Debt Collection in Malaysia
Updated on Thursday 24th November 2022
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Debt collection in Malaysia is the procedure of demanding undue payments for services or products offered to clients.
Generally, payments in Malaysia take place honestly and rapidly, the payment behavior is good and delays are occasional, more likely to appear when the transaction is not protected. As a services supplier, you can also be permitted to request penalties for late payments. This is a situation that you might meet in Malaysia, no matter the type of your industry and it is suitable to look for specialized help in order to solve any unwanted payments problems. In this situation, the services provider or the foreign investor needs to know the method to follow in order to recuperate his money, contacting a Malaysian law firm or he can act on his own, trying to recover the sum.
In general, the steps for corporate debt collection are the following listed below:
Generally, payments in Malaysia take place honestly and rapidly, the payment behavior is good and delays are occasional, more likely to appear when the transaction is not protected. As a services supplier, you can also be permitted to request penalties for late payments. This is a situation that you might meet in Malaysia, no matter the type of your industry and it is suitable to look for specialized help in order to solve any unwanted payments problems. In this situation, the services provider or the foreign investor needs to know the method to follow in order to recuperate his money, contacting a Malaysian law firm or he can act on his own, trying to recover the sum.
In general, the steps for corporate debt collection are the following listed below:
- The first, friendly reminder: the first reminder for an overdue payment should be a courtesy one.
- The second overdue payment reminted: should the debtor fail to observe the first reminder, the request can be followed by a second reminder.
- The final notice: should the first two steps fail to produce the desired results, then a final notice can be issued; the letter will include the intention to take further action.
- The negotiation: direct contact with the debtor can be established at this phase and one of our lawyers in Malaysia who specialize in corporate debt collection can help represent you.
- Legal action: should all of the previous phases fail, then legal action can be commenced against the debtor.
Using the services provided by our team of lawyers can help companies successfully collect their debts. Alternative dispute resolution methods like mediation and arbitration may be used, however, legal counseling is advisable in order to proceed with the most suitable method according to each case.
Collection practices in Malaysia
Friendly settlement openings should permanently be considered as a substitute for prolonged legal measures. Prior to beginning a formal legal action, gaining a payment installment agreement or no less than a formal debit recognition title is always valuable.
Our lawyers in Malaysia invite you to watch this video about debt collection:
Late payment importance
When it comes to the late payment, however, the law provides no specific background. Therefore, late payment interest must have been discussed as part of the contract in order to be relevant. In practice, such interest is occasionally paid and would only set up a negotiation tool. In the same way, collection costs must be settled upon in writing when negotiating the contract, but they would basically be paid by the creditor upon court demand.
Therefore, and as for late payment interest, they would principally be used as cooperation tools during pre-legal collection.
Immigration to Malaysia and the procedures involved come under the attention of our lawyers. You will be guided about the formalities you have to complete. For example, you will need to apply for a visa and present health insurance, in addition to a valid passport. We mention that a visa for Malaysia can be obtained in about 7 days if all the documents are accepted by the authorities. Count on our legal services if you want to relocate to Malaysia.
Court proceedings in Malaysia
As our Malaysian lawyers remind, the legal system in this country is made upon numerous courts, the main of which may be described as follows. At the lower level, justice is concentrated by Magistrates Courts and Sessions Courts (amongst other tribunals).
At the higher level, two High Courts have the authority to deal with big commercial and bankruptcy arguments in addition to serving as Appellate Courts for the numerous prerogatives brought before the subordinate courts mentioned before. The Federal Court lastly acts as the highest authority.
The law offers no fast-track measures so going through full litigations would be essential, despite the debt being undisputed. Regular permitted action would frequently begin when an agreeable collection has failed. The creditor would file a claim with the High Court and a summons would be served to the borrower who would be asked to act before the court within an indicated time limit. The debtor can decide not to appear in court on the first hearing date, in which situation the court would establish one more hearing date.
Only if the defendant did not appear at the second hearing, did the appellant’s lawyer continues to get a judgment by default.
The creditor will be required to provide a number of documents for the purpose of debt recovery. With the help of our lawyers in Malaysia, those who wish to recover debts can compile a file that will include all of the records that attest the transactions between the two parties or their general relationship. For example, the issued invoices, as well as the services agreement, are relevant documents.
Debt recovery methods in Malaysia
Chasing debtors in Malaysia can be time-consuming, hard and expensive for foreign creditors from other jurisdictions.
Here are a few key elements of debt recuperation:
• background research that consists of an official business search, individual address search, and physical visit check-up, credit, and insolvency search to determine if the company can pay its debts or it will enter bankruptcy;
• a letter of demand that serves the latest statement of amounts to the debtor;
• amount negotiation and method of arrangement on behalf of the creditor with the creditor’s consent;
• if the negotiation did not end in a favorable way, the creditor will initiate court action.
In almost all cases, amicable debt recovery will be the preferred method compared to court proceedings. Once the debt collection agency or one of our lawyers has managed to inform the debtor of the claim, the negotiation phase will be instrumental for settling the debt. A lawyer or debt collector can secure an agreement for a payment plan with the debtor, one that will be binding for the debtor but at the same time will be mutually beneficial, allowing the debtor to pay within a convenient timeline and the creditor to begin to recover his due amount. Amicable debt recovery or debt recovery via arbitration (when an arbitration clause is included in the agreement between the parties) is often preferable.
In general, the statute of limitations for debt collection is six years from the due date. Making a claim after this limitation period has passed will become more difficult, this is why it is recommended to talk to one of our Malaysian lawyers once the payment becomes overdue and the late payment period has passed. The time that will pass between the moment when the creditor submits the letter of demand and when he receives the court order in his favor for collecting the debt can be around three months, depending on the case and whether or not the debtor is insolvent.
Seizure of assets for debt collection in Malaysia
Debt recovery focuses on collecting the due amount, however, when the debtor is not able to readily provide the required money, the enforcement procedure and the seizure of assets can commence once the creditor has obtained a favorable court decision. One of our attorneys in Malaysia can assist creditors during the seizure of assets if this should become necessary. As a general rule, the movable and immovable property can be seized, however, the creditor should be aware that limitations can exist and they can concern the debtor’s mandatory assets for living and working. For example, in order to attach the debtor’s bank account can be issued, however, he should be allowed to have access to a minimum amount of his earnings). Some limitations can also apply in respect to certain personal belongings, such as furniture and appliances required for living, while others, like valuable furniture, can be seized in some cases.
In summary, there is more than one way in which a debt can be enforced once an order is issued and the difference lies in the types of assets that are being seized. We describe the enforcement instruments below:
- Writ of seizure: this is issued for the purpose of seizing property and auctioning it to the public;
- Writ of possessions: this is for the debtor’s immovable property which will be taken over by the creditor.
- Garnishee proceedings: used to freeze the bank accounts and the acquire/transfer the funds in those accounts.
- Judgment debtor summons: used for filing for bankruptcy against the debtor; only in some cases.
Talking with one of the experts at our law firm in Malaysia can be useful before the commencement of the seizure of assets. By doing so, the creditor can find out how we can enforce his court judgment, how he will work with the bailiff and to what amount will the assets of the debtor add up to pay the claim.
A special situation applies in those cases in which the debtor is not able to pay under any circumstance. In this case, one of our lawyers in Malaysia can help the creditor commence the insolvency proceedings. This is one of the manners in which a company can become insolvent (either through a claim submitted by a creditor – as in this case, or through a Board decision). This situation is a particular one in which the company cannot be declared bankrupt unless a number of conditions will apply and the debt threshold has a certain value.
According to CEIC, a global database that covers the economies in many countries, household debt in Malaysia evolved in the following manner:
According to CEIC, a global database that covers the economies in many countries, household debt in Malaysia evolved in the following manner:
- 2016: 86.46% of GDP.
- 2017: 82.66% of GDP.
- 2018: 82.057% of GDP.
Collecting debt is a process that can differ from one case to the other. Creditors who have payments that are overdue can take the steps required to recover the due amounts even if the debtor is no longer reachable or he is located in another jurisdiction. Seeking legal aid is recommended for the purpose of choosing a suitable debt collection method and a thorough follow-up on the case.
If you need more details about the debt collection, please feel free to contact our law firm in Malaysia. Our attorneys will tell you more about the steps of the debt collection process and the documents you need.