Initiating formal legal action in court is one of the recovery efforts we undertake for debt recovery. You may have wondered why legal actions take so long?
Generally, there are 3 main steps in any legal action:
(a) Issuance of Letter of Demand
(b) Civil Suit; and
(c) Execution and Winding-Up/ Bankruptcy Proceeding.
Letter of Demand (LOD)
Issuance of the LOD serves as a formal request of payment and a notice of demand to the Issuer and Guarantors that legal action may be undertaken should they fail to comply with our demands.
The LOD is crucial as it serves as a final warning prior to a legal action and opportunity for the Issuer and Guarantor to pay the outstanding debt or reach out to Funding Societies to discuss a mutually acceptable payment arrangement amicably which could avoid the need to proceed further with legal action all together.
The LOD would normally give the Issuer and Guarantors a minimum grace period of 7 days for them to comply.
After the time period of LOD lapses, we may continue to observe payment and/or negotiate for settlement before we finally decide to proceed with legal action.
Litigation is a long and expensive process with no guarantee of actual payment.
As such, the decision to proceed with legal action is one we deliberate strongly based on multiple considerations as our goal is always to recover the payment with the least amount of cost and time.
Initiating legal action in court is the next step (provided that our Collections Department is of the view that the legal suits will be a worthy pursuit). Here, we (for and on behalf of all investors of the relevant notes) will act as plaintiff in a civil suit against the Issuer and Guarantors (known as the Defendants).
The goal of this step is to obtain a court judgment or order recognizing our rights/ the Issuer and Guarantors liability in respect of the outstanding amount owed. This is an important step and crucial to proceed with execution later on.
Upon initiating a civil suit, a number of case management will take place where both Plaintiff and Defendants will meet the judge and/or registrar to move through the procedural aspects of the case before the hearing date where the counsels for both parties will submit their case before a judge and thereafter, the judge will finally decide on the matter.
In most cases, we have been successfully in securing judgment in our favour within 6 months.
The actual timeline can vary from case to case, depending on how many interlocutory matters arise within the suit.
The most common scenarios and estimated timeline:
Judgment in Default
The Defendants do not enter into appearance to the suit within the prescribed period. Here, we will be able to get a judgment in default against the Defendants within 1 to 2 months*.
The Defendants do enter appearance and file a defence. Our application for summary judgment (judgement given based on affidavits and documentary evidence without going through full trial) is successful and we manage to get a summary judgment. This process may take 3 to 6 months*.
The Defendant challenges the application for summary judgment and is able to convince the court that there is a triable issue. Here, we will then have to proceed with trial. This process may take more than 6 months before a judgment maybe be obtained.
In some cases, we managed to strike a deal with the Defendants on a new payment schedule in the midst of a civil suit in which case we would proceed to record such agreement in a consent judgment which is enforceable should they breach the same in the future. This can happen at any time during the entire suit.
Despite obtaining a judgment, the matter may also be dragged on further when the Defendant chooses to exercise their right of appeal to a higher court in which cases we, as respondent in the appeal, would need to defend the appeal on behalf of all the investors (provided that thee are sufficient legal fees funding). The appeal may take another 6 to 10 months* before being disposed of.
Execution & Winding-Up / Bankruptcy
After successfully obtaining a judgment, Defendant is now bound by a judgment to pay the judgment sum. In the event that Defendant fails to comply with the judgment, we can then enforce the judgment through various modes of execution.
Three common modes of execution include:
Writ of Seizure and Sale
Judgment Debtor Summons
Execution and winding up/ bankruptcy proceeding is the proper and legal way to compel the Issuer and Guarantors or use legal means to recover the judgment sum back from the Issuer and Guarantors. However, whether it will be fruitful or a worthy pursuit will depend on the type of assets owned by the Issuer and Guarantors available for execution.
The timeline is highly subjective and is difficult to estimate as it will depend on the specific execution/ winding up/ bankruptcy proceeding undertaken, whether the proceeding is being disputed or not and the type of asset we are dealing with. We will be in a better position to give you an estimated timeline on a case-by-case basis during our regular updates on the specific defaulted note in question.
(*) Note: The timeline above is merely indicative and also highly dependent on the other factors such as the court's schedule and availability.