Effective Debt Recovery during COVID-19
In an effort to reduce the burden on companies which have been impacted by the COVID-19 pandemic, the Minister of Domestic Trade and Consumer Affairs has passed the Companies (Exemption) Order (No.2) 2020 as temporary measures for financially distressed companies. These temporary measures, as discussed in our previous article, includes the extension of a period of 6 months for companies to respond to a statutory demand before winding up proceedings can be initiated against them.
Although the extension of the statutory period gives companies a temporary protection from being wound up, it is pertinent to note that other actions to recover debts due and owing are still available to creditors. Unless companies opt for a corporate rescue mechanism provided under the Companies Act 2016, companies would nevertheless remain exposed to legal proceedings by creditors in recovering any alleged debt. In the event a creditor successfully obtains a judgment against the company, the creditor may still execute the judgment through one of the following methods:-
- Judgment Debtor Summons
A judgment debtor summons can be filed by a creditor against the company to compel an officer of the company to attend Court to disclose the company’s assets and financial means. Essentially, a judgment debtor summons is an examination of the debtor in which the Court may then order the company to pay the judgment either in one-lump sum or in instalments. In the event the company fails to comply with the payments as ordered by the Court, committal proceedings may be taken where the Court may order the officer of the company to be fined or jailed.
- Writ of Seizure and Sale
A writ of seizure and sale is an order issued by the Court that allows the creditor to take ownership of a property from the debtor. This enforcement application enables the Court sheriff/bailiff to seize and sell off the company’s properties (both immovable and moveable) in order to satisfy the judgment sum due. The proceeds of sale will then be utilised to satisfy the judgment debt.
It may be noted however, that the creditor may face difficulties in ascertaining whether the company is the legal owner of the seized properties. It is common for companies to rent machineries and equipment from a third party or where the properties are on hire purchase arrangements. Creditors should therefore be wary that under this mode of execution, there could be a chance that the seized properties may be subjected to an interpleader proceeding by a third party who is claiming ownership over the seized properties.
- Garnishee Proceedings
A creditor may initiate garnishee proceedings to recover from a garnishee (usually a bank) the sum owed to him by the company. The Court may then order the bank to pay directly to the creditor the amount available in the company’s bank account to satisfy the judgment debt owed to the creditor. Essentially, this method of enforcement changes the garnishee’s obligation to pay money to the debtor into an obligation to pay the creditor.
To garnish the debt, the creditor must first apply to Court for a garnishee order. This leads to a show cause proceeding for the garnishee to give any reasons to object to the application. If the garnishee does not attend or dispute the debt due, the Court may then proceed to order the garnishee to remit such money to the creditor to satisfy the judgment debt.
Creditors should be mindful, however, that they should only proceed with this mode of execution if they have knowledge of the company’s bank account details. They must also be certain that the bank account has sufficient monies available to satisfy the judgment debt.
- Charging Orders
A creditor may apply to Court for a charging order to impose a charge on securities such as shares, bonds or dividends owned by the company. Similar to garnishee proceedings, the order shall in the first instance be an order to show cause for further consideration of the matter. During the second stage, the Court will make the order absolute unless there are sufficient reasons to the contrary. The creditor may then enforce the charge by selling the securities in order to satisfy the judgment debt.
It may be noted that the charging order by itself does not realise the monies to satisfy the judgment debt. The charged securities would have to be sold, in which the proceeds of the sale would then be utilised to satisfy the judgment debt owed to the creditor.
Enforcement of judgment against individual debtors
The methods of execution discussed above would also be applicable towards judgment debtors who are individuals. Insofar as individual debtors are concerned, there have not been any temporary measure enforced by the Malaysian government during the COVID-19 pandemic to protect individuals from bankruptcy proceedings. The current debt threshold of RM50,000 for the filing of a bankruptcy petition remain in place and financially distressed individuals would still be exposed to bankruptcy proceedings.
Individual debtors would also include directors and/or shareholders who have acted as personal guarantors in respect of loans taken by their company. In a situation where a bankruptcy proceeding is initiated against a guarantor, the Court must be satisfied that the creditor has exhausted all modes of execution and enforcement to recover debts owed to him by the principal debtor i.e. the company: Section 5(4) of the Insolvency Act 1967. This would include all modes of enforcement discussed above as well as bankruptcy or winding up proceedings.
Although companies currently have some form of temporary protection against winding up proceedings with the passing of the Companies (Exemption) Order (No.2) 2020, the above methods of enforcement remain effective options for creditors to execute a judgment against a debtor.
Lastly, creditors should be mindful that they have a period of 12 years from the date of judgment to enforce the judgment: Section 6(3) of the Limitation Act 1953. Furthermore, any writ of execution to enforce a judgement may not be issued without the leave of Court, in the event 6 years has lapsed from the date of judgment.
By: Jaclyn Chang
DISCLAIMER: This article is for general information only and should not be relied upon as legal advice and/or legal opinion. Messrs Yeoh & Joanne accepts no liability for any loss which may arise from reliance on the information contained in this article.
文章来自于：张美琪律师 (Jaclyn Chang Mei Qi)
文章翻译：李淑婷律师 (Lee Su Ting)
免责声明:本文仅供参考，不应作为法律建议和/或法律意见。Yeoh & Joanne律师事务所不会承担因依赖本文所含信息而产生的任何损失的责任。