across the bar

debt collectors charges

by Steve - Posted 21 October 2008

A while back Carte Blanche did a story on people who were paying debts off to attorneys and debt collectors in monthly amounts but the overall debt kept growing. We get queries on this a lot so here is some info that should hopefuly help. 

The judgment debt is made up of the original amount you owe, plus interest up to the date of the judgment (usually at 15.5% per annum), plus the legal costs allowed by the court for the judgment. This is now the amount that you owe to the creditor. The only amounts that can be added after that is additional interest at 15.5% per annum on the judgment debt until it is paid in full and additional legal costs based either on the magistrates court tariff or some other fixed tariff. These tariff's usually specify a maximum amount that can be charged for each item e.g. a letter or telephone call. The person collecting the money every month is also entitled to charge a collection commission of 10% subject to a maximum amount of R300 plus VAT per payment.

If you find that the debt you are paying off is escalating rather than reducing, take the following steps:

1. Check that the debt collection agency who is collecting your money is properly registered (check www.debtcol-council.co.za) 

2. Ask the attorney or debt collection agency for a full breakdown of the balance - showing how interest is calculated (rate and period) and itemising all legal charges after the judgment.

3. If the interest or legal charges are excessive, make a formal complaint to the applicable Law Society or to the Debt Collection Council (see website above).  

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anti-dissipation interdicts

by Steve - Posted 15 October 2008

If you are owed a lot of money by a debtor and you know that they are not going to be around by the time you get your day in court (current defended matter in the CT High Crt takes approx. 2-3 years to reach finality), a useful tool to use is the anti-dissipation interdict. Basically, you ask the court to prevent the debtor from getting rid of their assets so that when it is time to pay up, they have nothing left to meet your claim.

The success or failure of your action turns on whether you can prove to the court that the debtor intends to get rid of his assets to defeat your claim. I.e. you have to show the court that the debtor has that particular state of mind. You can't use the application as a way to control a debtor's spending in the normal course of running their business so that there are funds left over for you.   

The factors you would need to prove to the court:

a) that you have a valid cause of action against the debtor

b) that the debtor has assets within the jurisdiction of the court

c) if the debtor is not stopped from doing so, they will remove those assets from the court's jurisdiction or otherwise get rid of them

d) the debtor's intention is to frustrate or render hollow a judgment that you expect to obtain against him.

The application can be brought in the high court in a relatively short space of time. It will be expensive to obtain and the normal risks of not recovering your legal costs from the debtor may apply. However, if the amount you need to recover is substantial, may be a useful tool to use.   

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trading in insolvent circumstances

by Steve - Posted 14 October 2008

If you are a director or a member of a small company or close corporation who is responsible for the daily management of business affairs, knowing when to pull the plug may not only be a good business decision it may also save you from personal liability. 

The basic rule is that if a company continues to trade when the director's know that the company is trading in insolvent circumstances, they open themselves up to potential liability. The question they need to ask is: can the company pay all its debts as and when they become due and payable? 

If the company continues to trade and incur further debt when it is already unable to pay all its existing debts, the directors may be held to be running the business recklessly. This can open them up to personal liability for loss suffered by a creditor during the time when such reckless trading takes place. 

If, however, the directors honestly and reasonably believe that they can trade the company out of its current difficulties, they may be able to avoid liability. 

Our R0.02: 

If you are not hands on with the financial management of the business, work closely with your fellow directors or company auditors who are to make sure that warning signs of financial distress are picked up quickly.

If you run a small business, chances are you see the company or cc more as an extension of yourself rather than a seperate legal entity. Don't let your pride or ego get in the way of making a sound business decision to close the doors. If you are worth your mettle as an entrepeneur, you will learn from the experience and your mistakes and will do better next time. Unfortunately, there may not be a next time if you lose the benefit of limited liability and are held personally liable for the debts of the business.         

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staying with suretyships

by Steve - Posted 13 October 2008

First prize when getting suretyships signed is to get the surety to register a surety bond over their home. Unfortunately most sureties will not agree to this so  you need to make sure they offer something else in the way of reassuring you that if you have to call upon them to pay, they are able to do so. Make sure the surety is a person of means with assets or income sufficient to satisfy the maximum exposure you may have. 

More importantly, make sure the suretyship document contains the following provisions:

1. the person signing the suretyship binds thems as a surety and co-principal debtor with the main debtor. 

2. an obligation on the surety to provide you with information on their financial position (including list of assets and liabilities) at regular intervals; and

3. your right, as the creditor, to call the suretyship up if the surety's financial position deteriorates (even if the principal debtor is not in default)

4. confirmation that the surety remains liable for any debt incurred before the suretyship is terminated.

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suretyship clauses

by Steve - Posted 10 October 2008

Having suretyship clauses in your customer contracts comes in handy in hard times. Especially when your customers are close corporations or pty limited's with a R100 of share capital to its name. But if your suretyship clause is buried in the fine print, you won't be able to rely on it. Here are a few tips to sort this out: 

1. First prize is to put the suretyship into a seperate document or annexure and get the surety to sign it seperately from your customer contract.

2.   If you opt for including the suretyship in your contract, make sure the document heading contains a reference to "Suretyship".

3. If the clause is contained in the body of your customer contract, try to put it at the end just above where the signatory needs to sign.

4. In the signature section, refer to the fact that the signatory is signing as a surety (and on behalf of the debtor if necessary).

5. Use  BOLD or a different type or colour font to highlight the clause.

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tips for hard times

by Steve - Posted 07 October 2008

First off big apologies from the Nicciferguson team for the lack of blog posts. Lets just say that we have been extremely busy blah blah.

Over the next few posts we are going to offer some tips on what you can do on the legal side to make sure these testing times don't test you too much?

Tip

Our first inclination when the economy appears troubled is to look inward at our own business. We tweak and manage ourselves into tip top shape, trimming excess costs and making sure our operations are running smoothly. But what if the problem lies with our clients? If you are noticing your book debt is creeping, it may be time to check the financial health of the people that keep your doors open.

1. Update credit checks on your clients. Make sure no new judgments or adverse listings have been loaded against them.

2. Check existing security to make sure the equity in it still covers your exposure. If you answered "security - what security", have a drink instead.               

3. Give your defaulting clients a buzz and consider offering better payment terms. It may take a little longer, but at least you get paid.

4. If the writing is on the wall, check the breach clause in your contract and check when you can cancel the contract due to financial difficulty (usually when a judgment goes unpaid or another act of insolvency has been committed)

5. Don't let bad debt grow old. The older a debt, the harder it is to recover. The quicker you get the ball rolling with legal action, the better chance you have of grabbing a few deck chairs on that sinking ship.       

6. Always deal professionally with your debtors. They may live to fight another day (and be a source of lots of work in the future).

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