DEBT RECOVERY IN MALAYSIA: LEGAL GUIDE FOR CLAIMS EXCEEDING RM5,000
The most common way to initiate a debt recovery process is by serving a Notice of Demand (“NOD”) to the debtor to formally request the debtor to pay the amount owed to the creditor within a specified period.
A creditor may issue the NOD himself but it is prudent to appoint a lawyer to draft the NOD before issuing the same. Apart from ensuring the correct terms and intention of the NOD are properly worded, a lawyer will also ensure the necessary points are addressed for an effective NOD. At this stage, the parties are at liberty to negotiate and mutually reach to a settlement without having to go to court. This method has been proven to reduce the cost and time if the negotiations between the parties succeeded. However, if the negotiation failed and/or the debtor failed to comply with the NOD, the creditor may appoint a lawyer to institute a civil action in court.
There are essential elements that a creditor should consider prior to the commencement of the legal action which are: –
- Valid basis of the claim
- Within limitation period. Debt recovery: must file legal action within 6 years from the date of failure to make payment
- Necessary evidence in the form of documents and/or witnesses
- Costs of litigation
After considering and being adviced with the above, a creditor may then initiate a legal proceeding by way of Writ of Summons against the debtor and it is to be filed at court where the cause of action arose or nearby the Defendant’s residential address or place of business pursuant to Section 23 (1) of Courts of Judicature Act 1964.
The Malaysian courts also have their own civil jurisdiction to hear the matter according to the amount in dispute: –
- Magistrate’s Court: for claim less than RM100,000
- Sessions Court: for claim more than RM100,000 but less than RM1,000,000
- High Court: for claim RM1,000,000 and above
Therefore, the creditor must ensure that the Writ of Summons is filed at the right court to avoid it from being rejected and the matter being delayed.
Upon commencing the legal action, the creditor shall be named as Plaintiff and the debtor shall be named as Defendant. The Statement of Claim, which must be filed together with the Writ of Summons, must contain sufficient and clear information about what the Plaintiff is claiming against the Defendant. Upon receiving the sealed documents, the Plaintiff’s solicitors then shall serve the same on the Defendant by way of AR registered post or any manner specified in the agreement (if any). Should the Defendant failed, refused and/or neglected to enter appearance within 14 days after the said service, Judgment in Default of Appearance can be entered upon him. If the Defendant appointed a lawyer and enter appearance for the said legal action, the matter will undergo an interlocutory application and/or full trial until the Plaintiff secured a Judgment in favour of him.
Once the Judgment is obtained, the Defendant shall abide by the terms specified in the said Judgment which usually comprises the Judgment Sum, the manner of payment, the interest or late payment charges imposed and the cost of the proceeding which payable by the Defendant to the Plaintiff.
Nevertheless, if the debtor refuses, ignores, fails and/or neglects to adhere with the terms in the Judgment, the creditor may then compel the debtor by executing the said Judgment. In Malaysia, there are several methods in enforcing Judgments available for debt recovery, among others, are as below:
- Judgment Debtor Summons
The procedure is by way of ex-parte Notice of Application supported by an affidavit as provided under O. 48 Rules of Court 2012. The court can compel the Judgment Debtor to appear in court for examination on oath. During the examination, the Judgment Debtor needs to provide information of his assets and the court will allow the Judgment Debtor to settle the Judgment Sum by lump sum or instalments commensurate to his means.
- Garnishee Proceedings
Garnishee proceedings is one of the simplest and speediest way to recover the Judgment Sum if the Judgment Creditor come across any information of the Judgment Debtor’s bank account. The Judgment Creditor may file an ex-parte notice of application supported by an affidavit pursuant to O. 49 r. 2 Rules of Court 2012. At this stage, the Judgment Debtor’s garnished bank accounts have been frozen and the Judgment Debtor will be denied access to his monies. If no dispute is raised, the court will order a Garnishee Order Absolute to direct the bank to release the amount owed directly to the Judgment Creditor.
- Winding-up proceedings
If the Judgment Debtor is a registered company, the Judgment Creditor may commence a winding-up proceeding against the Judgment Debtor if the amount of indebtedness exceeds RM50,000 on the ground of inability to pay its debt pursuant to S. 466(1)(a) of Companies Act 2016. The Judgment Creditor must first issue a statutory notice of demand to the Judgment Debtor and if they neglect to pay the Judgment Sum within 21 days after being served with the said notice, the Judgment Creditor may then apply to the court to wind-up the Judgment Debtor company. As soon as the Judgment Debtor is wound up by the court order, a liquidator from Malaysian Department of Insolvency (MDI) will be appointed to manage the company’s assets including selling the assets and then distributing the proceeds among the creditors, with priority to be given to the secured creditors.
- Bankruptcy proceedings
If the Judgment Debtor is an individual, the Judgment Creditor may apply for a bankruptcy order against the Judgment Debtor if the Judgment Sum exceeds RM100,000. The Judgment Debtor is deemed to commit an act of bankruptcy if he/she fails to respond to the Bankruptcy Notice within 7 days from the date of service (excluding weekends and Public Holiday). The proceedings and order on Creditor’s Petition are govern under S. 6 of the Insolvency Act 1967. Once the Judgment Debtor has been adjudged bankrupt, all of his/her property will be vested on and administered by the Director General of Insolvency (“DGI”). The DGI will be selling or disposing of the assets and the sale proceeds will be distributed among the creditors who had filed the Proof of Debt, with priority to be given to the secured creditors.
- Writ of Seizure and Sale
If the Judgment Creditor has knowledge of the Judgment Debtor’s valuable property, the Judgment Creditor may apply to the court to make an order of seizure and sale against the Judgment Debtor by filing an ex parte notice of application supported with affidavit according to O. 46 r. 3 Rules of Court 2012. A leave from the court is necessary if exceeds 6 years from the date of Judgment pursuant to O. 46, r. 2 Rules of Court 2012. A warrant of seizure and sale authorises the bailiff to seize and sell the valuable property of the Judgment Debtor by public auction to satisfy the judgment sum. However, clothing, personal belongings or tools which enable the debtor to earn a living cannot be seized.
- Auction of Immovable Property
This method of execution is recommendable to a secured Judgment Creditor, i.e. the Chargee Bank. An application for the auction of immovable property must be filed by way of Originating Summons supported by an affidavit to get an order for sale by way of public auction under S. 263(2) of the National Land Code. The Registrar will appoint the auctioneer and fix a reserve price for the said property. The auctioneer must have taken out a proclamation for sale to advertise the said property. The Registrar in his capacity as Sheriff handles public auctions and assisted by the auctioneer and the bailiff.
On the whole, the Creditor must ensure to enforce the Judgment obtained within 12 years from the said Judgment becomes enforceable to avoid from being statute barred by virtue of
Section 6 (3) of the Limitation Act 1953. In light of this, we assist our clients in recovering their debts starting with the issuing of an effective NOD as well as advising on the appropriate modes to be taken in court.
