Debt Recovery English Version
For trade and commerce to proceed without hitch, it is absolutely important that provision be made for debt recovery. The Malaysian legal system is no different, as it provides for ways through which a debt can be recovered and a judgment enforced.
If you are being owed a debt in Malaysia, there are several steps you can take to recover what you are owed. In this article, we will discuss the most common means through which a debt can be recovered and how to enforce the judgment.
However, as is often the case, it makes sense to speak to a qualified lawyer about the specific facts of your case. Retaining a lawyer will give you the edge in the courtroom, and you can rely on their extensive experience to select the best option for debt recovery.
Instituting a civil action for debt recovery in Malaysia
Generally, the first step to recovering a debt in Malaysia is to go through the civil court system. The Malaysian Civil Judicial System is based on common law, which makes it similar to that of the US and UK, in some respects. Malaysia’s system is largely codified by statute though, which makes it more certain and discoverable than that of the UK.
Some of the statutes that contain provisions on debt recovery in Malaysia include the Debtors Act 1967, the Companies Act 1965 which was replaced by the Companies Act 2016, Companies (Winding Up) Rules 1972, the Insolvency Act 1967 , etc.
To commence an action for debt recovery in Malaysia, you would need to approach a Magistrate Court or Session Court. For Session Courts or High Court, they are empowered to adjudicate on disputes involving distress actions (sale of assets for debt recovery) and landlord-tenant disputes amongst others. The Session court can decide your case if the amount in dispute does not exceed RM 1 million.
You may also approach the High Court for a determination of your rights. However, the court will only hear cases on which the Magistrate and Session Court do not have jurisdiction. You should consult closely with your lawyer to be certain that you can approach the High Court.
Generally, the High Court considers matters involving granting of Probate, Letters of Administration, bankruptcy and other civil claims where the amount in dispute exceeds RM 1 million.
If the court determines that your case has merit, you may obtain judgment against the debtor for the sum in dispute.
In addition, you must commence your case in a Malaysian court within 6 years from the date the debt was owed. If you file the case any later, the court will ordinarily refuse to entertain it.
If you are able to obtain a judgment from the court in your favour (the case should take between 3-6 months or even sooner depends on the situation), your next step should be enforcement.
How to enforce the judgment
There are several ways of enforcing a judgment entitling you to recover a debt in Malaysia. These are called modes of execution and they are often provided in Rules of
Court and special statutes such as the Reciprocal Enforcement of Judgment Act 1958. We will explain some of the most common modes below.
- Writ of seizure and sale: You can apply to the court to make an order of seizure and sale. The order can be obtained in respect of both movable and immovable property, as well as against securities. For immovable property, the seizure is effected by a court order that prohibits the debtor from transferring, charging or leasing the property. Then the property being seized is subject for an auction sale.
Garnishee proceedings: These proceedings allow you to “garnish” or seize any money due to the debtor in the possession of a third party. The application is made to the court, ordinarily in the debtor’s absence, and must be accompanied by an affidavit. If the application is successful, any third party holding funds due to the third party (such as a bank) may be compelled to pay you instead.
Judgment debtor summons: Under this procedure, the court sanctions an arrangement for the debt to be paid in instalments. Either you or the debtor may apply to the court for this arrangement to be made. However, it depends on the cooperation of the debtor.
Auction of immovable property: When a debtor has defaulted on their obligations to pay a debt, their immovable property may be auctioned. You can apply to the court to order an auction sale of the debtor’s property, and if your application is successful, the court will appoint auctioneers to handle the sale. As part of the auction procedure, you will be required to advertise the auction of the property. This often ensures that third parties with interest in the same property are properly notified.
Prohibitory order: This is a court order that prevents the debtor from dealing with property subject to enforcement, such as land. It is a handy order to obtain when you suspect that the debtor may try to sell off his property or give someone else an interest in them in order to avoid the debt. It often makes sense to obtain this order before applying for sale or auction of the property.
Committal proceedings: This procedure essentially informs the court that the debtor is “in contempt”. Contempt of court proceedings occur when someone unlawfully disobeys a court order or “disrespects” the court. You can file an application for the court to call the debtor to order and punish them for refusing to repay the debt as ordered by the court.
Charging order: This order is perfect for enforcing a judgment on securities such as shares and debentures. The order places a charge on the securities in question, meaning that a specific sum must be paid to you out of their value. The order also prevents the debtor from selling or transferring the shares until the charge is exhausted.
Bankruptcy proceedings: This is one of the most common means of debt recovery. In Malaysia, a person may only be declared bankrupt if the total judgment debt is more than RM 50,000. You may commence these proceedings if the debtor fails to comply with the judgment order made against them.
- Winding up: This is a special procedure through which the assets of a company are liquidated. Although there are several instances in which a company’s assets may be liquidated, one of the most common grounds is when it is unable to pay its debts. You can apply for winding up as a creditor if the sum owed is more than RM 10,000 and the company has failed to pay up to 21 days after an official demand was made.
As you have seen, there are several modes through which you can recover any debt that is owed to you in Malaysia, whether by a person or company. However, the specific mode you will be able to use will depend on several factors including the type of debt you are owed, the nature of your debtor and the amount owed.
To satisfy yourself that you are pursuing the best option for debt recovery, it is crucial that you speak with a qualified lawyer immediately. If you would like to explore your options with a qualified lawyer today, contact us at Alan Kang & Co on +603-7972 7223.