Business litigation: Unpacking the dreaded term… debt collection

07 Feb 2022

It is not uncommon for businesses to sell goods or services to consumers on credit. However, once a consumer accepts a credit agreement, he/she becomes liable for the payment of that debt, usually by way of monthly instalments. Therefore, when a consumer defaults on his/her instalments, the business is entitled to institute legal action against the consumer to recover the outstanding debt. This article discusses how a company can recover an outstanding debt using the litigious process.

Letters of demand

Generally, the creditor has no obligation to deliver a letter of demand on the defaulting debtor before instituting legal action. However, the letter serves to alert the debtor of the amount of the debt and specify the default. It is important to note that such notification is a requirement under Section 129 of the National Credit Act 34 of 2005, as amended.

The letter further serves to notify the debtor that the creditor will initiate action should he/she remain in default. In other words, an opportunity is afforded to the debtor to settle the debt outside of court, thus saving the creditor legal costs. Should the debtor remain in default, the creditor may proceed with the litigious process i.e issuing summons.

Obtaining a warrant of execution

When a summons is delivered to the debtor, and he/she does not defend it, the creditor may obtain a judgment against the debtor to pay the outstanding debt plus interest and the legal costs incurred. The creditor can thereafter use the judgment to obtain a warrant of execution against the debtor. It is important to note that a debtor must deliver a notice to defend the claim within 10 days after receiving a summons[1].

A warrant of execution instructs the Sheriff to attach the debtor’s property, which will then be auctioned, and the proceeds will be used to recover the outstanding debt and all other costs incurred during the litigious process. A warrant of execution can be obtained in respect of both movable[2] and immovable[3] property. Alternatively, the creditor may obtain a garnishee order[4] (where the outstanding debt will be paid by a third party if that party is indebted to the debtor) or an emoluments order[5] (where a portion of the debtor’s salary is attached to the outstanding debt). Finally, a creditor can apply for the court to conduct an enquiry into the financial status of the debtor and make any order it deems just and equitable in order to settle the outstanding debt[6].

Conclusion

Businesses offering credit facilities are likely to encounter debtors who refuse to pay off their debts. As such, the litigious process allows these creditors to recover monies owed to them, thus preventing substantial loss.

Contact an attorney at SchoemanLaw for your civil litigation needs.

References:

[1] Rule 13(1) of the Magistrate’s Court Rules and Rule 19 of the High Court Rules.
[2] Rule 41 of the Magistrate’s Court Rules.
[3] Rule 43 of the Magistrate’s Court Rules.
[4] Rule 47 of the Magistrate’s Court Rules.
[5] Rule 46 of the Magistrate’s Court Rules.
[6] Section 65A of the Magistrate’s Court Act 32 of 1944.

Written by Thandi Makasi, Candidate Attorney at Schoemanlaw Inc.

See also:

• Should you sign surety? Think carefully!
• Debt collection for beginners
• Settlement agreements: Final & binding
• Insights into the world of debt recovery – An interview with Kannigan Attorneys Incorporated
• Unlawful credit agreements

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)