Debt collection in the Maldives

Debt collection in the Maldives usually starts with a practical assessment of the debtor, the nature of the debt and the realistic prospects of recovery. This is especially relevant in the Maldives because commercial debts may involve local companies, tourism-related businesses, resort operators, suppliers, contractors, service providers or agencies working across different islands.

At the initial stage, the main issue is whether the debtor is an active and reachable business with sufficient commercial activity or assets to make recovery realistic. This assessment helps determine whether the case should begin with an amicable approach, move directly to court proceedings, rely on an existing foreign judgment or arbitral award, or require creditor steps connected with liquidation.

If the initial assessment shows that the debtor is an active company, continues to operate and there is a practical prospect of voluntary payment, out-of-court debt collection in the Maldives may be a reasonable first step. This stage can include sending a formal demand, negotiating with the debtor, agreeing on immediate payment, setting a repayment schedule, restructuring the overdue amount or offsetting mutual claims where such an option is legally and commercially acceptable.

The main purpose of this stage is to resolve the debt without court proceedings where the debtor is willing to cooperate and the payment problem can still be managed commercially. In some cases, a properly documented settlement or repayment arrangement may be more efficient than immediate litigation, especially where the debtor’s business is still operating and payment can realistically be recovered in stages.

If the debtor delays negotiations, ignores the demand, disputes the debt without a clear basis, breaks an agreed payment schedule or if the initial assessment shows that amicable recovery is unlikely to be effective, the next step is usually court proceedings.

Therefore, before deciding to initiate court proceedings, the limitation period should also be checked. In a debt dispute, the debtor may rely on an expired limitation period as a procedural defence, even where the underlying commercial relationship and the amount of the debt are generally clear.

For general civil claims in the Maldives, the limitation period is reported to be six years from the date on which the cause of action accrued. In a debt case, this is usually connected with the payment due date, breach of contract, refusal to pay or another event that gives rise to the claim.

The limitation period may be affected by legally relevant circumstances such as fraud, deliberate concealment of material facts, acknowledgement of the debt or partial payment. These issues should be checked before filing a claim, because they may influence whether the court can consider the claim on the merits or whether the debtor can successfully rely on limitation as a defence.

Court debt collection begins with filing a civil claim with the competent court. The claim sets out the amount due, the factual basis of the debt, the legal grounds for recovery, the remedy requested and any claim for interest or costs.

After the claim is accepted, the court serves the claim form and the response pack on the defendant. In ordinary defended claims, the defendant generally has 14 days from service to respond. The response may be an admission, a defence or an application contesting jurisdiction. If the defendant files an acknowledgement of service, the time for filing the defence may extend to 28 days from service. The time for filing a defence may also be extended by agreement of the parties for up to an additional 28 days.

If the defendant does not respond within the required time, the claimant may request a default judgment. In a claim for a specified sum of money, the court may enter judgment without a full trial based on the claim and the defendant’s procedural default. If the amount, interest or value of goods requires assessment, the court may examine those issues before entering judgment. A default judgment may later be set aside or varied if the defendant has proper grounds, including a real prospect of defending the claim or another sufficient reason recognised by the court.

A summary judgment may be available where the case does not require a full trial. This procedure can be initiated by either party or by the court. It is relevant where the claimant has no real prospect of succeeding, the defendant has no real prospect of successfully defending the claim, or there is no compelling reason for the issue to proceed to trial. The application must be supported by evidence. The responding party may submit evidence before the summary judgment hearing, and the court deals with the application as a focused procedural hearing rather than a full trial.

If the defendant files a defence and the case remains disputed, the proceedings continue through ordinary case management. The defence identifies which allegations are admitted, denied or require proof. It may also raise payment, set-off, limitation, release, illegality, fraud, limitation of liability, reduction of damages or another defence relevant to the debt. A counterclaim may be filed where the defendant has an independent claim against the claimant.

After the exchange of the main case documents, the court normally conducts a preliminary hearing. At this stage, the court may consider whether the parties intend to use alternative dispute resolution. If the case continues, the court allocates it to the appropriate case management track. Straightforward claims below MVR 300,000 may fall within the small claims track. Claims from MVR 300,000 to MVR 1,000,000 may fall within the fast track if they can reasonably be tried within one day. Larger or more complex claims are usually allocated to the multi-track.

The further procedure depends on the allocated track. The court may issue directions on disclosure, witness statements, expert evidence, pre-trial checklists, case management conferences and the trial timetable. In fast track cases, the trial should generally be reached within 30 weeks from the notice of allocation. In multi-track cases, the court sets a case management timetable and fixes a trial date or trial window depending on the complexity of the dispute.

At the final hearing, the court examines the parties’ pleaded positions, disclosed documents, witness statements, oral evidence, cross-examination and any expert evidence allowed by the court. The claimant’s witnesses are normally examined first, followed by cross-examination and re-examination. The defendant’s witnesses then go through the same sequence. If a party fails to attend the final hearing without proper notice, the court may still decide the case based on the submitted statements of case and evidence.

The court decision may order payment of the debt, interest, costs or another remedy available in the case. The timing of the decision depends on the procedural track, the court timetable, the complexity of the evidence and whether the case is resolved by default judgment, summary judgment or a full trial.

After a first instance decision, any party dissatisfied with the judgment may use the right of appeal. In debt cases, the appeal route depends on the court that issued the decision and the type of ruling being challenged.

The High Court is the appellate court for decisions of lower courts unless a specific law provides otherwise. For lower court decisions made by a court established in Malé, the appeal period is generally 90 days from the date of the decision. For lower court decisions made by a court established on another island, the period is generally 180 days. Decisions of tribunals are generally appealed within 90 days. Public holidays and the method of calculating time may affect the final deadline.

A decision of the High Court may be appealed to the Supreme Court within 90 days from the date of the High Court ruling, excluding public holidays between the ruling and the deadline. An appeal may focus on inconsistency with the law, errors in interpretation or application of the law, or serious procedural defects that affected the decision.

If a foreign creditor already has a court judgment from another country, recognition and enforcement of foreign court judgments in the Maldives may be relevant instead of starting a new claim on the same debt. This route is especially important where the debtor, assets, business activity or enforceable property are located in the Maldives.

The Maldivian framework for foreign judgments is reported to be contained in Chapter 33 of the Civil Procedure Act. The local court does not normally re-hear the dispute on its merits. Instead, the review focuses on whether the foreign judgment satisfies the legal requirements for recognition and enforcement in the Maldives.

The practical file usually includes a certified copy of the foreign judgment, evidence that the judgment is enforceable in the country of origin and proof of service if the foreign judgment was issued in the debtor’s absence. If documents are not in Dhivehi, translation requirements may apply; certified English translations may be accepted in some circumstances depending on the court’s requirements.

Recognition may be refused or restricted where the foreign judgment conflicts with Maldivian law, Islamic principles, public policy, local proceedings, prior judgments or procedural fairness requirements. For debt recovery purposes, this means that a foreign judgment should be reviewed before filing in the Maldives, especially if it includes punitive damages, unusual interest, procedural default or a judgment from a jurisdiction whose connection with the debtor may be disputed.

Enforcement of foreign arbitral awards in the Maldives is a separate route from the enforcement of foreign court judgments. It is relevant where the contract contains an arbitration clause or where the parties have already resolved the dispute through arbitration.

The Maldives is a party to the New York Convention, which entered into force for the Maldives on 16 December 2019. The Maldivian Arbitration Act also provides that a foreign arbitral award made in accordance with the Act shall be recognised and enforced in the Maldives and acted upon as mandatory.

An application for enforcement of an arbitral award is made to the relevant court. The party relying on the award normally files the original award or an attested copy. If the award is not in Dhivehi, a translation of the award must be submitted. Refusal of recognition or enforcement may be possible where, for example, the arbitration agreement was invalid, a party lacked capacity, proper notice was not given, a party was not given an adequate opportunity to present its case, the award exceeds the scope of submission, the subject matter is not arbitrable under Maldivian law or the award conflicts with the public policy of the Maldives.

This route should be distinguished from ordinary court debt collection. Where an arbitration agreement exists, court proceedings may be stayed and the dispute may be referred to arbitration if the procedural conditions are met. Therefore, the dispute resolution clause in the contract should be reviewed before choosing between court proceedings and arbitration-related enforcement.

In some debt cases, interim measures may be relevant before or during court proceedings. Maldivian civil procedure recognises several types of interim orders, including mandatory and prohibitory injunctions, orders for detention, custody or preservation of relevant property, inspection orders, freezing injunctions, orders to disclose the location of property subject to a freezing injunction, pre-action disclosure, non-party disclosure and interim payment.

Such measures are not automatic collection tools. They are used where delay may make the future judgment ineffective, assets may be dissipated, evidence may be lost or temporary protection is needed before the dispute is finally resolved. Applications normally require supporting evidence and a clearly identified order requested from the court.

After a local court judgment becomes enforceable, or after a foreign court judgment or arbitral award is recognised for enforcement in the Maldives, the case moves to enforcement of judgments. At this stage, the enforceable decision is used against the debtor’s assets, receivables or other property interests.

In practice, enforcement may focus on funds in local bank accounts, receivables owed to the debtor, movable assets such as vehicles, equipment or inventory, and immovable property where the debtor owns land or buildings. If the debt is secured, enforcement of a mortgage, pledge or charge may be considered separately or in parallel with ordinary judgment enforcement. Where accessible assets are not found, the recovery route may shift toward liquidation-related creditor claims instead of continuing ordinary execution without a realistic source of payment.

Where the debtor company is unable to pay, has stopped operating or is already listed in liquidation notices, liquidation and creditor claims may become relevant. The Companies Act 2023 regulates company dissolution and liquidation, and the Registrar’s Gazette publishes official notices concerning companies placed into liquidation.

In liquidation, recovery is different from ordinary enforcement. The issue is not only whether the debt exists, but whether the creditor’s claim is submitted, proved and considered in the distribution process. Public liquidation notices may require creditors whose debts or claims have not been settled to prove their debts or claims and any security held. If the claim is not proved within the stated period, the creditor may be excluded from distributions made before the claim is established.

The liquidator’s role is important because the liquidation process includes identifying the company’s assets and debts, taking control of company property, preserving assets and recovering amounts owed to the company by third parties. Company debts are then paid from available money, receivables and proceeds from the sale of company assets before any remaining property is distributed to members.

If there are signs that the company was used fraudulently, deceptively or only for the personal benefit of directors, members or officers, a separate review of misuse of corporate structure may be relevant. Maldivian company law allows the court to lift the corporate veil in such circumstances, and the persons who used the company in that manner may be held personally liable for actions carried out in the company’s name.

If you have a debtor in the Maldives, you can send us the available documents and a short description of the case. Grandliga will review the debt, the debtor’s status, the available evidence and the possible recovery routes. If there are practical legal options, we will prepare a proposal and assist with negotiations, court proceedings, enforcement or other actions aimed at recovering the debt.

14.10.2024

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