By Bryan Boo
It is hardly impossible for any person today to not incur some form of debt. Taking a loan, utilising the bank’s overdraft facility and using credit cards are some of the ways in which debt could be incurred. Some businesses have credit terms in which the purchaser is required to only make payment at a future time. Even if the payment were to be made upon delivery of goods or completion of services, the debt exists until it is paid. With such a web of interconnected debts, there are times in which a debtor would be unable to pay the debt that falls due. This article explores the legal process of debt recovery in Malaysia.
When am I able to take legal actions to claim the debt owed to me?
Loosely, the grounds on which one is able to commence a legal action is referred to as a cause of action. The cause of action must first arise/accrue before one can take legal action. In the context of a debt, this would be when the debt falls due. For example, if today’s date is 1 January 2020 and the debt only need to be paid on 31 January 2020, then a legal action can only be initiated if the debtor has failed to make payment on/by 31 January 2020.
More often than not, such a debt is due to some form of contract or agreement and therefore, the failure to pay the debt due would amount to a breach of contract. Section 6(1)(a) of the Limitation Act 1953 reads as such:
Section 6 Limitation Act 1953
Limitation of actions of contract and tort and certain other actions
5. (1) Save as hereinafter provided the following actions shall not be brought after the expiration of six years from the date on which the cause of action accrued, that is to say—
(a) actions founded on a contract or on tort;
Therefore, a creditor would have to initiate a legal action within 6 years from the date the debt falls due, failing of which, the creditor would lose the right to initiate such a legal action (unless any exceptions or extension to the limitation period occurred/arose).
Letter/Notice of Demand
A letter/notice of demand is a notice given by the creditor to the debtor demanding for the payment of the debt and putting the debtor to notice that, should the debtor fail, neglect or refuse to comply with the demand, the creditor will commence legal action to recover the debt.
It must be noted that a letter/notice of demand is not a mandatory requirement/pre-requisite to commencing a legal suit. However, a letter/notice of demand may indicate to the debtor the seriousness of the creditor and may prompt the debtor to pay the debt or at least come to some form of settlement with the creditor.
Jurisdiction of the Courts
Generally, the amount sought to be claimed will determine which court to file the suit in.
|Amount of Claim||Court|
|Up to RM100,000.00||Magistrate’s Court|
|Up to RM1,000,000.00||Sessions Court|
|More than RM1,000,000.00||High Court|
Mode of Commencing the Legal Action
Typically, a legal suit to claim for a debt due and owing is commenced by way of Writ of Summons (for an explanation of the different modes to initiate a legal suit in Malaysia, see our article entitled “Mind Your Legalese: “I Will Sue You!” – Modes of Initiating a Suit” here). This will usually culminate in a trial at which witnesses are called and examined in Court.
However, if the case is one that is straightforward in that the debtor cannot reasonably raise any defence and the creditor’s documents clearly show that there was indeed a debt, the creditor may explore applying for summary judgment, which essentially is an application requesting the Court to determine the case based on documentary evidence without the need to go to trial.
Conversely, if the debtor is of the view that there is no reasonable grounds for the creditor to commence the legal suit (for example, the debt is not yet due or the debt has been paid by the debtor), the debtor may apply to strike out the creditor’s legal suit. Again, documentary evidence would be crucial here as the Court would have to determine whether or not there is indeed a reasonable cause of action based on the documents filed.
A Word of Advice
The Courts are trying to expedite legal suits and as such, there are strict timelines and due dates imposed once the legal suit is filed. Coupled with the possibility of applying for summary judgment, it is always prudent to have a well-organised paper trail with all the relevant documents ready and compiled before filing the legal suit. This way, there would be less stress knowing that you have the necessary documentary evidence should the need for it arises as opposed to frantically searching for that crucial piece of evidence and risk missing the deadline to file that piece of evidence. This will also allow your lawyer to have a clearer legal strategy and therefore would be able to advise and represent you better.