Debt recovery is a critical concern to smooth the cash flow, management, and operations of businesses and individuals. The happiest method is to resort to amicable efforts to recover the outstanding debt. If all reasonable methods fail, you can resort to the litigation process to recover the outstanding debt. This article provides an overview of the debt recovery litigation process in Malaysia.

1. Before Going to the Court

Before you take any legal actions to sue a debtor, a creditor should carry out the following steps:

Conduct Winding-Up or Bankruptcy searches – To check whether the company or the individual creditor is still solvent.

Limitation Period to Sue – A creditor cannot take legal action to recover the debt under any contract if the claim exceeds 6 years from the date the cause of action arose, under the Limitation Act 1953.

Issue a Letter of Demand (LOD) to the debtor – The purpose of a letter of demand is to demand payment of the outstanding debt within a certain period (subject to the contract terms).

Negotiation or Settlement – The debtor may respond to the letter of demand with a proposal or negotiation for an amicable settlement. In some cases, parties may resort to arbitration or mediation as an alternative dispute resolution route to avoid court litigation.

2. Going to the Court

2.1 Choosing the Right Court

In making the choice of which court to file your legal action, the factors that will be taken into account under the law are, among others, the total amount of the debt, the place where the contract was entered into and executed, the last known address of the debtor, and other factors.

If the claims are up to RM100,000, a creditor shall file its case in the Magistrates’ Court. If the claims range from RM100,001 to RM1,000,000, a creditor shall file its case in the Sessions’ Court. Sessions Court has unlimited monetary jurisdiction to hear matters involving motor accident, landlord and tenant and distress. If the claims exceed RM1,000,000 and involving land disputes, a creditor shall file its case in the High Court.

2.2 File the Claim

Filing a Writ of Summons and Statement of Claim – The creditor (plaintiff) initiates proceedings by filing a Writ of Summons and Statement of Claim.

Service of Process – The documents are served on the debtor (defendant), who must enter a memorandum of appearance within 14 days. Failure to respond can lead to a default judgment. There is a special service of process to foreign debtors.

2.3 Defending the Claim

If a debtor decides not to contest the claim: A debtor can negotiate for a settlement with the creditor before the due date to enter memorandum of appearance lapsed.

If a debtor intends to contest the claim: A debtor may appoint solicitors to file a defence within 14 days from the date of entering the appearance. Failure to respond can lead to a default judgment.

The plaintiff may then file a reply.

2.4 Summary Judgment Application (If Applicable and Necessary)

If a creditor (the plaintiff) believes that its claims are straight forward case and the defendant does not have valid defence, a creditor (the plaintiff) may apply for a summary judgment pursuant to Order 14 of the Rules of Court 2012. This is to save the time and costs of going to a full trial.

3. Trial Preparation

If the case proceeds to trial, the court will order both parties to prepare the documents for trial and witness statements. A creditor may issue a subpoena of witness to compel any witness to testify before the court.

4. Trial Process

The court will fix the dates for trial. On the day of trial, witnesses will attend the court and give evidence by answering questions relating to the case.

5. Court Judgment

Upon the court assessing the evidence presented before the court, laws and case laws and submissions from both parties’ solicitors, the court will deliver a final judgment. If the court finds in favour of a creditor (the plaintiff) or a debtor (the defendant), a judgment will be granted for the amount claimed, possibly with interest and costs (subject to the court’s discretion).

6. Enforcement of Judgment

The winner of the case shall serve a copy of the judgment to the loser of the case and demanding for the total outstanding judgment sum. Upon receiving the judgment, the loser shall pay the winner the total outstanding judgment sum.

If the loser of the case does not voluntarily comply with the winner’s demand, the winner may resort to the enforcement options below:

Writ of Seizure and Sale (WSS) – Authorises seizure of debtor’s movable/immovable assets.

Garnishee Proceedings – Freezes funds in the debtor’s bank account.

Judgment Debtor Summons (JDS) – Requires debtor to attend court to examine their financial means.

Bankruptcy Proceedings – To sue the individual debtor for bankruptcy if the judgment debt exceeds RM100,000.

Winding Up Proceedings – To wind up the company of the corporate debtor if the judgment debt exceeds RM50,000.

Committal Proceedings– To compel the judgment defaulter to comply with the judgment. Failure to comply with the judgment can lead to fine or jail term.

Conclusion

The litigation process for debt recovery in Malaysia is structured and governed by clear procedural rules. However, navigating it effectively requires strategic planning and a thorough understanding of both substantive and procedural law. Engaging a legal professional is highly advisable to maximize recovery outcomes and manage potential risks. Should you have any queries regarding any issue, please contact us at or .