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COVID-19: A New Debt Collection Protocol

The COVID-19 pandemic has wreaked international havoc and consequently brought both the global and local economies to a screeching halt. Many countries, such as our own, have implemented extreme social distancing and even full lockdown measures which have severally affected the ability of businesses to operate as usual, or even at all. Which in turn has resulted in businesses having substantially reduced or even no income yet expenses such as overheads and staff salaries/wages remain. There is also a substantial drop in demand for goods and services as the public are limited both economically and physically from accessing these products and services.

The natural consequence of this economic downturn and limited cashflow is that people are not going to be able to pay invoices and outstanding accounts. Debtors will be making the hard decision of whether to pay “Peter or Paul”, i.e. to put food on their table and pay their staff and/or to pay creditors outstanding debts/accounts. Similarly, any creditors, not able to conduct business as usual – not receiving normal or any income will naturally be forced to consider their debtors book, prioritise collecting debt and obtaining payment in a proactive manner in order to increase their cashflow.

Debt collection, although not considered an essential service, is permitted to be conducted remotely during lockdown. Recovering debt during unsettling and unprecedented times, such as the COVID-19 Pandemic and National Lockdown, just like most businesses, is going to require a “new” approach. The reason for this is, firstly, that both debtors and creditors cashflow is going to become and may already be very limited and therefore it is important to apply quicker, affordable and more proactive methods of obtaining payment.

The new debt collection protocol is, firstly, to apply strict and efficient timelines. Secondly, to apply a more adaptive and creative approach to negotiating the best possible solution for the creditor, taking into consideration the full circumstances and the following factors:

  1. The amount of the debt (For example: Is it minimal to low or is it a medium to large sum?)
  2. The nature and type of debt (For example: Is it a secured debt? Is it a credit agreement and subject to the National Credit Act? If there is a contract, and if so, what are the terms relating to default?)
  3. When did the debt arise? (For example: Is it at risk of prescribing? Has the debtor been in arrears long before the national disaster?)
  4. The nature of the debtor (For example: Is it a juristic entity, such as a company or close corporation, or is it a sole proprietor? Is it an essential service or business that is able to operate remotely during lockdown?)
  5. The risk of the debtor (For example: Is the debtor facing insolvency? Are there personal sureties to mitigate the risk?)
  6. The realistic prospects of recovery? (For example: Are there assets?)

1. Stricter Timelines

Creditors are encouraged to immediately hand over all debtors to attorneys for the purpose of letters of demand being sent electronically. Upon expiry of the time provided for the debtor to respond, to immediately proceed with the elected further action, as detailed below, on the relative specified timelines. Applying this proactive and immediate response will increase the possibility that the debtor will pay whilst cashflow is available.

The purpose of a letter of demand is, firstly, to draw to the attention of the debtor the amount owing and, secondly, to secure the rights of the creditors to potentially proceed with litigation, especially where the National Credit Act 34 of 2005 is applicable.

It is strongly recommended, regardless of the amount outstanding, to send letters of demand to all debtors even if the creditor does not intend to incur legal costs to proceed to litigation and possibly “throw good money after bad money”. The reason for this is that, often just the threat of litigation and or the weight of an attorney’s formal letter is enough of an incentive to get a debtor to make payment or at the very least come to the table to discuss repayment proposals etc.

If, however, the debtor fails to respond to the demand then the aforementioned assessment of the nature of the debt and debtor is required. To determine whether litigation or non-litigation methods would result in the best recovery in the circumstances, and serve to secure and protect the rights of the creditor (within the context of the current economic conditions and reality of the national disaster).

2. Litigation:

Usually, the fail-safe means of securing a creditors rights in respect of unpaid invoices is to immediately proceed to serve Summons. This, firstly and importantly, interrupts prescription. The Prescription Act stipulates that ordinary debts prescribe or become unenforceable and extinguished by operation of law after three years from the debt arising.

Secondly, this will usually result in a judgment being given against the debtor and its sureties. Judgment is the preferred means of recovering debt because it also allows for various avenues of execution and enforcement which are only available by virtue of a court order. These available avenues include the attachment of movable property, and if insufficient movables to satisfy the debt, then even immovable property for the purpose of being sold at a Sheriff’s auction. Alternatively, there is the option to interrogate the debtor’s finances through a financial enquiry before a Magistrate.

Another benefit is that a judgment remains enforceable and executable for 30 years (thereafter it will prescribe in terms of the Prescription Act). Therefore, a judgment secures the rights of a creditor, even if the debtor initially is unable to satisfy its debts because as soon as the debtor’s financial position changes, the creditor can proceed to enforce the judgment (provided it is less than 30 years from date of judgment).

Some important considerations when contemplating litigation during and post-COVID-19 crisis:

2.1. The financial implications of litigation on the constrained cashflow of the creditor

2.1.1. Litigation is expensive and the process is lengthy and slow, therefore it is prudent to consider whether the capital outstanding is worth the costs and time it will take to obtain judgment.

2.1.2. The creditor is liable upfront to pay the attorney’s fees and will often be required to pay a deposit before litigation is started. This is even the case when the debtor contracted to pay legal costs. Furthermore, even recoverable legal costs are not the same as the fees charged by your attorney (read our article FAQs on Legal Costs for more information).

2.2. The Regulations currently stipulate that the judicial system is only open for essential and urgent legal matters. It is uncertain as to when these judicial systems will be “back to usual” and available to hear non-urgent matters such as debt collection. Furthermore, when the court is open fully, the already slow and overburdened judicial system is facing an unprecedented backlog, as at least two months’ worth of cases have been postponed, therefore court dates will take longer than usual to obtain going forward.

Notwithstanding the above considerations, litigation remains the recommended approach to recovering debt especially where the amount in question is not negligible or where it will become necessary to proceed to execution of assets as a court order is a non-negotiable pre- requisite.

3. Non-Litigious Debt Recovery Methods

Debt collection is often initially conducted in a non-litigious manner through a process of engaging the debtor. This is because a business debtor is generally a commercial colleague or customer and parties would prefer to preserve the commercial relationship and avoid acrimonious litigation.

The usual non-litigious method is a “call centre” form of polite, persistent “pestering” through regular contact with the debtor (both telephonically and via email) with the purpose of obtaining payment. The disadvantage to this approach is it takes time and does not provide any certainty or serve to secure the creditor’s rights until payment is finally made.

The alternative and recommended non-litigious method is proactive direct engagement with debtors to attempt to obtain a mutually beneficial settlement or repayment plan. This is the recommended approach, should the creditor elect not to proceed with litigation and also for the duration of lockdown, whilst the suspension of non-urgent litigation persists. Any settlement or arrangement should preferably include the following:

1.) Prescription is only interrupted by an acknowledgement of debt or the service of judicial process such as a Summons. Therefore, if litigation is not pursued then it is essential that the Debtor signs an Acknowledgement of Debt (“AOD”). Firstly, for the purpose of interrupting prescription and secondly, an AOD is a liquid document which provides for various quicker litigation processes (e.g. provisional sentence Summons/Simple Summons/Summary judgment) to be followed should the AOD later be required to be enforced.

2.) The AOD should include personal liability for the members or directors of the Close Corporation or Company. This is vital because juristic entities can evade debt fairly easily through processes such as voluntary liquidation and winding up or deregistration from non-payment of annual returns. Deregistration results in a juristic entity losing its legal personality and thereby its ability to be sued and further its ability to own assets. A creditor is unable to sue the deregistered entity until registration is restored by the full payment of the arrear annual returns. Personal liability is strongly recommended as security for the debt of juristic entities.

3.) Finally, a consent to judgment signed by the debtor and its sureties should be included in any AOD or settlement agreement. The advantage of this is that in the event that the debtor defaults again, the consent to judgement entitles the creditor to immediately apply for judgment without notice to the debtor, and obtain judgement in a more affordable and quicker application than in the ordinary course of trial litigation. Brookes Attorneys has a litigation and debt collection department dedicated to assisting creditors, both individuals and businesses, collect any and all types of debt, big or small. We are available to provide advice and debt collection services that are conducive to securing the creditor’s rights in this unprecedented reality created by the COVID-19 pandemic.

Please contact us, should you require assistance with your debt collection or further advice as to your available options.


Q: Is Debt Collection permitted during Lockdown?

A: Yes, at time of writing this article there is no regulation prohibiting debt collection. There are references to debt collection in the regulation being expressly excluded as an essential service however this only relates to the ability to obtain permits to travel to the business premises. It does not prohibit debt collection being conducted remotely.

Q: Should I pay my debts?

A: Yes, if you are able to, you must pay your debts. There currently is no blanket payment holiday absolving debtors from their liabilities. If you do not pay you will fall into arrears and be liable to debt collection processes, which will negatively affect your credit record and ability to obtain credit in the future. Furthermore, most financial institutions payment holiday packages or relief are subject to the debtor being currently up to date with their payments. Therefore, it is in your best interest to try to keep up with your payments.

Q: What should I do if I cannot pay?

A: If you cannot pay the full amount, pay what you can and then engage the creditor. Be open and honest about your circumstances and offer a repayment plan to pay the remaining amount. Both debtors and creditors are in financial distress, creditors are likely to be more accommodating provided the debtor is open and honest and offers a realistic repayment plan.

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