Debt Recovery in Malaysia: Who to Sue, How to Sue, and What to Expect

Unpaid debts are a common challenge faced by businesses and individuals alike. Whether you are a business owner dealing with defaulting customers, a landlord facing rental arrears, or a contractor awaiting payment for work done, understanding the available legal options is crucial to recovering what is rightfully owed to you.

The Debt Recovery Process

Step 1: Letter of Demand (LOD)

The first step in most debt recovery cases is the issuance of a Letter of Demand. This formally notifies the debtor of the outstanding amount and demands payment within a specified timeframe. Many disputes are resolved at this stage without the need for court action.

Step 2: Civil Court Action

If the debtor fails to respond or refuses to pay, legal proceedings may be commenced. Depending on the nature of the claim, the case may proceed as:

Full Trial – Involving documents, witnesses, and submissions. This process may take between 9 months to several years.

Summary Judgment – Where the claim is supported by clear documents such as invoices, purchase orders, delivery orders, or contracts. This may be resolved within 5 to 6 months.

Step 3: Court Order and Enforcement

Obtaining a judgment is not the end. If the debtor still fails to pay, enforcement action becomes necessary.

Enforcement Options After Judgment

Several enforcement mechanisms are available under Malaysian law, including:

Bankruptcy Proceedings (Individuals)

For debts exceeding RM100,000, bankruptcy proceedings may be initiated under the Insolvency Act 1967 (as amended). A bankrupt individual faces serious consequences, including restrictions on business activities, overseas travel, and ownership of property.

Winding-Up Proceedings (Companies)

For companies owing RM50,000 or more, winding-up proceedings may be commenced under the Companies Act 2016. This is often effective against companies with ongoing operations, assets, or future business prospects.

Writ of Distress / Seizure and Sale

Commonly used in landlord-tenant disputes, this allows for the seizure and auction of the debtor’s assets to satisfy rental arrears or judgment sums.

Garnishee Proceedings

This allows creditors to freeze and recover monies directly from the debtor’s bank accounts or salary, provided the account details are known.

Judgment Debtor Summons (JDS)

Directors or debtors may be summoned to court to declare their assets and means of payment. Failure to comply may result in a warrant of arrest.

Final Thoughts

Debt recovery is not merely about legal action — it is about strategy, timing, and choosing the most effective route. Early legal advice can prevent disputes from escalating and improve the chances of recovery.