Debt Collection in Malaysia: A Lawyer’s Complete Guide

As a debt recovery lawyer in Malaysia who has handled over a thousand debt cases since 2016, I know how devastating unpaid debts can be. Whether it’s unpaid invoices, bounced cheques, rental arrears, or loan defaults, they all hurt one thing the most — your cash flow.

In this article, I’ll explain the laws, steps, and enforcement methods for debt recovery & debt collection in Malaysia, with insights from real cases I’ve handled.

What Is Debt Recovery in Malaysia?

Debt recovery is the legal process of recovering money owed by a debtor. It usually involves:

1. Sending a Letter of Demand (LOD)

2. Attempting Precourt Mediation

3. Filing a lawsuit in court

4. Enforcing a judgment if the debtor still doesn’t pay

Creditors must act within the 6-year limitation period under the Limitation Act 1953.

Why Debt Recovery Matters for Businesses and Individuals

Effective debt recovery ensures:

• Better Cash Flow – freeing up capital to reinvest in your business

• Business Continuity – avoiding insolvency due to bad debts

• Professional Relationships – clarity in resolving disputes, sometimes preserving commercial ties

From my experience, businesses that act quickly to recover debts have a far higher success rate than those who delay.

Step 1: Gather Documents and Conduct Searches

Successful debt recovery in Malaysia starts with proper documentation:

• Signed agreements and contracts

• Invoices, delivery orders, statements of account

• Emails or WhatsApp communications proving the debt

I also recommend company searches (SSM) and bankruptcy checks before taking action. This prevents wasted time chasing debtors who are already insolvent.

Step 2: Letter of Demand in Malaysia

The Letter of Demand (LOD) is the first legal step in debt recovery.

A strong LOD should include:

• The amount owed

• A payment deadline (usually 7–14 days)

• The consequences of ignoring it

There are two types:

• Normal LOD – warning before legal action

• Statutory LOD (s.466 Companies Act 2016) – required before filing a winding-up petition against a company
  

Step 3: Legal Action in Malaysian Courts

If the debtor ignores the LOD, the next step is court. The jurisdiction depends on the claim amount:

• Magistrates Court – under RM100,000

• Sessions Court – RM100,000 to RM1,000,000

• High Court – above RM1,000,000

The process involves filing a Writ of Summons and Statement of Claim. If the debtor doesn’t respond within 14 days, you may obtain a default judgment. For clear-cut cases, I often apply for summary judgment, which avoids lengthy trials.

Step 4: Enforcing Judgments in Malaysia

Winning a judgment is one thing; enforcing it is another. Here are the main enforcement methods:

• Judgment Debtor Summons (JDS) – forces the debtor to declare income and assets

• Writ of Seizure & Sale – debtor’s assets are seized and auctioned

• Garnishee Proceedings – intercept funds from the debtor’s bank or clients

• Winding-Up Proceedings – dissolves an insolvent company under the Companies Act 2016

• Bankruptcy Proceedings – applies to individuals (threshold RM50,000) under the Insolvency Act 1967

• Committal Proceedings – fines or imprisonment for contempt of court if orders are ignored
  

Legal Time Limits for Debt Recovery in Malaysia

• To file a debt claim: 6 years from when payment became due

• To enforce a judgment: 12 years from the judgment date

Delaying action can mean losing your rights entirely — I’ve seen too many creditors come in after 6 years, only to discover their claim is statute-barred.

Practical Tips from a Debt Recovery Lawyer

• Do background checks before extending credit

• Act early — the longer you wait, the harder recovery becomes

• Engage a lawyer, not a “debt collector” — third-party agencies often use illegal methods and cannot enforce debts in court

  
  

FAQs on Debt Recovery in Malaysia

Is debt collection legal in Malaysia? Yes, if done through proper channels — Letter of Demand, court proceedings, enforcement orders.

How long can creditors chase a debt in Malaysia? Up to 6 years under the Limitation Act 1953.

Can I ignore debt recovery? Not advisable — ignoring can lead to lawsuits, extra costs, bankruptcy, or winding-up.

What happens after 6 years of debt? The debt becomes statute-barred, and creditors generally lose the right to sue.

Conclusion: Take Action Before It’s Too Late

Bad debts kill businesses. But with the right legal strategy, recovery is achievable.

At Rule & Co. Advocates & Solicitors, we’ve handled 1,000+ debt recovery matters nationwide. From simple letters of demand to complex winding-up proceedings, we know which legal tools to use — and when.

If you’re facing a stubborn debtor, don’t delay. Contact us today and let us help you recover what’s rightfully yours.

AUTHOR PROFILE

Rudi Cheu is the principal of Rule & Co. Advocates & Solicitors; a Malaysian law firm focusing on practical and cost-effective solutions for debt recovery and commercial disputes. With nearly a decade of debt recovery experience under his belt; Rudi is passionate about helping businesses navigate debt recovery challenges and shares insights at www.rulecolaw.com/blog and recoverdebt.my

He can be reached via Whatsapp: +60102028095 or via email: rudi@rulecolaw.com