Debt recovery in Malaysia

If you are owed money

A creditor in Malaysia recovers an unpaid debt in three steps: a letter of demand, a court case, and enforcement of the judgment. We act for businesses and people who are owed money: unpaid invoices, loans, rent, and court judgments that have not been paid. Our aim from the first letter is a settlement outside court, as early as possible.

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1. 1

   Step 1: the letter

   A letter of demand states the amount owed, the reason and a date for payment. No Malaysian law fixes that date, so the date in the letter is the sender's own. A letter of demand is not a court document, and it does not start a legal deadline.

   Read the detail: Step 1: the letter

   A letter of demand from a firm of lawyers sets out what is owed, why, and a date to pay by. No law fixes that date. Seven to fourteen days is the usual practice. Many debts that get paid are paid at this step.

   If the debtor is a company and owes more than RM50,000, there is a stronger letter: a statutory demand under section 466 of the Companies Act 2016. It gives the company 21 days to pay, agree terms, or put up security. If it does none of these, the law treats the company as unable to pay its debts, and you can apply to wind it up.

   If the debtor is a person, and you already have a final court judgment, there is a bankruptcy notice. It can be issued for a judgment of any amount, and it gives 7 days (Insolvency Act 1967, section 3(1)(i)). A bankruptcy petition needs a debt of RM100,000 or more (Insolvency Act 1967, section 5(1)(a), as amended by Act A1624).

2. 2

   Step 2: the court case

   A debt claim in a Malaysian court starts with a writ that is filed and then served on the debtor. The debtor has 14 days after service to enter an appearance (Rules of Court 2012, Order 12 rule 4). If the debtor does not, the creditor can obtain judgment in default without a hearing (Order 13).

   Read the detail: Step 2: the court case

   We file a claim and have it delivered to the debtor. In court language the claim is a writ, and delivering it is service.

   The debtor then has 14 days to tell the court they will defend the case (Rules of Court 2012, Order 12 rule 4). If they do not, the court can give judgment without a hearing (Order 13). This is called judgment in default, and it is how many debt cases end.

   If the writ is sent by registered post, the post office returns a signed delivery card. We need that card back. Without it, the court will not give judgment in default (Goh Teng Whoo v Ample Objectives, Federal Court, 2021).

   Which court hears the case depends on the amount. Up to RM100,000 it is the Magistrates' Court. Above RM100,000, up to RM1,000,000, it is the Sessions Court. Above that it is the High Court (Judiciary of Malaysia). A claim between a landlord and a tenant, such as unpaid rent, can go to the Sessions Court whatever the amount (Subordinate Courts Act 1948, section 65(1)(a)).

   If you are an individual and the debt is RM5,000 or less, there is a small-claims procedure. It is cheaper and quicker, but neither side may use a lawyer (Rules of Court 2012, Order 93).

   A writ must be delivered within 6 months of the date it is issued (Order 6 rule 7).

3. 3

   Step 3: you have a judgment. Now what?

   A Malaysian court judgment does not collect the debt by itself. The creditor must apply for enforcement, such as garnishee proceedings, a writ of seizure and sale or a judgment debtor summons. A judgment can be enforced for 12 years (Limitation Act 1953, section 6(3)).

   Read the detail: Step 3: you have a judgment. Now what?

   A judgment is a court order telling the debtor to pay you. It does not collect anything by itself. The court does not chase the debtor for you, and nothing happens automatically. The next move is yours. Many people stop here, and a judgment nobody enforces is a piece of paper.

   Enforcement means using the court's tools to take payment from what the debtor has. The first job is to find out what that is.

   You do not have to use the tools in any order. The rules let you use one or several at once (Rules of Court 2012, Order 45 rule 1). An instalment order does not stop a seizure. Bankruptcy does not require a failed seizure first.

   A judgment can be enforced for 12 years (Limitation Act 1953, section 6(3)). After the first 6 years you need the court's permission before you can issue a writ of seizure and sale (Rules of Court 2012, Order 46 rule 2).

   The court charges filing fees for each tool and keeps a small commission on money it collects for you. Those are the court's charges, not ours.

   First, find out what the debtor has

   • Question them under oath.

     You can make the debtor come to court and answer questions about their income, their property, and what they have sold or given away. This is called a judgment debtor summons (Debtors Act 1957, section 4). The court can then order payment in one sum or by instalments.

   • Question other people too.

     Anyone likely to know about the debtor's money can be summoned as a witness: a bank officer, a business partner, a spouse, an accountant (Debtors Act 1957, section 4(3)). This is the widest search tool in the system, and almost nobody uses it.

   • Search the public registers.

     A company search at SSM shows the directors and shareholders. A charges search shows what the company has borrowed against, and often names the property. A land search shows who owns a property, but only if you already have the title number. A bankruptcy search shows whether someone else has already moved against the debtor.

   • Know the dead ends.

     Land cannot be searched by a person's name. A credit report from a credit reporting agency such as CTOS cannot be pulled without the debtor's consent or a court order (Credit Reporting Agencies Act 2010, section 24). Bank Negara releases CCRIS data about a person only with that person's consent (Central Bank of Malaysia Act 2009, section 47(2)). There is no public lookup of who owns a vehicle. The judgment debtor summons is the lawful way through all three.

   Then match the tool to the asset

   • Bank account order. Legal name: Garnishee proceedings (Rules of Court 2012, Order 49). What they have: Money in a bank account, or money someone else owes them.

     What it does: The court orders the bank, or the other person, to pay the money to you instead of to the debtor. It covers current accounts, savings and fixed deposits.

     The catchThe order bites only from the moment it is served on the bank. Money moved out before that is gone. Speed and surprise matter.

   • Seize and sell. Legal name: Writ of seizure and sale (Rules of Court 2012, Orders 46 and 47). What they have: Things they own: vehicles, stock, machinery, furniture.

     What it does: A court bailiff seizes the debtor's movable property and sells it at public auction. You are paid from the proceeds.

     The catchThe court's own costs of the seizure and sale come out first. Clothing, bedding, cooking pots and the tools of a trade are protected up to a small fixed value, and an artisan's tools are protected in full (Debtors Act 1957, section 3(1)(a) and (b)). A seizure that finds nothing is itself a ground for bankruptcy (Insolvency Act 1967, section 3(1)(j)).

   • Land freeze, then sale. Legal name: Prohibitory order (Rules of Court 2012, Order 47 rule 6; National Land Code, sections 334 to 339). What they have: Land or a house.

     What it does: The order is registered on the land title and stops the debtor from selling, transferring or charging the property. The court can then order it sold.

     The catchNothing is frozen until the order is registered at the land office. The order lapses after 6 months unless it is extended before then. Property owned jointly with someone else is harder.

   • Charge over shares. Legal name: Charging order (Rules of Court 2012, Order 50). What they have: Shares in a company.

     What it does: The court charges the debtor's shares or government stock in your favour, so they can be sold to pay you.

     The catchHigh Court only. It cannot be used for land. It cannot be enforced until 6 months after the first order.

   • Court-appointed collector. Legal name: Receiver by way of equitable execution (Rules of Court 2012, Order 51). What they have: Rent or other income they receive.

     What it does: The court appoints a receiver who collects the income, for example rent from tenants, and pays it to you.

     The catchHigh Court only. The court will refuse if the cost of the receiver would eat the money collected.

   • Instalment order, then the last resort. Legal name: Debtors Act 1957, section 4(6), (8) and (9). What they have: A debtor who can pay but refuses.

     What it does: After questioning under oath, the court can order payment by instalments. A debtor who has the means and still does not pay can be sent to civil prison for up to 6 weeks.

     The catchPrison does not cancel the debt, and you pay for the debtor's keep while they are inside (Debtors Act 1957, sections 10 and 14). It is a pressure tool, not a way to get paid.

   • Bankruptcy or winding up. Legal name: Insolvency Act 1967, sections 3(1)(i) and 5(1)(a), as amended by Act A1624; Companies Act 2016, section 466. What they have: Nothing you can find, but the debt is large.

     What it does: For a person with a final court judgment against them, a bankruptcy notice, for a judgment of any amount, and then a bankruptcy petition if the debt is RM100,000 or more. For a company that owes more than RM50,000, a statutory demand and then a winding-up petition. An official then takes over the debtor's affairs and looks for assets you could not find.

     The catchYou may share what is found with every other creditor. For a person, bankruptcy often ends the chance of being paid in full.

   • Register the judgment abroad. Legal name: Reciprocal Enforcement of Judgments Act 1958, section 10 and First Schedule. What they have: Assets in another country.

     What it does: A High Court judgment can be registered and enforced in the United Kingdom, Singapore, Hong Kong, Brunei, India, Sri Lanka and New Zealand. The High Court issues a certified copy of the judgment for that purpose.

     The catchOnly those seven. Not Australia, the United States, China outside Hong Kong, Indonesia or Thailand. In India, some states are excluded. Each country sets its own time limit to register a foreign judgment, so act early.