Assumptions can be powerful – just make sure it’s the right assumption!

Hapizi Bin Hashim
Partner
E: hapizi@stwd.com.my

Batrisyia Ieman Binti Abd Manaf
Associate
E: batrisyia@stwd.com.my

Obtaining a judgment is only the first step towards reaping the fruits of litigation. Where a judgment debtor fails to pay a judgment debt, a judgment creditor may have to consider modes of execution to recoup the debt. One of the most effective enforcement methods that we would like to discuss here is garnishee proceedings.

Vide this debt recovery mechanism, a Creditor ought to avoid disclosing their intention to initiate garnishee proceedings to the Debtor. This precaution helps safeguard the Creditor’s interests, preventing the Debtor from transferring funds in an attempt to frustrate the enforcement process.

At its core, garnishee proceedings compel a third party, usually a bank, to transfer funds owed to the Debtor and/or from the Debtor’s account to satisfy the amount owed to the Creditor. However, the success of garnishment depends on access to information about the Debtor’s assets. Without this, the enforcement process can be significantly hindered.

In accordance with Order 49 of the Rules of Court 2012, garnishee proceedings consist of two stages:

1. Ex-Parte Garnishee Order to Show Cause – This initial application directs the garnishee (usually a bank) to disclose any debts owing to the Debtor. For banks or financial institutions, this includes determining whether the Debtor holds an account with the bank, along with if there are available funds sufficient to cover the debt.
2. Garnishee Order Absolute – If no disputes arise, the court will issue a final order requiring the Garnishee to release the garnished funds to the Creditor.

At the first stage, the Creditor should ideally show some evidence and/or basis of knowledge that the Debtor holds an account with a specific bank(s) within the Court’s jurisdiction.

In our firm’s experience, we explored several strategies to uncover a Judgment Debtor’s assets. Of these, the third approach we encountered proved particularly interesting:

1) Affidavits affirmed by the Judgment Debtor

Earlier this year, we successfully garnished a substantial sum for debt recovery from a Judgment Debtor. In our Ex-Parte application for a Garnishee Order to Show Cause (“GOTSC”), we relied on affidavits affirmed by the Judgment Debtor in a separate proceeding. These affidavits disclosed the Debtor’s bank accounts and corresponding account numbers, which were crucial for our case. The Court accepted this evidence, and we were granted the GOTSC.

While the garnished amount did not fully cover the outstanding debt, it allowed us to recover a significant portion, providing some relief to our client.

2) Discovery Post Judgment

In another case, we filed an Ex-Parte application in the Magistrate Court under Order 24 Rule 7A of the Rules of Court 2012, seeking information from major banks in Malaysia. We believed that the Judgment Debtor held current accounts, fixed deposit accounts, and/or short-term deposit accounts with these banks.

The Court granted the application, and the order was served to the listed banks. However, compliance was optional for the banks as the order came from the Magistrate Court. Pursuant to sections 133 and 134 of the Financial Services Act 2013, only orders granted by a Sessions Court or above are mandatory for banks to follow.

As a result, we obtained account information from just 5 out of the10 banks listed. Greater compliance may be achievable if the application is made to the Sessions Court or High Court.

3) Assumption-Based Approach [not our case, but worth noting]

In an interesting case we observed in the Sessions Court, a Judgment Creditor adopted a unique approach. The Creditor’s affidavit included an assumption that the Debtor likely held an account with banks near their residence. The Judge accepted this reasoning and despite the assumptions, granted the GOTSC. While this case involved a creative, assumption-based approach, it highlights how such strategies, when well-argued, can be effective in advancing debt recovering.

While assumptions in garnishee proceedings are typically seen as a last resort, they can be surprisingly effective when backed by sound reasoning and careful application. So, while it is always best to have concrete evidence, it turns out that assumption, when used strategically, might not be such a bad tool after all

It’s important to remember that garnishee proceedings are an equitable remedy, only granted at the discretion of the court. When deciding whether to make a Garnishee Order Absolute, the court will consider whether justice is being served and how the decision may affect other creditors. Ultimately, the court strives to balance the Creditor’s rights with the broader interests of all parties involved.

The contents of this Article are intended to provide general information only and do not contain or intend to convey any legal or other professional advice and should not be relied upon as such. Although we endeavour to ensure the accuracy of the information herein, we do not warrant or guarantee its accuracy or completeness or accept any liability whatsoever for any loss or damage howsoever arising from any reliance thereon.