The Process of Debt Recovery in Malaysia
The Process Of Debt Recovery in Malaysia
It is not uncommon to encounter the following situation in our daily life:
- some customer who attempts to elicit payment; or
- a friend who tries to avoid to repay a friendly loan that you lend to him based on trust.
In the above situation, you may initiate a legal process called “debt recovery” to recover the debt from your debtor. Debt recovery is a legal process of making the individuals, businesses or companies to pay their debt that they owe to another if they have not paid back the debt at the agreed time frame.
This article discusses the legal process that you may take or initiate for debt recovery when you meet the above situations.
1) Identify whether your debtor is an individual or a company.
- If your debtor is an individual:
- conduct an NRIC Search with the National Registration Department to confirm the correspondence address of your debtor; and
- conduct a bankruptcy search with the Malaysian Insolvency Department to determine the status of your debtor, i.e. whether your debtor is bankrupt.
- If your debtor is an individual:
- If your debtor is a company:
- conduct a company search with the Companies Commission of Malaysia to determine the company’s registered address and business address, and obtaining the information related to the company’s financial status;
- conduct a winding-up search with the Malaysian Insolvency Department to determine the solvency status of your debtor, i.e. whether your debtor is wound up.
- If your debtor is a company:
2) Issuance of Letter of Demand to your Debtor
A letter of demand is a formal letter demanding that the person who is addressed in the letter to perform an alleged legal obligation (in this situation, paying the sum of money owed). It is a usual practice to issue a letter of demand to your debtor before initiate any legal proceeding against your debtor. However, it is NOT compulsory. It is always advisable to start of the debt recovery process by issuing a letter of demand to your debtor as a letter of demand serve the following purposes:
- to give reasonable notice to your debtor that legal action will be taken if your debtor fail, neglect or refuse to comply with the demand;
- save time and cost if your debtor and creditor could reach a settlement beforehand; and
- builds up evidence of indebtedness.
3) Commencement of Legal Action against your debtor.
If your debtor does not take any action after receiving your letter of demand, you may initiate a lawsuit in the Court by filing a Writ of Summons. You may expect the following result:
- If your debtor does not enter an appearance in prescribed time, you can obtain a Judgment in Default against your debtor.
- If your debtor comes appearance, but you have a clear-cut and robust case supported by documents, you can opt to file an application for Summary Judgment. This is an application to the Court when the case is straight-forward and not many disputes as to the facts. The Court will decide the case based on affidavit and documentary evidence. If the Court is satisfied with the evidence, the Court will give an order in favour of you without going to trial.
- If your debtor enters an appearance and your case is not straight-forward, a trial will commence, and you will need to produce evidence such as documents and witnesses to prove your claim against your debtor. The Court will give its judgment based on the legal principles and the evidence provided by both parties.
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