Debt Collection in Malta
The economic fallout of the recent pandemic has brought about a surge in debt collection claims. The sudden pressure on income for certain businesses necessitates the frugal management of cash flow, to the extent that directors may find themselves in the unenviable position of having to prioritise payments to certain creditors over others just to keep the business afloat. At the same time, however, the Covid-19 pandemic has also increased awareness of the importance of collecting receivables on time.
There are instances where indulgence can be the sensible option to safeguard a working relationship with a debtor and see the relationship through the hard times. In other instances, taking decisive action to recover a debt may be inevitable.
In such instances, the first step to recover a debt is a clearly-drafted letter of demand signed by a practicing lawyer, setting out the claim and demanding payment within a specified time frame. Where the letter of demand does not solicit the desired reaction from the debtor, there are a number of options to escalate the matter.
Where the claim does not exceed €25,000 and is certain, liquid and due in accordance with law, a judicial letter in terms of article 166A of the Code of Organisation and Civil Procedure may be issued. If such judicial letter is duly notified to an address in Malta and remains unanswered for a period of 30 days, the judicial letter automatically constitutes an executive title against the debtor and the creditor may proceed to enforce its claim against the debtor’s property based on that executive title and without the need to file judicial proceedings. If a reply to the said judicial letter is filed by the debtor within the specified 30 day time-frame, judicial proceedings would need to be filed, in order to recover the debt.
Where the claim exceeds €25,000, or if the debt is not certain liquid and due, a creditor can still file a judicial letter demanding payment from the debtor within a stipulated time frame, however it will not constitute an executive title if it remains unanswered, and is merely intended as a formal intimation to the debtor and bring the claim to the cognisance of the courts and the general public. A party’s failure to reply may furthermore be taken into account by the magistrate or judge when deciding which party is to bear the costs of any eventual court proceedings.
If the debt is not paid or if an out-of-court settlement cannot be reached, judicial proceedings before the courts have to be filed in order to recover the debt. Prior to filing proceedings for recovery, it may be advisable in certain circumstances to file a precautionary garnishee order, in virtue of which, the debtor’s bank accounts, and other known receivables can be ordered to be deposited in court to secure the creditor’s claim. Where a precautionary garnishee order is filed, the creditor is obliged to file proceedings within a period of 20 days. Funds frozen by the precautionary garnishee order will remain so until a final judgment is delivered by the relative court, unless the debtor provides satisfactory evidence to the court that the precautionary garnishee order is unwarranted or if adequate security to cover the claim has already been deposited in court.
If the creditor suspects that the debtor does not have any liquid funds or receivables but is aware of the existence of other assets in Malta, it may be advisable to file a precautionary warrant of seizure, if the assets in question are of a “movable” nature.
Where the debtor has no liquid funds but owns immovable property, the creditor may wish to file a warrant of prohibitory injunction to ensure that the property is not transferred to the creditor’s detriment.
Special Summary Proceedings
Another important procedure for the recovery of a debt envisaged in the Code of Organisation and Civil Procedure are the ‘special summary proceedings’. This procedure may be applied when the claim exceeds €15,000, is certain, liquid and due and does not require any additional performance by the debtor for the debt to be crystallised. Special summary proceedings are filed before the First Hall, Civil Court by means of a sworn application which must be notified to the creditor. In such proceedings, during the first sitting the debtor will have the opportunity to explain to the court whether it has any valid pleas to bring forward in respect of the claim. If the court is satisfied that the debtor has a valid plea on a “prima facie” basis, it will grant the debtor an opportunity to file a reply within 20 days and the proceedings will continue as if normal judicial proceedings had been filed. If the Court is not satisfied that the debtor has a valid plea, it will proceed to pronounce judgment in favour of the creditor.
If the special summary proceedings cannot be utilised, the creditor must institute regular judicial proceedings by filing an application in the appropriate court and notifying the debtor who in turn must file a reply within a stipulated time-frame. If no preliminary pleas are raised by the debtor, such as prescription, the creditor must submit all its evidence in court and once it has indicated that it has no further evidence to submit, the debtor will be given the opportunity to defend the claim and submit its own evidence. Generally, once all the evidence has been presented, the parties would be requested to file a note of submissions to outline the claims or pleas of the case. The Court would then proceed to pronounce its judgment, and it would generally order the losing party to pay the judicial fees and expenses incurred by the prevailing party.
If the creditor had already issued a precautionary warrant and secured its debt in court, then it would be able to proceed with an application in court to request that the security being held be released in its favour or that such security is sold by judicial auction and the funds recovered.
If a precautionary warrant was not filed, the creditor may issue an executive warrant against any property of the debtor to recover the debt.
While the law provides different procedures to recover a debt, in many instances, an out-of-court settlement tends to be the most efficient route, and creditors are generally well advised to consider the time value of money and the associated opportunity cost when deciding whether to litigate or accept a settlement.
In either case, however, creditors should be aware that their right of action against any given debtor may be time-barred and so adequate record keeping in relation to the servicing of invoices, part-payments and other interactions is recommended in order to preserve one's right to recover.
Author: Joseph Mizzi Related Practice Area: Debt Collection