Civil Claims & Debt Recovery

Debt recovery, business insolvency and liquidation, personal insolvency and sequestration and debt restructuring.

The many pitfalls facing creditors today is evident from our discussions below regarding the collection of debt which includes debt recovery, business insolvency and liquidation, personal insolvency and sequestration and debt restructuring.

Debt CollectorThe prudent debt collection lawyer will advise a creditor on the different options available for the collection of outstanding debt.

Subject to circumstances relating to a juristic debtor’s asset value or annual turnover, the National Credit Act stipulates certain procedures to be followed before a debt can be enforced.

Debt Collection Procedures

The creditor, either directly or through its debt collecting agency, has to give the defaulting debtor written notice of the default in payment and propose that the debtor refer the credit agreement to a debt counsellor, alternative dispute resolution agent, consumer court or an ombud with jurisdiction, with the intent that the parties resolve a dispute and devise a payment plan under the agreement.

Procedures which have to be followed in court when the creditor applies for an order to enforce the credit agreement include that the debtor has been in default of the payment for at least twenty business days and at least ten days must have elapsed since the service of the mentioned written notice.

Furthermore, if a debtor is undergoing business rescue proceedings, no legal proceedings, including enforcement action may be brought against the debtor, except with the written consent of the business rescue practitioner, by a court order or if the creditor has a set-off claim in any legal proceedings. New legislation affords debtor businesses the opportunity to stay afloat and pay off all outstanding debt, which could be advantageous to all parties. The only prerequisite is that creditors give their cooperation in the debt restructuring process, thereby benefiting themselves as well.

In light of this, it shouldn’t be such an appalling idea for debtors to have their creditors involved when they are struggling to pay their debts. The involvement of creditors in the restructuring of a debt agreement and business rescue practices is much more beneficial to them than liquidating a debtor in order to receive payment.

When is a company insolvent?
A debtor is insolvent when its total amount of liabilities exceeds its total amount of assets. The fact that a debtor is insolvent does not necessarily imply that liquidation is inevitable. For the creditor however, the real question is whether or not a debtor is able to pay its debts which are due and payable. Sometimes referred to as the ‘Insolvency Act’ by some, the liquidation of companies and close corporations is governed by the Company Act, 71 of 2008.

Liquidation
Liquidation of a company or close corporation (CC) entails the winding-up of the entity by a liquidator appointed by the court. A solvent company or CC can be wound-up voluntarily or by way of a court order. The creditor will have to apply to the court for a liquidation order and prove that the debtor’s business rescue proceedings has failed or that it is otherwise just and equitable that the debtor be liquidated. The juristic debtor will be provisionally liquidated by a court order and thereafter, if the court grants a final liquidation order, the debtor is formally under final liquidation. Sequestration of a natural person is synonymous to the liquidation of a company or close corporation.

The liquidation process can be time-consuming and expensive for the creditor who is applying for the court order. Liquidation is also not a sure-fire method of receiving all the outstanding debt, because all of the debtor’s creditors now have to be paid from (more often than not) limited funds. It must also be kept in mind that the directors, shareholders or members of a company or CC are not personally liable for its debt (except if they managed the business in a grossly negligent manner) and the outstanding debt can only be claimed from the juristic debtor’s available funds.

Creditors should consider every available option before applying to a court for a liquidation order, since this is the most inefficient way of dealing with outstanding debt. Of the various other options available, attempting to rescue the business gives a creditor a better chance of receiving the whole or a greater portion of his outstanding debt than what would have been the case if the debtor were to be liquidated.

Whether you are faced with secured debt, bad debt, business debt, unsecured company debt or just a debtor unable to pay debts, discuss your unpaid debt situation with a specialist debt collection attorney for advice on the various options available for the collection of outstanding debt.

~ Natasha van Greuning (LLB)

Downloads

Acknowledgement of Debt

In broad terms, the AOD could provide a creditor with a form of security in respect of debt owed.

Useful Links

Credit & Risk Management

Access to data from a variety of the major credit bureaus and providers in a single location. These sources include TransUnion, Experian, CIPC and the deeds office.

Changes in Debt Recovery Procedure

Recently, Judge Siraj Desai of the Western Cape High Court ruled that the current system of Emoluments Attachment Orders (EAO) also known as garnishee order is unlawful, invalid and is inconsistent with the Constitution as they do not provide for judicial oversight.

Tip

An emoluments attachment order (EAO), incorrectly referred to as a “garnishee order”, is a court order that compels an employer to deduct from the debtor-employee’s wages or salary money that he or she owes a creditor who has obtained judgment against him or her. EAOs are a popular way of ensuring the repayment of unsecured loans.