If you own a reputable company, suing your customer will be the last thing on your mind.
Let’s accept the fact. Dealing with bad debts is utterly time-consuming and stressful for most companies.
Firstly, organisations invest so much money per year on restructuring their internal operations and business plans to make sure they recover the debts on time. Yet, reclaiming the debts remains a constant problem for them.
Secondly, companies fear that tarnishing their reputation might decrease the chance to gain more customers in the future.
Most people don’t want to deal with constant emails, calls, and lawsuits from debt collectors. The language and tough dealings of debt collection companies are often good enough to spark fear even in the most stubborn debtors and make them repay.
That said, many borrowers still try to evade paying back the money.
What are your options?
For companies dealing with customers who are not ready to pay, or have no money to pay, it is wise to consider the non-legal options first.
In the scenarios that it doesn’t work, you could proceed with the legal options like litigation for debt recovery purposes.
Following are the non legal steps that could be taken:
1. Approach the person with a friendly reminder
Sending long letters and emails are part of a formal plan for many businesses to recover the debt money. However, little do they realize that this can sometimes trigger negative responses from a customer.
Taking a different approach can sometimes gain an effective response.
Try to meet the customer in an informal setting where they are most relaxed like a coffee shop or a pub, and request for repayment.
2. Provide a friendly settlement plan
There are times when a customer may be genuinely incapable of repaying due to several financial hassles.
In situations like these, it is better to offer the customer a settlement plan that is smaller in the amount than the original one.
3. Formulate an alternate payment plan for the debtor
If your debtor is financially incapable of repaying the debt amount, giving an alternate payment plan will help to regain the debt amount at a quicker pace.
The new repayment plan can be structured by an accountant, financial planner or even between yourselves after carefully discussing with the debtors regarding their financial crisis.
4. Involve a mediator
Mediators are trained professionals who are well experienced in facilitating discussions and seeking a middle path in dealing with situations where the debtor is temporarily financially incapable of paying back the money owed to the creditor
With the help of a mediator, you could discuss an effective repayment plan and amicably settle the issue.
Is it worth suing someone with no money?
It won’t be worthwhile to sue someone who has absolutely no money to pay back the debt.
Let’s suppose the person has no assets or income. It will be a waste of time and money to go through an expensive lawsuit and recover almost nothing.
Therefore, we need to consider the value of assets before going through debt litigation. It is only not worth it if the person has minimal assets.
Malaysian law has various provisions to give a helping hand to the creditor who is struggling to recover his debts. Often it has been noted that several firms suddenly close down or wind up their business operations to avoid paying their debts.
In such scenarios, it is imperative to ascertain whether the debtor is genuinely insolvent or otherwise.
Judgment Debtor Summons
Upon obtaining judgement, this is an application that comes in handy when it comes to the discovery of any information about the assets of the judgment debtor. The process begins with a petition filed in the court by the judgement creditor. The debtor will be summoned to the court to disclose all his assets and provide financial proofs.
The court can then order for the judgement debtor to pay back the debt either in a lump sum or by way of instalments.
And, what if the debtor fails to comply with the order of the court?
If the debtor fails to pay back the sum as previously agreed in the presence of the court, he will be called again to give an explanation on the following:
- What was the reason for the failure to payback?
- Show cause why the debtor should not be imprisoned.
What is the maximum period within which a suit should be filed?
The Limitation Act 1953 prescribes a maximum time frame of 6 years for any creditor to sue a debtor on his debt. After the 6 year period is expired, the creditor is no longer entitled to sue.
Can a creditor garnish a debtor’s wages?
Yes, a creditor who has obtained judgement against a debtor can seek to garnish accounts of the debtor including his wages by way of garnishee proceedings.
It is an effective way of realizing a judgment debt. Here the court will direct a third party who is in possession of the debtor’s asset to forfeit it until the debt is paid off.
Let us consider an example:
Suppose X, who is an employee of a company, owes RM100,000 to Y, his creditor. However, even after the pre-agreed period, X fails to pay back the money. Y obtains judgement against X, and then files garnishee proceedings in court to garnish X’s accounts including his future salaries.
Here the court may direct the employer of X, who is a third party, to pay a certain percentage of his salary to Y.
Can a Judgement creditor take my car or other assets?
Yes, he can. A creditor who successfully obtains a judgment against you, may try to enforce the judgment by taking your property.
For this, the Judgement creditor has to apply for a Writ of Seizure and Sale.
A Writ of Seizure and Sale can be issued against either moveable property or immoveable property.
If the application for Writ of Seizure and Sale is successful, the court will appoint a sheriff to seize the properties belonging to the judgment debtor.
Can I use my car after it is seized by the Court?
Unfortunately, you cannot.
Firstly, once your car is seized, your car will no longer be in your possession.
Secondly, you are prohibited from dealing with your assets (your car in this case ) in any manner that will affect the validity of the seizure. Actions such as selling or mortgaging are completely not allowed.
Can your lawyer withhold your settlement cheque?
If you owe money to your lawyer, then your lawyer has a lien over monies, files and even cheques issued to you. It is best to resolve the debts owed to your lawyer, in order to get full access to your monies, files and cheques. Lawyers are ordinarily quite willing to facilitate the release of your files, monies and assets to you provided you pay.
What happens if someone doesn’t pay a Judgement?
Sometimes, even after getting a judgement for a debt, the debtor still refuses to pay. There are times when people have felt that they have been left with a paper judgment.
In situations like these, the plaintiff can seek to enforce the judgment against the debtor who has failed to follow the order of the court.
In the Malaysian law, several provisions are there to enforce the judgment if such a situation occurs. These include:
1. Garnishee Proceedings
The creditor can file a garnishee application to attach the accounts of a debtor held with banks.
The application will seek an order of the court to direct the debtor’s banks to attach whatever amount is present in the debtor’s bank account to ensure that the debt is paid back to the creditor.
This usually happens in two stages.
- First: The judgment creditor will obtain a court order to completely freeze all the bank accounts owed by the judgment debtor
- Second: The court may order the banks to transfer money from the debtor’s account to any account owned by the creditor.
2. Writ of Seizure and Sale
Here the creditor files an application in court requesting an order for seizure and sale of properties belonging to the debtor.
Usually, the court will appoint a sheriff to seize all the properties of the judgment debtor.
The sale will be made through an auction, and the money realized will be used to pay off the debts.
3. Writ of Possession
This is applicable only for immovable properties. After a successful order has been produced by the court, the sheriff will take possession of the debtor’s property. The property that is seized will be auctioned off to fulfill the judgment debt.
4. Contempt Proceedings
In Malaysia, contempt of court is considered as a severe offence.
If the debtor did not comply with a court order, the court has the power to imprison or fine the defaulter. However, the Court usually does not issue contempt orders for a monetary debt.
5. Charging orders
This is somewhat similar to the garnishee proceedings. but for securities.
An order will be passed by the court to impose a charge on securities such as bonds, shares including dividends due to the judgment debtor
Sometimes it is necessary to sue the debtor as the last option to recover the money. Luckily, in Malaysia, the legal system is well-developed and can properly protect the rights of creditors to recover monies owed by the debtors. Where the documentation evidencing the debt is complete, the likelihood of obtaining favourable decisions from the Court is relatively high.