Why litigate in Malaysia

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Why litigate in Malaysia?

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“If I do not pay up, what can you do? Sue me?” Unfortunately, the reality in Malaysia is that practically, the only way to deal with a defaulting debtor is to take legal action against the debtor.

Debt is a major issue for both the debtor and creditor and this is no exception in Malaysia. In Malaysia, it is a major hurdle to collect debts and this essay shall demonstrate that litigation is the most effective way to enforce debts against the debtor.

The culture of debt repayment in Malaysia

As highlighted by a research conducted by Euler Hermes, Malaysia was amongst the worst 3 countries in the world to collect debt in. Further in their research, problems in debt collection were greatly attributed to, inter alia, poor payment culture (78% of countries).

            This can be further evidenced from the sheer number of cases litigated in Malaysia. Statistics from the courts indicate that there have been over 100,000 cases undergoing litigation in just February 2019 alone.[1] Although not all cases may be cases on debt collection, an inference can be reasonably drawn from the statistics that in Malaysia, there is a strong need to settle disputes through legal means.

Debtor cannot be located

In a situation where the debtor cannot be located, the creditor may experience difficulty enforcing his debts against the debtor. Such a problem may be amply dealt with through litigation. As long as the Letter of Demand, Writ and Statement of Claim has been validly served, the creditor may enter a judgment in default in the event that appearance is not entered by the defendant.

Effectiveness of a judgement

            Furthermore, once a judgement is obtained by the creditor, another advantage of litigation is that there are a large amount of methods available at the creditors disposal to enforce the judgement.

            The most effective method of enforcement is through a writ of seizure and sale (WSS). A WSS is, in essence, a court order commanding the Sheriff or Bailiff to seize and sell the property of the Judgement Debtor within Malaysia as may be sufficient to satisfy the amount of the judgement debt, interest and cost of execution. Such sale is usually conducted by public auction, generally 14 days after seizure.

Other methods of enforcement include judgement debtor summons, garnishee proceedings, order of committal for contempt of court, companies winding-up etc.

Through an order of committal for contempt of court, a debtor may even be sentenced to imprisonment[2]!

            Where the judgement sum exceeds RM50,000, bankruptcy proceedings may be made against the debtor. This is by far the most threatening form of debt collection. The large reason behind this is that when faced with the threat of potential bankruptcy, majority of debtors would choose to obediently repay their debts.

However, it should be noted that this method is an extreme method, and on the other hand, not necessarily the best method of debt collection. This is because when a debtor is declared bankrupt, his/her assets will be distributed amongst his/her other creditors, which priority is determined based on the facts (secured/unsecured creditors etc). Hence, a creditor may not necessarily be able to fully recover his/her debt by declaring a debtor bankrupt.

Conclusion

            In conclusion, due to the culture of Malaysians with regards to their debts, debt recovery is most effectively done through litigation. There are multiple tools available to the creditor once judgement is given in their favour and such tools are effective in compelling the debtor to repay their debts.

Bibliography


[1] <http://www.kehakiman.gov.my/sites/default/files/BI_FEB_2019.pdf>

[2] Yap Kit Wah & 30 Ors v Yap Kim Choon @ Yap Siw Sin & 2 Ors [2014]

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