A Creditor’s Guide To Charging Orders In Malaysia

Rule & Co Editorial Team
23 hours ago
5 min read

When a debtor fails to settle a judgement debt, a charging order under Order 50 of the Rules of Court 2012 can be an effective enforcement option if they hold securities such as shares, stock, or certain government investments.

Specifically, it freezes the debtor's ability to sell or transfer their securities, and depending on the type of security, the creditor may be entitled to receive dividends or other income generated.

For creditors in Malaysia looking to target a debtor’s investment portfolio, our guide covers:

types of securities it can typically apply to
the application process
what happens after a charge is imposed, and
how it compares to a writ of seizure and sale

Note: As charging orders are a High Court specific relief that only applies to court-ordered payment, readers may want to start with our overall guide to debt litigation in Malaysia - or skip the reading and get in touch for a free recovery assessment.

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Otherwise, let’s begin.

What a charging order typically applies to

A charging order can apply to securities where the debtor has a beneficial interest, if the securities are held through an entity within the jurisdiction of the Malaysian courts.

Typically this includes:

Malaysian government sovereign debt instruments and investment funds
shares, stock options, debentures, or debenture stock in companies subject to the Companies Act 2016, and
dividends or interest payable on those securities

Once served, the relevant company or authority must not allow transfers or pay dividends, or it risks personal liability to the creditor.

What about overseas securities

Unfortunately, a Malaysian charging order probably won't work on Tesla and SpaceX stocks 🙁

This is because a charging order (and most court orders) are only as effective as the court’s ability to bind the entity managing the securities, making it unenforceable against foreign entities outside Malaysia’s jurisdiction.

To enforce against a debtor’s assets / cash held in a foreign jurisdiction typically requires ‘re-sealing’ your judgment in the foreign jurisdiction and carrying out enforcement proceedings there (if the said jurisdiction’s legal system also provides for charging orders as an enforcement method).

Procedure overview

Obtaining a charging order typically involves three main stages:

Ex-parte application for an order to show cause
Service of the order, and
Granting of an order absolute

In general, from stage one to three, expect the process to take several months subject to court scheduling, with complicated cases taking longer.

1. Application for order to show cause

An order to show cause places a temporary freeze over the debtor’s securities, and is obtained by filing an ex parte application supported by affidavit that:

identifies the judgment and confirm the outstanding debt
specifies the securities to be charged and their registered owner
states the creditor’s belief that the debtor is the beneficial owner
provides the basis for that belief

If the court is satisfied, it may issue the order and set a return date for the final hearing.

2. Service and temporary freeze of securities

The order to show cause must be served on the judgement debtor and relevant companies (or the Accountant General for government stock) at least seven days before the return hearing date.

Once served, the order takes immediate effect as:

the debtor is prevented from disposing of the securities
the company is prohibited from registering any transfer of shares, and
dividends or distributions cannot be paid out without court permission

This safely locks the assets in place while parties prepare for the final court hearing.

3. Granting of order absolute

At the return hearing, the debtor or any affected party may show cause why the order should not become final.

If no sufficient reason is shown, the court may make the order absolute, granting the creditor a permanent legal claim over the securities as if the debtor had formally used them to secure the judgement debt.

Post final judgement enforcement

If a charging order is made final, the securities remain subject to the charge and the judgement debtor is generally prohibited from selling or transferring them while the charge is in force.

At any point, the judgement debtor may apply to discharge or adjust the order if they can show sufficient cause such as:

procedural irregularity
settlement of the debt
or other grounds the court considers just

How we support creditors

Our role is to ensure compliance with court procedures and proper execution to maximise recovery. If a potential client approached us seeking a charging order, this typically includes:

confirming if they already have a court order in their favour
assessing if a debtor’s securities are suitable for a charging order
preparing and filing the application and supporting affidavit
serving the order to show cause on the debtor and relevant institutions
monitoring compliance to ensure the securities remain properly frozen
attending the return hearing and resisting any objection to the order, and
applying for the order to be made absolute

As a charging order can create significant pressure to resolve the matter out of court, we also remain open to an offer to settle from the judgement debtor throughout the process.

And if we were your legal representatives, it would be our responsibility to mention that in our experience, a writ of seizure and sale (WSS) is usually the better option!

Writ of seizure and sale vs charging order

In our experience, most enforcement against a judgement debtor's securities target shares in Malaysian private and public companies, in which case a writ of seizure and sale (WSS) is likely more practical.

Once a judgement debtor's shares are seized under a WSS, the creditor may generally proceed with a sale after seven days or hold onto the seized shares for as long as the WSS remains valid (typically 12 months from issuance) and sell them at any time within that period.

That said, charging orders have two important applications outside the scope of a WSS. They can be used to impose a charge over:

government securities, and
money standing to the judgement debtor's credit in court

Where a judgement debtor holds government securities or has a significant sum standing to their credit in court, a charging order may be a better enforcement mechanism. However, where target assets are company shares, our experience has been that a WSS is more advisable.

That's it from us, and we wish you a smooth debt recovery 🙂

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