the debtor without having to go through a trial?
Yes, you can get a favorable judgment without going through a lengthy trial. This is possible under two conditions.
- Non-appearance of the defendant- If the defendant does not appear in the Court, or if he fails to file a defence, you will win by default, and the judgment will be in favour of you.
- Summary judgement- This is a short cut remedy that can be taken if you have all the material evidence to prove your financial relationship with the borrower.
One an application for Summary judgment is successful, the Court will examine your claim based on your affidavit and material proofs presented.
Here, one exciting thing is that there is no requirement of any witnesses to testify.
I don’t just want a regular paper judgment, what can I do to enforce the judgment?
It is definitely true that even after receiving a favourable judgment, there is no guarantee that the judgment debtor will pay back the money.
If you are faced with such a situation, you can apply to the Court to enforce the judgment.
This includes:
1. Garnishee Proceedings
An order by which :
- The Court directs the employer to pay a certain portion of the debtor’s salary to you until the debt is paid off.
- Debtor’s bank account will be attached, and the amount will be transferred from the debtor’s account to your account until the debt is paid off.
2. Writ of Seizure and Sale
All the properties of the debtor will be seized and sold off in an auction to recover the debt money.
3. Writ of Possession
This only applies to immovable properties. The properties of the borrower will be seized and sold in an auction to recover the debt money.
4. Charging orders
This is similar to the garnishee proceedings.
A court order will be produced to impose a charge on securities owned by the debtor. These include bonds, dividends, or shares.
How long does it take to obtain a judgment (without a trial) against the debtor?
This will take an approximate time of six months. The timeline to obtain a judgment is dependant on a variety of factors, including the Court’s schedule.
Let’s consider the time periods closely.
It will usually take about three months from the time when the letter of demand is issued to obtaining a judgment in default of appearance.
If the defence is filed, it can take up to six months to obtain a summary judgement.
With a trial, the process may take up to nine months.
For debtors
What should you do when you receive a letter of demand from your creditor?
It is imperative to reply to a letter of demand and never ignore it.
Upon receiving the letter of demand, you should carefully read the letter and check the facts and figures mentioned. These include the amount owed, description of the debt, date from which the amount was due, etc.
If you are ready to settle the sum and do not wish to dispute, you should reply back in writing and make an arrangement for a reasonable settlement.
On the other hand, if you find the Letter of demand disputable, reply back in writing, mentioning the correct figures and details.
Make sure that you avoid using any language that depicts anger or frustration while replying to a letter of demand. Never try to threaten your creditor as you will lose any chances of settling the dispute without the intervention of the Court.
If you are unsure about preparing a sound reply, it is always advisable to consult a lawyer.
A lawyer can help you to prepare an apt reply in a way that will be favourable to you, even in a scenario that the issue reaches the Court.
Do you need to appoint a lawyer to defend your case?
A company can only be represented in Court by appointing a lawyer. An individual, however, may choose to represent himself.
If you are equipped with the right legal knowledge and experience, you can defend yourself.
However, for most people, it is a wise decision to appoint a lawyer to handle their case. This is because the court proceedings involve legal technicalities, and a lawyer is professionally trained to deal with these without sabotaging the delicate points of a case.
If you know that someone is going to sue you – is it better to just evade or refuse service of the court papers?
No. The worst thing you can do is to refuse to acknowledge the court papers that have been sent your way. Usually, the court notice will be served via registered post or even ordinary post, which will have a tracking ID.
The recipient has to file an appearance in court within 14 days of receipt of the notice.
Even if you try to avoid receiving the letter, your creditor could choose to apply for an order of substituted service of the writ.
Once approved, the court will allow your creditor to advertise in the newspaper or put the notice at a clearly visible area (like the main door) of your last known address.
If the court finds you missing at a hearing, there is a high probability that your opponent will win by default, jeopardizing your bank accounts, wages, and property.
It is advisable to immediately consult a lawyer and organise a detailed response. This can help you to possibly formulate an amicable deal with the creditor.
Final words
It is often time-consuming and disheartening for the business owners to continually chase a stubborn client and make them repay. In situations like these, hiring a debt recovery company is perhaps the best solution that you can adopt. Make sure that you take the time to read up on some of the most frequently asked questions and discuss your case with a reputed lawyer.
