Debt Collection Agency South Africa
Amicable Deb Collections South Africa
1. General information
South African Law have Roman Dutch origins, and the debt collection process is well entrenched within the system.
The South African prescription period (statute of limitations) is normally three years from the date upon which the debt becomes due and payable (in case of dishonoured cheques, it would be six years).
However, the fact that South Africa experiences corruption, fraud and a weak currency can greatly affect debtors’ ability and/or willingness to pay.
1.2. Local agents
Our local agent is a debt collection agency specialising in amicable and legal debt recoveries and is based in Johannesburg. Our local agent network is well connected across South Africa, with colleagues and investigators in most urban areas.
Upon receipt of an instruction, they will carry out some brief background investigations on the debtor and then an informal telephone call and/or formal letter of demand will be sent.
Should a reply not be forthcoming, Cosmopolite Collections normally recommend a site visit.
Interest can be charged according to the National Credit Act who defines invoices as an ‘incidental credit’ because the charged interest becomes due only if the debtor fails to pay for the goods and services after a certain period.
In accordance with the prevailing act, the interest allowed is 2% per month.
From a cultural point of view, the recovery of late payment interest in South Africa is quite difficult due to the interest payment being considered a matter of negotiation between the debtor and the collector.
Once court action commences, legal interest of 10.25% per annum can be charged from the date of service of the summons to the date of the final payment of the debt.
South Africa do apply the in duplum rule, whereby the interest charged may never exceed the original debt amount.
1.4. Debt Collection Costs South Africa
Cosmopolite Collections charges collection costs to debtors in South Africa.
2. Legal Debt Collections
2.1. General information
Depending upon the outcome of the amicable debt collection procedure, documents available, the debt amount and the debtor’s solvency, a recommendation will be offered as to whether or not it appears economically viable to move to legal action.
2.2. Required documents
Original invoices and orders are obviously always the most valuable, but copies will in most instances also suffice.
In some instances, the documents will be required to be notarised and legalised and will have to comply with the requirements of The Hague Convention (for member countries) and/or the requirements of both South Africa and the country involved (for non-member countries).
A power of attorney is not a requirement, but the debtor’s attorneys may request it – in this case it will have to be provided.
2.3. Legal dunning procedure
A letter of demand is sent, to which the debtor can respond in any way. Should the debtor be in agreement that the debt is due and payable, a settlement agreement can be entered into, whereby the debtor can settle the debt either in a lump sum or by way of monthly instalments.
This agreement will then form the basis of the court action, should it be necessary.
A lawsuit commences with the issue of a summons, which is served upon the debtor by the sheriff (bailiff) of the court.
Upon receipt of a summons, the debtor chooses whether or not to defend the action. Should the debtor not defend, a default judgment can be applied for ten days after the service of the summons.
In the event that the debtor does defend, a summary judgment can be applied within 15 days from the date of receipt of the notice of intention to defend.
The summary judgment can, however, only be applied for when the claim is for a liquidated amount, i.e. in respect of an unpaid invoice. In this application, the plaintiff will state the belief that the debtor only enters an appearance to defend with the intention to cause delay and that the debtor does not have a defence in law.
The debtor will then be required to concisely state their defence in the form of an affidavit.
The merits of the matter will not be argued at this application, and, if the debtor can show that they have even minimal grounds for defending, the court will not grant the summary judgment. In that event, the matter will have to proceed to trial.
2.5. Expected time frame
A trial (not taking an appeal into account) normally takes between three and five years as the court rolls in South Africa are heavily congested; but a summary judgment or a default judgment normally takes between three and six months.
2.6. Interest and costs in the legal phase
Litigation costs in South Africa are quite high, and a prospective plaintiff should keep in mind that, should the litigation be unsuccessful, the plaintiff will also be liable for the costs of the debtor, in the same way that the debtor would be liable for the costs of the plaintiff should the debtor be unsuccessful in defence.
The problem, however, is that often the debtor is unable to settle such cost orders. Moreover, because the plaintiff is often not a South African entity and does not own any attachable assets in South Africa, the debtor will likely request security for their costs should the plaintiff be unsuccessful in their litigation.
It is extremely difficult to provide an estimation of court fees, as it depends much upon factors such as whether experts or witnesses will have to be called to give evidence at the trial.
However, it may normally be assumed that EUR 7,500 will be sufficient to take the matter up to the opposed summary judgment stage, whereafter the position may be reviewed and a decision may be taken as to whether the matter should be continued. The EUR 7,500 does not include execution costs, which may vary considerably.
3. Insolvency proceedings
3.1. General information
In South Africa, there are different acts of insolvency. Nonpayment of an account and/or an admission that a company is not able to settle a debt is considered to constitute such an act. In these circumstances, the creditor may apply to the court to have the debtor liquidated. In South Africa, there are secured and unsecured creditors.
Secured creditors are normally banks; these creditors are paid first and only in the event that there is something left, the remainder of the estate will be split proportionally between the unsecured creditors. Should the estate not be enough to settle the secured creditors, then the unsecured creditors who proceeded with the proving of their claims will be required to contribute to the claims of the secured creditors.
Accordingly, it is important to ensure that no chance of contribution exists at the time of proving a claim. If the ownership of goods remained vested in the supplier until the time that payment has been received, then the goods will be sold and the supplier will be paid from the proceeds; any remaining proceeds will vest in the estate. Such vesting of ownership must be proved by way of a contract, and the necessary claim documents (to be supplied by the liquidator) will have to be completed.
This is done by the debtor through the passing of a special resolution registered with the Registrar of Companies, who forwards the same to the Master of the High Court, who in turn appoints a liquidator, who will attend to the winding up of the entity.
The winding-up process may take a while. Hostile liquidation In this instance, a creditor will apply to court to have the debtor liquidated.
This is done by means of a motion, which must be served upon all known creditors, South African Revenue Service, Master of the Court, Registrar of Companies and/or any other interested parties.
The court will then grant an interim order, which must be published in the government gazette and local newspapers. On the return date of the interim orders, any party who wishes to oppose the application must advise the court accordingly, whereafter the matter will be postponed for argument. Once the court has heard the arguments, it will either grant the liquidation or not.
This process, depending upon whether or not it is opposed, can take anywhere between six months and two years. This is also dependent upon the court hearing and the application.
Only after the liquidation is confirmed will the master appoint a liquidator, who will then wind up the estate.
3.3. Required documents
Invoices and/or correspondence evidencing the debtor’s inability to settle the debt are required.
Once the application is granted and a liquidator is appointed, the claim forms will have to be completed and lodged; if proof of ownership exists, this will have to be provided with the claim forms.