Debt recovery is thorny for Small Medium Enterprises (SME), or even individuals as claiming a debt through a lawyer can be a complicated process, but it does not have to be. A practical way of looking at it is that the method and manner of proceeding with your Claim depends on the value of the outstanding sum owed.
Previously in Part 1, I addressed debt recovery for debt outstanding/goods under RM 5,000.00 of which the Company representative or individual can act for themselves to seek remedy, while in Part 2, I shall address matters that are above RM 5,000.00 of which it would then be financially (or not) be feasible to appoint a lawyer to act on your behalf.
While in theory Part 2 applies to all debts owed above RM 5,000.00, there are still circumstances (usually under RM 10,000.00) where the debt is still impractical to be pursued in Court beyond the Letter of Demand and Negotiation stage but there are other ways of keeping legal costs low while achieving the desired outcome.
The Importance of a Well Written Agreement
The work of a Corporate and Commercial lawyer who drafts all forms of Agreements, be it Tenancy, Distribution, Sales of Goods, Franchisee etc is the determinant of the type of remedy that is available to you.
In a well-written Agreement, there are provisions that set out remedies accessible to both parties in a dispute and how it would be resolved. When a dispute occurs, your chosen Advocate & Solicitor (usually Litigation lawyer) based on that Agreement will advise you on the methods that would likely result in your favor.
Even in situations where there are informal arrangements between parties, ensure that you have records of every transaction either financial or transportation or goods etc, as your Claim is dependent on whether or not you can prove to Court later that there was a prior agreement where it was an offer and there was acceptance, there was services/goods provided and the promised amount in the agreement was not fulfilled/paid.
Examples :
- Documentary Evidence
o Contractual Agreement
o Proof of orders
o Invoices
o Proof of payment
§ Statement of Accounts
§ Credit paid
o Proof of delivery of items
- Proof of any informal agreements
o Written emails, WhatsApp messages, etc
o Audio recording
Best Case Scenario : Alternative Dispute Resolution Remedy
In a best case scenario, these are the steps you can take to recover your debt before heading to Court process:
1. Write a friendly reminder or send a notice to your Debtor of the amount owed, and when it is payable.
2. If the 1st reminder is ignored with no reply, this is when you engage a lawyer to collect on your behalf, as a formal letter of demand by a lawyer carries a higher likelihood of the debtor paying up.
3. In most circumstances, the Debtor would reply back and communicate to negotiate either an extension of time, an installment plan, or any other options accordingly based on the agreed terms in the Agreement/Contract.
4. A new Agreement may also be prepared to accommodate any changes to the terms of repayment in the best interest of the Creditor.
5. If the Debtor remains uncooperative or refuses to repay the debt, the last resort would be the Court process to recover the debt in full.
Court Action/Court Process
So, the Debtor isn’t cooperative, your lawyer has sent a Letter of Demand, and you still wish to proceed.
- If the debt owing is under RM 100,000, the correct Court is Magistrates Court.
- If the debt owing is under RM 1,000,000 but above RM 100,000, the correct Court is Sessions Court.
- For all debts owed above RM 1,000,000, the correct Court is High Court.
Documentary Flowchart
Similarly as Part 1’s Small Court’s Claims, there are documents that your lawyer will file and submit in Court on your behalf. In general, the procedure would be as follows:
There are also variations, of course, whether your lawyer deeming the Claim to be straightforward would enter either Summary Judgement or a Judgement in Default where the Debtor did not enter an appearance, or when Court process is initiated whether the Court would instead refer to out of court settlement process or mediation. It varies from case to case basis.
Other options for enforcement of the debts are:
- Seizure and Sale : Seizing the Debtor’s property, auctioning it to recover monies owed.
- Writ of Possessions : Taking over of the Debtor’s assets/property.
- Garnishee or attachment proceedings: Freezing Debtor’s bank accounts and to acquire/transfer funds in the accounts so that you are a priority Creditor, or ensuring that the Debtor’s employer pays the Creditor first.
- Judgment Debtor Summons : Filing a bankruptcy action against the Debtor.
- Winding-up Proceedings : Closing down a Company for failure to fulfill debts owed.
- Bankruptcy Proceedings : Declaring a person Bankrupt for debts above RM 50,000 so you can seize all properties owed by Debtor to be sold to recover sums owing.
- Order of Committal : Enforcement of an Court Order for a Debt by obtaining an Order that a person will be committed to prison.
In the end, it depends on whether the Claim is supported by strong evidence easily proven in Court and whether the Creditor is willing to pursue all options applicable to their case.
When acting for a Debtor, I would advise them to renegotiate payment plans according to their means as a solution and protection from either being wound up as a Company for being declared as insolvent or as an individual being declared Bankrupt or even worse having an Order of Committal against the person.
When acting for a Creditor, depending on the goal of them seeking advise, I would normally recommend an amicable approach that achieves the intended debt recovery without relying too much on Court process (as it saves legal costs/fees).
This is intended as general guidance, not actual legal advice. Please contact me at aziraaziz.law@gmail.com or fill up a form at www.aziraaziz.com for detailed legal services related to above, or anything at all related to law and policy.