Debt Collection Legal Strategies for Businesses in Malta

For any business, collecting outstanding payments is a priority. However, many businesses often find themselves unsure of where to start with debt recovery, leading them to abandon the process. Yet, in some cases, writing off bad debts is not an option, and so they must be effectively addressed.

A good starting point to successful debt recovery is often an out-of-court settlement. This typically involves sending a legal letter— a formal demand for payment on the law firm's letterhead demanding that the debtor pay the outstanding amount within a specified timeframe. This letter can be sent by the firm by regular mail, registered post, or even e-mail.

Although a legal letter can often resolve the matter, this is not always the case. When this happens, the business could proceed with a judicial letter which is a letter sent through court. In certain situations, it is recommended that the creditor immediately opts for this option particularly when the prescriptive period is about to lapse.

When the debt is liquid, certain and due, the business may choose to file a judicial letter under Article 166A of Chapter 12 of the Laws of Malta rather than a normal judicial letter, as this type of letter 166A can be particularly effective. When the debtor receives such a judicial letter and does not contest the claim within thirty (30) days of receipt, the judicial letter becomes an executive title. This means that the judicial letter would have obtained the force of a judgement and that the business can take judicial action to enforce the claim.

If the debt is uncertain, contested, or not liquid and due and the debtor remains in default, the business will need to open a court case to have the debt liquidated and determined by the court.

In addition to submitting a judicial letter or opening a court case, the business may also consider filing precautionary measures, such as a precautionary garnishee order (‘mandat ta' sekwestru kawtelatorju’). This precautionary warrant helps protect the creditor from the risk of the debtor disposing of all his assets. Once acceded to, the court orders the commercial banks along with any other garnishees named in the warrant, which hold assets in the debtor’s name, to freeze an amount equal to the debt due and deposit it under the court’s authority for safekeeping. This garnishee order can also be used as an executive measure, allowing the creditor to claim and withdraw the frozen amount once a judgement is given in the business’ favour or a 166A judicial letter becomes executive.

Other precautionary warrants include a warrant of seizure, which allows the court to seize the debtor’s assets and the warrant of prohibitory injunction, which prevents the debtor from transferring or disposing his assets. These provide an additional layer of protection for creditors seeking to secure the recovery of debts.

Businesses should also be aware of the prescriptive period of their claim. The prescriptive period is the deadline set out in the law within which judicial action must be taken. The period depends on the type of claim being made. Failure to take action within that deadline could mean that the business loses its right to claim the amount due. It is therefore important for businesses to be aware of the applicable prescriptive period and to take judicial action before expiry of that period.

In order to facilitate debt collection it is also important to have good client on-boarding procedures, such as gathering relevant data of the client and signing agreements if needed. Debt collection can be a complex and time-consuming process, but with the right legal strategy, businesses can protect their interests and recover owed debts efficiently. If your business is facing challenges with outstanding debts, our firm is here to assist you and help you find the best legal route for your situation.

Dr Samira Briffa