Debt Recovery in Malaysia
You may have extended a friendly loan to a friend, but he/she never pays you back as promised. You may have clients that never pay your invoices despite accepting the goods sold by you. If you are considering to recover these debts through legal action, there are things that you must know before engaging a lawyer.
Step 1: Pre-action Preparation
Firstly, identify your debtor. Your debtor may be an individual or a company and it is advisable to run a background check on them before you proceed further. For individuals, JPN search and Bankruptcy search are required to verify their latest residential address and bankruptcy status. For companies, SSM search is required to verify their registered address, status and financial standing.
Secondly, compile all relevant evidence. The evidence may be in form of documents, e-mail or correspondences.
Finally, check whether you are still within the limitation period. Under the law, a creditor has 6 years from the date of default to commence legal action against the debtor. If you file your action after 6 years, your debtor may apply to strike out your suit.
Step 2: Issuing Letter of Demand
Once you engage a law firm, a Letter of Demand (“LOD”) will be issued to the debtor as a start. The LOD shall specify the amount of debt and the time for the debt to be settled failing which legal action shall be taken without further notice.
Although the issuance of LOD is not a mandatory or legal requirement, it is a good practice to do so. Some debtors may choose to settle the debt upon receipt of the said LOD to avoid potential legal action. Some debtors may reply to the LOD and dispute the debt, which will provide an idea of their possible defences in future lawsuits.
Step 3: Commence Legal Action
Once the LOD expires, legal action can be commenced by filing Writ and Statement of Claims. The amount of debt will determine which court where your action shall be filed:-
| Amount of Debt | Court |
| Below RM5,000.00 | Magistrate Court (Small Claim Procedure) |
| Below RM100,000.00 | Magistrate Court |
| Below RM 1,000,000.00 | Sessions Court |
| Above RM1,000,000.00 | High Court |
The Writ and Statement of Claims shall be served on the debtor (now a defendant) upon extraction. From here onwards, there are three possible scenarios:
(a) The defendant never enter appearance
The law requires the defendant to enter appearance within 14 days upon service of Writ and Statement of Claims on him. If the defendant fails to do so, you may enter Judgment in Default of Appearance against the defendant.
(b) Summary Judgment
The defendant entered appearance, but you have strong documentary evidence against him. You may file an application for summary judgment asking the Court to decide in your favour based on documentary evidence only. If the Court is with you, Judgment will be granted to you without the need of going to full trial and examination of witnesses.
(c) Full Trial
The defendant entered appearance but your documentary evidence is insufficient and/or disputed. Here you have no choice but to go through the full trial where witnesses from both sides shall be called and examined. At the conclusion of the trial, the Court will deliver its Judgment.
Step 4: Execution
Once you obtain judgment in your favour, you shall serve the same on the defendant and demand the defendant to pay the judgment sum within a time period failing which you will execute the judgment without further notice. Some of the common ways for execution are winding-up, garnishee proceedings, bankruptcy, Writ of Seizure and Sale, Judgment Debtor Summon and others, will be be discussed further in our future articles.
The general overview of the procedure is as shown in the flowchart below:
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Disclaimer
Articles published in this website are for general informational purpose only and shall not constitute any form of legal advice to any specific case. Kindly contact us if you are currently experiencing a legal dilemma related to this topic and need further legal consultation.