Category: Debt

DEALING WITH A DIFFICULT DEBTOR

my-lawyer_images_sept-04Going about collecting debt can be a stressful and confusing business. It only gets more frustrating when someone who owes you money doesn’t pay it back. If someone does owe you money (a debtor), then there are certain legal steps that can be taken to ensure you get your money back.

Taking legal action against a debtor can be an expensive and time-consuming process, hence the importance of having sound legal advice or the help of an attorney who specialises in debt collection.

An important point to remember is that you should have a legal agreement with the debtor in place before you seek legal action. If not, the process may be far more difficult than you’d have imagined or worse, it could backfire in your direction.

Where can debts be claimed?

Debts can be claimed in the High Court, for debts that are above R300 000. Amounts between R100 000 and R300 000 must be claimed in the Regional Court and amounts under R100 000 must be claimed in the Magistrate’s Court.

What must I do to get my money back?

When claiming a debt, the first thing to do is send a letter of demand to the debtor. The letter should include all the necessary information of the debt such as the details of the transaction, the amount outstanding and the due date for payment. This letter can also contain a threat of legal action should the debtor not pay by the due date.

If the debtor decides to ignore the letter and the threat, then you can institute legal action to recover the money. If you believe it’s not worth it or not possible to recover the full amount, then you can write the debt off, making sure you remember never to give that person money again.

An attorney can help with the process of collecting a debt. It’s important to always consult an attorney about an outstanding debt before taking any action. If you don’t enlist the help of professional attorneys, especially when you are owed a lot of money, you may end up not getting your money back at all from a lack of legal expertise. Furthermore, if you lose a court case, you may also end up paying the other person’s legal fees.

After a letter of demand is sent to the debtor, and they do not pay by the due date, then a summons will be served to them by the Sheriff of the Court. Ten days after the summons has been served, an attorney will take judgement in court against the debtor.

The following process for claiming a debt only applies to those who do not adhere to the National Credit Act (NCA). Businesses that sell credit, for example, will have other requirements to fulfil according to the NCA. All claims must be instituted within three years if you want to get your money back.

Reference:

Anderson, AM. Dodd, A. Roos, MC. 2012. “Everyone’s Guide to South African Law. Third Edition”. Zebra Press.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Standard acknowledgements of debt and The National Credit Act (NCA)

A4_BThe new NCA does not only regulate instalment sale agreements and lease agreements in respect of movables as was done by its predecessor, the repealed Credit Agreements Act 75 of 1980. The NCA also applies to a much wider variety of credit agreements and has no monetary cap. Instead of instituting legal action a creditor often gets a debtor to sign an acknowledgement of debt to facilitate repayment. This document could contain a provision for instalments and interest and fees. The question arises whether this agreement in confirmation of an existing obligation constitutes a credit agreement for purposes of the NCA.

The purpose of this Act is to promote and advance the social and economic welfare of South Africans, promote a fair, transparent, competitive, sustainable, responsible, efficient, effective and accessible credit market and industry, and to protect consumers.

“Credit”, when used as a noun, is defined in the Act as a deferral of payment of money owed to a person or a promise to defer such payment; or a promise to advance or pay money to or at the direction of another person.

“Agreement” includes an arrangement or understanding between or among two or more parties which purports to establish a relationship in law between those parties.

The parties to a credit agreement governed by the NCA are referred to as the “consumer” and the “credit provider” and these definitions should be considered. An acknowledgement of debt normally refers to a historical event of cause and does not constitute a credit guarantee or any of the named credit transactions such as a pawn agreement, discount agreement, incidental credit agreement, instalment agreement, lease, secured loan or mortgage agreement or credit facility. However, the fact that it contains a deferral of payment and requires the payment of interest, fees and other charges, will cause it to fall within the ambit of the catch-all term “credit transaction” provided for in Section 8(4)(f) of the Act.

Section 2(1) provides that the Act must be interpreted in a manner that gives effect to the purposes set out in Section 3. The question really is whether the legislature intended the rearrangement or the repayment terms of an existing debt, for instance where money has already been advanced to a consumer a considerable period of time ago or where damages were suffered as a result of a delict or breach of contract, to constitute a credit agreement or transaction for purposes of the NCA. Due to the elements of deferral and the charging of interest, fees and other charges in a standard acknowledgement of debt, and in the absence of any express or implicit indication to the contrary, it seems an inescapable conclusion that the agreement could be defined as a credit agreement within the meaning of the NCA. The relevance of this is that it might be that the credit provider would be required to register as such with the National Credit Regulator, affordability assessment would have to be done prior to conclusion, the consumer could become overindebted and apply for debt review, and so many onerous requirements will be applicable.

It is submitted that where the cause of action in relation to which the acknowledgement of debt was entered into is based on a contract or agreement which constitutes a credit agreement, the insertion of a no-novation clause into an acknowledgement of debt will not serve to exclude the agreement subsequently concluded, from the ambit of the NCA. However, where the debt initially arose as a result of a delict, the insertion of a no-novation clause might have the effect of preserving the original cause of action, namely the delict, and thus cause the matter to fall outside the scope of the NCA.

One thing to be kept in mind is that a “consumer”, in respect of a credit agreement to which the NCA applies, means

(a) the party to whom goods or services are sold under a discount transaction, incidental credit agreement or instalment agreement;

(b) the party to whom money is paid, or credit granted, under a pawn transaction;

(c) the party to whom credit is granted under a credit facility;

(d) the mortgagor under a mortgage agreement;

(e) the borrower under a secured loan;

(f) the lessee under a lease;

(g) the guarantor under a credit guarantee; or

(h) the party to whom or at whose direction money is advanced or credit granted under any other credit agreement.

This definition might provide the answer as the acknowledgement of debt might, as a different cause of action, not qualify the consumer under the above definition. So, too, is the underlying cause of action to the acknowledgement of debt, and it deserves no debate that signing an acknowledgement of debt is not something to go about without due consideration.

Should a court be convinced that the written acknowledgement of debt is subject to the NCA the court could be required to make a ruling in terms of Section 130(4)(b) of the NCA, which states:

In any proceedings contemplated in this section, if the court determines that – … the credit provider has not complied with the relevant provisions of this Act, as contemplated in subsection (3)(a), or has approached the court in circumstances contemplated in subsection (3)(c) the court must – adjourn the matter before it; and make an appropriate order setting out the steps the credit provider must complete before the matter may be resumed.

In Adams v SA Motor Industry Employers Association 1981 (3) SA 1189 (A) at 1198 – 1199, the court held that there is a presumption against novation and that, where novation was not intended, it was possible for two obligations to co-exist. These obligations would be interdependent, and the creditor does not have a free election to enforce the original obligation. An acknowledgment of debt, sometimes referred to as an IOU, is evidence of a debt which is due, but differs from a promissory note as it does not contain an express promise to pay. However, where the acknowledgment of debt is coupled with an undertaking to pay, it will give rise to an obligation in terms of that undertaking.

The case of Rodel Financial Service (Pty) Ltd v Naidoo and Another 2013 (3) Sa 151 (Kzp), and its annotations is recommended for reading and getting a better understanding of the applicable principles.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Trustees of body corporate not allowed to disconnect electricity or water supply to a section as a debt collection measure

A3_BThe default of levy payments is a frequent problem for the trustees of body corporates as well as the managing agent. It is the way in which the defaulting owner is treated and the outstanding debt collected, that will make the difference between a functioning, financially stable sectional title scheme or an impending disaster zone.

In these testing economic times, monthly levy payments are sometimes considered by owners of sectional title sections to be an optional expense in making ends meet on a tight budget. Once an owner has got away with defaulting on one payment, habitual default becomes easy, and more so if the trustees and management agent are slow to react to the failure to pay. The problem is worsened by the fact that the monthly levy is carefully calculated prior to the annual general meeting to be the minimum amount possible, in an attempt to accommodate the owners. However, these small monthly levies could easily accrue over a few months to a significant amount, aggravated by interest and reflected as a substantial outstanding debt.

These non-payers place severe financial restraints on the cash flow of a body corporate which is largely dependent on the timeous monthly payments by all its members to fulfil its monthly obligations to, inter alia, municipalities regarding water and common area electricity usage, security, and general upkeep of the property. If the body corporate does not have large financial reserves on which it can rely in the event of default by its members, the impact of the default can be severe and can cause unnecessary hardship for other owners. There are known instances of special levies raised in order to assist the body corporate in its financial hardship.

Many trustees and managing agents, in order to recover outstanding amounts, revert to taking the law into their own hands by cutting off the water and electricity supply to such members’ sections or units. Some have even passed rules which allow for such actions. Justifications for these actions by trustees and management agents are abundant, but none of these are legally sound or will stand in court.

By withholding the water and/or electricity supply to the section, whether or not it is allowed for in the rules, the trustees and management agent not only disregard the owner’s constitutional rights to access to water as well as the provisions of the electricity act, but also specific stipulations of the Sectional Title Act, Act 95 of 1986 as amended (“the Act”) and confirmed in case law. Such trustees and managing agents expose themselves and the trustees in their personal capacity, to an application by the owner and/or the occupier, against the spoliation of such services, or access with a court order for immediate re-connection. The body corporate or management agent may not interfere with water and electricity services rendered to a section or unit. The penalty will be a cost order, if not granted on a punitive scale, red faces, and a lot to answer to at the next annual general meeting.

The Act clearly stipulates in Section 37(2) that trustees must approach by action any court, including the Magistrate’s court, for recovery of any and all contributions levied under the provision of Section 37(1), which include monthly levies, special levies, interest, and legal costs on attorney and client scale.

The trustees and managing agent have no choice herein. Prompt debt collection action taken against any owner immediately on default, will be the best defence. Therefore the trustees must ensure that the appointed management agent either has a proven track record or a detailed collection policy prior to appointment of such agent. We all know that the wheels of justice turn slowly, and that it can take months for the default judgement to be granted and the warrant issued. By delaying the collection process the outstanding levy account increases exponentially, together with the burden on paying owners.

Therefore, the trustees themselves should keep a watchful eye on monthly payments and ensure that defaulting owners are immediately contacted by the management agent and, if they persist in the default, handed over to competent attorneys for collection. The sooner, the better. The old adage “absentee landlords gather no crops” is fitting, and trustees should ensure that the management agents attend to defaulters speedily and effectively in the interest of both their own property investment and that of the other owners in the sectional title scheme.

For further reading, see the judgement by Blieden J with Serobe AJ concurring in Queensgate Body Corporate vs MJV Claesen delivered on 26 November 1998 in the Witwatersrand Local Division, case number A3076/1998, and case law referred to therein.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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