Debt Collection in Malaysia

The debt collection procedure in Malaysia begins with an assessment of the debtor’s solvency, business scope, business history, documentary evidence of the debt, current court cases and enforcement proceedings, and the possibility of disputing the debt. This assessment determines the strategy to be employed on behalf of the client in the collection process.

If the debtor has no ongoing court cases or outstanding judgments for debt collection and is actively engaged in business activities, then it is advisable to use the out-of-court debt collection stage.

This stage involves active negotiations with the debtor to reach an agreement on payment of the creditor’s claims or other possible settlement options (e.g. return of goods, transfer of the debt to a third party, exchange of services or goods).

Interaction with the debtor begins immediately after sending a notice by mail, email, phone or instant messengers. This process involves intensive communication with the debtor in order to exert constant pressure. The main objective is to establish contact with key decision makers to achieve the fastest possible recovery of the debt.

The average time for informal out-of-court collection is up to 60 days (except in cases where a payment plan has been agreed upon). If this stage does not bring the expected results or after an initial analysis it becomes clear that it is not applicable, then it is necessary to proceed to collection through the courts.

Before initiating judicial collection, it is worth paying attention to the limitation period. The limitation period is 6 years. The limitation period is interrupted if the debtor acknowledges the debt, for example, a written admission or partial payment of the debt or interest. After the interruption, the limitation period begins to count again.

Malaysian law provides for judicial collection of debt in simplified and ordinary judicial proceedings.

The courts of first instance are the Magistrates’ Court, the Sessions Court and the High Court. The Magistrate’s Court has jurisdiction over debt collection cases up to RM100,000.00, the Sessions Court over RM100,001.00 to RM1,000,000.00, and the High Court over RM1,000,001.00.

Judicial debt collection is carried out by filing a statement of claim with the court, after which the court checks the compliance of the claim with the requirements of procedural legislation. If the claim meets the requirements, the court registrar registers it and then issues an order to summon the defendant. The term of validity of the order to summon is 6 months from the date of its registration. If it is not possible to serve the order on the defendant within 6 months, the plaintiff may apply to the court with a request to extend the term of validity of the order.

If the plaintiff is a non-resident of Malaysia, depending on the circumstances of the case, the court may order the plaintiff to provide security to cover the defendant’s possible legal costs.

Once the order is received, the defendant must file a notice of appearance with the court. The plaintiff must serve the defendant with a copy of the claim within 14 days of his appearance. If the notice of appearance is not filed within the time limit, and the plaintiff’s statement of claim only seeks a fixed sum from the defendant, the court may enter a final judgment against the defendant for an amount not exceeding the amount claimed in the statement of claim. If the amount is not fixed, the court may enter an interlocutory judgment.

If the defendant has appeared in court and intends to defend the claim, the defendant must file his defense within 14 days of receiving a copy of the plaint. After receiving the defendant’s defense, the plaintiff must file a reply to the defendant’s defense within 14 days.

Every pleading of a party shall contain only a brief statement of the material facts relied upon by the pleading party in support of his claim or defense, as the case may be, and not of the evidence by which those facts are to be proved, and the statement shall be as brief as the nature of the case permits.

Any allegation of fact made by a party in his pleading shall be deemed to have been admitted by the adverse party unless denied by that party in his pleading. A denial may be made either by denial or by a plea of ​​inadmissibility and may be expressed or implied.

If the defendant has no prospect of defending the claim, the plaintiff may apply to the court for summary judgment against the defendant. The plaintiff’s application must be supported by an affidavit that establishes the facts on which the claim is based, as well as allegations based on information or belief, indicating the sources and reasons. Notice of the application and a copy of the affidavit must be served on the defendant within 14 days. The defendant may object to the application by affidavit or in any other manner that satisfies the court. If the court finds the plaintiff’s application justified, the court decides in favor of the plaintiff. Otherwise, the court dismisses the application and continues to consider the case in the general manner.

If the case requires a full consideration, the court sets hearings for the trial. During the trial, the court hears the positions of the parties, carries out measures to disclose and examine information and evidence of the parties. After the court has established all the facts, the court concludes the hearing and makes a decision on the merits of the dispute.

A decision of the Magistrates’ and Sessions Court may be appealed to the High Court within 14 days of the decision being accepted. The decision of the High Court may be appealed to the Court of Appeal, provided that the amount of the claim is not less than RM250,000. The time limit for filing an appeal is 30 days from the date of the judgment appealed against. A decision of the Court of Appeal may be appealed to the Federal Court of Malaysia if it involves an issue of general principle decided for the first time or an issue of importance on which further argument and decision of the Federal Court would be of public benefit. To appeal against a decision of the Court of Appeal, an application for leave to appeal must be made to the Federal Court within one month from the date of the decision. If the application is granted, the interested party may appeal. The decision of the Federal Court is not subject to further appeal.

Once the judgment has become final, the creditor should commence enforcement proceedings. A judgment may be enforced for 12 years. Under the enforcement of a judgment, the creditor’s claims may be satisfied by seizing and writing off funds from the debtor’s accounts; seizing the debtor’s movable and immovable property and then selling it; seizing and confiscating securities; seizing and confiscating shares in a company.

An alternative option for debt collection is to use bankruptcy proceedings. A creditor may file an application for bankruptcy if: the amount of the debt is not less than RM30,000; the debt is a clearly defined amount payable immediately or at a certain time in the future; the debtor has a permanent residence/domicile in Malaysia or has resided or carried on business in Malaysia for one year prior to the date of filing for bankruptcy. At this stage, in case of insufficient assets of the debtor to fully satisfy the claims of creditors, it is possible to cancel the transactions of the debtor that were made with the purpose of causing damage to creditors. Among such transactions, it is necessary to highlight in particular: sale or any transfer of the debtor’s property, made by fraudulent means; any transaction made by the debtor at reduced prices; the debtor assigns its existing or future debt obligations according to the accounting books; transfer of property in favor of related parties. As a result of the cancellation of such transactions, it is possible to return back to the debtor what he lost from such transactions and due to this increase the liquidation estate to satisfy the claims of creditors and cover the costs of implementing the bankruptcy procedure.

If you have any questions or you need support on international debt collection in Malaysia, our company is ready to provide its expert assistance to effectively resolve your financial issue. Contact us for additional information and professional support from specialists of the leading debt collection agency.

# DEBT COLLECTION AGENCY MALAYSIA

11.10.2024

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