Debt Recovery Methods – The process of legal debt recovery for small and medium-sized enterprises (SMEs) in Malaysia encompasses a multifaceted approach, beginning even before entering into a contractual relationship. This article explores the foundational steps and methods essential for SMEs to effectively manage and recover debts.
Preliminary Matters in Debt Recovery
Before diving into the specifics of debt recovery methods, it’s critical for SMEs to understand and implement foundational practices that significantly enhance the likelihood of successful debt recovery.
Know Who You Are Contracting With
Understanding the identity of the party you are entering into a contract with is paramount. This section highlights the importance of conducting due diligence to verify the existence of companies through the Companies Commission of Malaysia and checking the bankruptcy status of individuals via the Insolvency Department.
Sign a Legal and Enforceable Written Contract
The necessity of a written contract cannot be overstated, regardless of the transaction size. This segment emphasizes the importance of ensuring that all agreements are not only written but also legally binding and enforceable, with clear references to applicable local laws.
Dispute Resolution Method
Selecting an appropriate dispute resolution method is crucial for managing business risks associated with contractual failures. This part discusses the importance of outlining a clear dispute resolution strategy within the contract to facilitate smoother resolution processes in case of disputes.
Debt Recovery Methods
After establishing the preliminary matters, the focus shifts to the actual methods of recovering debts, providing SMEs with various options beyond court proceedings.
Direct Negotiation
Direct negotiation stands out as the most cost-effective and straightforward approach to debt recovery. This section explores how parties can engage in creative solutions through negotiation, highlighting its benefits and potential pitfalls.
Mediation (MMC)
Mediation, under the Mediation Act 2012, offers a voluntary platform for parties to resolve their disputes with the help of a mediator. This part outlines the mediation process, the role of the Malaysian Mediation Centre, and the significance of Settlement Agreements.
Arbitration (AIAC)
Arbitration, governed by the Arbitration Act 2005, presents a private, judicial determination of disputes by an independent third party. This segment delves into the arbitration process, the discretion parties have in the proceedings, and the enforcement of arbitration awards.
Court
The court process is detailed as a formal dispute resolution mechanism, with a breakdown of the Malaysian court system’s hierarchy and jurisdiction. This section educates SMEs on the procedural aspects of pursuing legal action in courts.
In Conclusion
For SMEs in Malaysia, understanding and implementing the right strategies for debt recovery can significantly influence the outcome of their efforts. By focusing on preliminary matters and selecting the most suitable method for debt recovery, SMEs can enhance their chances of successful debt resolution while minimizing the time and resources spent in legal proceedings. As we’ve explored various avenues for debt recovery, it’s clear that a well-prepared approach can lead to more effective and efficient outcomes for SMEs facing debt-related challenges.
Article by:
NIK ERMAN NIK ROSELI
Messrs Amir Khusyairi & Associates
+6019-2912453
+603-55246628
