Credit Control and Debt Collection – Part 2

Among the tools available for efficient debt recovery, Maltese law provides three powerful mechanisms: the enforcement of bills of exchange and promissory notes, the constitution of debt, and the judicial letter pursuant to article 166A of the Code of Organisation and Civil Procedure (Chapter 12 of the Laws of Malta). These legal mechanisms are designed to equip creditors with effective means to enforce their own rights while avoiding lengthy trials, especially where there is no objective reason for a claim to be opposed or else where the debtor acknowledges the debt and is called upon to pay such debt.

1. Bills of Exchange and Promissory Notes

By virtue of a bill of exchange, commonly referred to as a ‘kambjala’, and promissory note, a debtor accepts to pay a debt to the creditor, or even third parties, once they are called upon to do so.

A bill of exchange is a negotiable instrument whereby a party orders another to pay a fixed sum, including to third parties. A bill of exchange:

1. must stipulate the date and place where it is drawn;
2. the sum to be paid;

• the debtor’s (drawee’s) name;

1. the payee’s name (person to whom or to whose order payment is made);
2. the time and place of payment;
3. the value given (cash, goods, account, or otherwise); and

• it must also be signed by the drawer.

To render such a bill executable, a judicial letter must be filed. Under pain of nullity, this letter must inform the debtor of their right to suspend execution

2. Constitution of Debt

A constitution of debt, used as a preventive tool, particularly effective when granting credit terms, is a contract concluded in front of a notary whereby the debtor acknowledges and declares his obligation of debt to the creditor. This deed can also pre-empt the terms of repayment. In the case that the debtor defaults, the next step would be for the creditor to issue a judicial letter, granting a final three-day period to pay. If payment is still not made within this term, the constitution of debt is then rendered an executive title pursuant Maltese law.

3. Judicial Letters under Article 166A

The ‘166A’ letter allows for an effective and time efficient procedure intended for a creditor to acquire an executive title, equivalent to a judgement delivered by a court of law, by virtue of which one can enforce their credit. The 166A, as is commonly referred, enables the creditor to recover amounts not exceeding €25,000, without having to go through a court case.

Pursuant to article 166A of the Code of Organisation and Civil Procedure (Chapter 12 of the laws of Malta), creditors who are owed a credit that is certain, liquid, and due and not exceeding €25,000, may file such judicial letter. The amount must be due and not consisting in the performance of an act.

The creditor may only proceed with filing a 166A if the debtor is present in Malta, is not a minor or a person incapacitated at law or if the debt is not due by a vacant inheritance. The judicial letter should be drawn-up in the prescribed form and the contents thereof must be confirmed on oath. It is then filed in court and must be served on the debtor within six months, if the letter is not served upon the intended recipient within six months, it loses its effect without prejudice to the creditor filing a new letter.

Should the debtor be notified with the said letter, they will have thirty days to contest it by filing a note within the court registry. Failure to do so, will automatically convert the judicial letter into an executive title.

Disclaimer

The content of this article is provided for general information purposes only and should not be construed as legal or professional advice