Worldwide, 2020 has been a one of the more financially dire years for both persons and commercial enterprises in recent history. The South African economy has not been spared these adverse effects and there has been a steep decline (and in many sectors, a complete halt) in the production and consumption of goods and services resulting from the pandemic and national lockdown imposed in response. Accordingly, it comes as no surprise that monetary undertakings between contracting parties (whether by formal or informal agreement) have fallen subject to default, dishonour and dispute, resulting in an increased need for debt collections assistance and guidance. In this article, we explore the various options available to creditors seeking relief from uncooperative and recalcitrant debtors.
The Debt Collectors Act, No, 114 of 1998 (“the DCA”) governs debt collection processes in our country by, amongst others, providing for the establishment of the Council for Debt Collectors, mechanisms for the regulation of the debt collections sector, and all other matters related to the collection of debt.
Appointing a debt collector
A debt collector is any natural or juristic person who, for reward or in the course of his/her regular business, collects debts or takes over debts for such collection, which is due and owing to another. Such natural or juristic person, except for an attorney or attorneys’ firm, or a party to a factoring agreement, must be registered as a debt collector with the Council for Debt Collectors.
Failure to register with the Council amounts to an illegal collection practice which is a criminal offence in terms of the DCA and gives rise to liability on conviction to a fine and/or to imprisonment for a period not exceeding three years.
A debt collector may only collect the capital amount owing, along with interest legally due and payable thereon for the period during which the capital amount remains unpaid. If the National Credit Act 34 of 2005 (“the NCA”) applies (discussed below), a credit provider is strictly limited to charging (and subsequently collecting) the principal debt, an initiation fee, service fees, interest, the cost of credit insurance, default administration charges and collection costs.
Overreaching in the above sense constitutes an offence in terms of the NCA, punishable on conviction by the imposition of a fine and/or imprisonment for a period not exceeding twelve months.
A creditor may seek the services of any registered debt collector, which is only a simple Google-search away.
Alternative Dispute Resolution
A further option available to a creditor is ‘debt mediation’. With the help of an attorney, the creditor can consult with the debtor to conclude an amicable settlement agreement which may propose a payment plan. This should be in writing and signed by all parties. The settlement agreement may include clauses which stipulate the relief and enforcement mechanisms at the creditor’s disposal, should the debtor default on the agreed terms.
Debt mediation may also result in the debtor agreeing to an admission of liability and consent to judgment, which is an alternative method of securing payment of a debt.
The National Credit Act
If an agreement falls within the ambit of the NCA, the credit provider, through the vessel of his or her appointed attorney or debt collector, must furnish the debtor with a notification letter in terms of section 129 read with section 130 of the NCA (“the Notice”).
Delivery of the Notice is a statutory requirement which seeks to avoid unnecessary and burdensome litigation by advising the debtor of his/her right to make application for a debt review order and, amongst others, their right to approach the relevant Ombudsman with a dispute. Only once a period of ten days as of delivery of the Notice has lapsed without the debtor having exercised his/her rights in terms of section 129 and 130, may the creditor approach a court for relief.
For a further, more detailed explanation of the relevant NCA sections and timelines, click here.
A creditor represented by his or her attorney may approach a court for relief if the creditor has a valid and enforceable claim for an outstanding debt against the relevant debtor. In a nutshell, the action will commence by sending a letter of demand to the debtor (this is compulsory if the agreement falls within the ambit of the NCA or if the debtor must be placed in mora), which is followed by the institution of legal action via service of a summons in the event that the relevant letter of demand fails to elicit payment. If the debtor fails to give notice of his/her intention to defend the legal action within ten days of service on him/her of the creditor’s summons, the creditor may make application for default judgment. Should the debtor elect to defend the creditor’s action, the matter will proceed on an opposed basis to be adjudicated on at trial.
Any judgment obtained against the debtor, either as a consequence of a successful default judgment application or argument at trial, will be valid and enforceable for a period of thirty years as of the date on which the judgment was granted.
Although there are many options available to aggrieved creditors, it should also be kept in mind that certain debt collection efforts are unlawful and creditors and their duly authorised agents are required to act within the parameters of the governing laws in collection debts owed. Conduct such as the threat of force, disclosing private information to employers, extortion and compounding, the debt collector misrepresenting itself as a judicial or executive officer, and/or any similar conduct is unjust, unacceptable and will be liable to the appropriate sanction. Although a creditor’s frustration can be understood (especially in a time where finances have become a thorny issue), it should be kept in mind that unlawful debt collection actions will have negative consequences for the creditor.
Keep in mind that each situation and agreement is unique and requires customized relief planning based on the facts of each particular matter. For in-depth advice regarding the collection of outstanding debts, or for calculated guidance regarding any of the debt collections methods set out herein, do not hesitate to contact our offices and we will gladly assist.