Debt recovery in Malaysia is a prevailing issue that many are facing in this current age, be it individuals and companies. This process of debt recovery is sometimes frustrating for individuals and companies in their pursuit to reclaim what they are entitled to.
An effective debt recover strategy ensures that the debts are collected promptly and would then improve cash flow for individuals and businesses.
The Debt Recovery Process: Overview
The Debt Recovery process involves an initial informal demand to the debtor. This is done by written notices or phone calls which aims to inform the debtor of the current outstanding debt and encourage them to settle it.
In the event the debtor is unable to make the full payment, such payment arrangements can be considered which can be manageable for the debtor and this allows the creditors to recover the outstanding amount over time.
In the event the initial demand is unsuccessful, then a legal demand letter can be issued to the debtor that serves as a final warning to the debtor that indicates that legal action may be initiated if the amount outstanding is not settled within a specified period.
At the last resort, legal action may be initiated to recover the outstanding debt which involves filing a claim in court.
What To Do to Recover Debt: The Legal Process
Step 1: Initial Preparation
You should identify your debtor and determine whether your debtor is an individual or a company. It would be advisable that a background check be done before you proceed further. For individuals, a search done at the National Registration Department (NRD) and a Bankruptcy search is required to ascertain the individual’s latest residential address and bankruptcy status. For companies, a search done at Companies Commission of Malaysia (CCM) is required to ascertain their registered address, status and financial standing of the Company.
You should also compile all relevant evidence with regards to the debt recovery. The evidence can be in the form of documents, e-mails, correspondences and even WhatsApp conversations.
Finally, you should also check whether you are still within the limitation period. Under the Limitation Act 1950, a creditor has 6 years from the date of default to commence legal action against the debtor. If your action is filed after 6 years, the debtor may apply to strike out your suit in Court.
Step 2: Issuance of Letter of Demand
Once you engage a law firm, a letter of demand (“LOD”) will be issued on your behalf to the debtor. The LOD will state specifically the amount of debt that is outstanding and the timeframe for the debtor to settle it, failing which legal proceedings will be commenced without any further notice to the debtor.
The issuance of a LOD is not mandatory but it is a good practice to do so where some debtor may choose to settle the debt upon receipt of the said LOD to avoid potential action. This in return would save you considerable cost and fees for debt recovery in Malaysia.
Step 3: Commencement of Legal Action
Once the timeframe of the LOD expires, a legal action can be commenced by filing a Writ and Statement of Claim. The total amount owing would determine where you would file the action:
| Amount of Debt | Court |
| Below RM5,000.00 | Magistrate Court (Small Claims Procedure) |
| Below RM100,000.00 | Magistrate Court |
| Below RM1,000,000.00 | Sessions Court |
| Above RM1,000,000.00 | High Court |
The Writ and Statement of Claim shall be served on the debtor (which is now regarded as the Defendant) in the suit.
Step 4: Execution of Judgment
After obtaining your judgment, it shall be served on the Defendant, notifying that the Defendant shall pay the judgment sum within the time period failing which you will proceed to execute the judgment without any further notice to the Defendant. The common ways for execution of the judgment are, winding-up proceedings, garnishee proceedings, bankruptcy, writ of seizure and sale, judgment debtor summons and others.
You may get legal advice from our debt recovery lawyer on the process on how to recover your debt legally.
Strategies for Effective Debt Recovery in Malaysia
Finally, let’s look at some of the effective ways to recover a debt in Malaysia.
Having Good Communication
Maintaining good and open communication with the debtors can improve the chances on recovering the debt. Be clear, concise and respectful to the debtor can significantly assist in negotiating the repayment of the debt and ultimately resolves the dispute.
Having Proper Documentation
Keep a proper and detailed record of all communications, agreements, documents and transactions related to the outstanding debt is crucial to recovering a debt. These documentations can help in the process of recovery of the debt in the event legal action becomes necessary.
Legal Representation
In the event legal action becomes necessary, obtain legal advice from the qualified legal representative is imperative to guide you in navigating the court system and the enforcement of the orders.
Conclusion
Being effective in debt recovery in Malaysia is important in maintaining financial health and stability of a business. When you understand the debt recovery process and employ effective approaches, businesses can improve their debt recovery rates. This is the same for individuals as well.
This information provided on this website does not, and is not intended to, constitute legal advice; instead all information, content and materials available on this site are for general information purposes only. Information on this website may not constitute the most up-to-date legal or other information. You should consult with appropriate professionals of Tam Yuen Hung & Co or other professional advisors for advice concerning any matters before making any decision.