WHEN A DEBTOR REFUSES TO PAY AND CLAIMS PRESCRIPTION:

Kabelo Monageng

WHAT YOU NEED TO KNOW ABOUT PRESCRIPTION OF DEBT IN SOUTH AFRICA

By Kabelo Monageng

Simply explained, prescription of debt means that a debt becomes extinguished after a set period and can no longer be legally recoverable. In South Africa, the Prescription Act, No. 68 of 1969 (“the Act”) regulates prescription and outlines, among other things, the different prescription periods applicable to various types of debts.

The most common types of debts such as personal loans, credit card debt, store accounts, or even informal loans made to friends or relatives prescribe after a period of three (3) years. However, debts such as mortgage bonds, municipal rates, taxes, or judgment debts, only prescribe after thirty (30) years.

Prescription may of course be delayed or interrupted under specific circumstances such as if the creditor is a minor when the debts become due, if the debtor acknowledges the debt, or if legal proceedings are initiated.

In recent years, more and more consumers have become aware of prescription and are somehow finding ways to weaponize it against creditors who have been neglectful or have failed to act timeously. So, whether you are a registered credit provider or a private individual who occasionally extends loans to friends and family, it is crucial to understand how prescription works and what to look out for.

When Does the Prescription Period Start Running?

At the outset, it is important to know that prescription begins to run when the debt becomes due. This generally means the point in time when the creditor has knowledge of the identity of the debtor and the facts leading to the existence of the debt. In other words, the debt is considered due when you, as the creditor, knows who owes you and why the debt exists.

Section 12(1) of the Act specifically provides that a debt shall not be deemed to be due until the creditor has such knowledge. Furthermore, a creditor is deemed to have this knowledge if they could have acquired it through the exercise of reasonable care and diligent inquiry. Importantly, the prescription clock will not start running if the debtor prevents or somehow blocks the creditor from knowing about the debt.

Prescription Periods for Specific types of Debts

According to the Act, the most common monetary claims such as those referred to above, prescribe after a period of three (3) years from the date on which the debt becomes due. This however, is subject to the absence of specific actions or circumstances that may delay or interrupt the running of prescription, as discussed further below.

The Act sets out different prescription periods for different types of debts, including the following:

• 30 years: Debts secured by mortgage bond, judgment debts, debts in respect of taxation imposed by law, and debts owed to the State for mining royalties or similar;

• 15 years: Debts owed to the State arising from advances or loan of money, or from sales or lease of land by the state;

• 6 years: Debts arising from bills of exchange or notarial contracts; and

• 3 years: Debts arising from contracts (such as loan agreements), delicts, personal injury, or damages arising from defective goods.

What Interrupts Prescription?

In our debt collection department’s experience, most creditors are not well informed about the steps required to be taken to legally interrupt a prescription period . A common mistake made by most creditors is relying on a Letter of Demand or Section 129 Notice to interrupt prescription. It is now settled law in South Africa, that service of a letter of demand does not interrupt prescription.

Section 15(1)  of the Act provides that the running of prescription shall be interrupted by service on the debtor of any process whereby the creditor claims payment of the debt. Section 15(6) goes further to provide that process can be seen to include a petition, a rule nisi, a pleading in convention, a third-party notice referred to in any of the rules of the court and any document in which legal proceedings are commenced.

In Seleka and Others v Min of Police and Others[1] the court reaffirmed the position that a Letter of Demand does not fall within the ambit of being a document in which legal proceedings are commenced, as was set out in Santam Insurance Co Ltd v Vilakazi[2] where it was held that service referred to in Section 6(1) must be service whereby action is instituted as a step in the enforcement of a claim or right. It naturally follows that a letter of demand has the effect of merely drawing the debtor’s attention to the debt and does not constitute a step in enforcing the claim.

With that in mind, let us look at what needs to happen for the prescription period to be interrupted:

1. Acknowledgment of liability: There must be an acknowledgment of the debt (“AOD”) by the debtor, which can either be explicit (in writing) or tacit/implicit by conduct (e.g. by payment of any amount towards the debt). It should be borne in mind that such AOD or payment should be made before the debt prescribes;

2. Service of Process: This includes the service of a summons, statement of claim, or other process initiating legal proceedings.

Once either of this occurs, the prescription clock resets, and a new prescription period begins from that date of the interrupting conduct.

Conclusion

In the modern day, it is becoming more important  for creditors to be more diligent and informed about prescription to avoid losing out on claims or collections in the case of large credit providers. This can be a very time-consuming task for big credit providers managing large debt books, where keeping tabs on every debt and acting timeously can be administratively burdensome, and some debts may easily fall through the cracks.

At MHI, our Debt Collection Department understands this and is well-equipped to assist. With the experience of managing and overseeing large debt books of over R10 million, we provide comprehensive support to ensure your interests are fully protected. Our highly skilled and diligent collectors handle all aspects of the soft collection process, including securing enforceable AODs with terms which are to your satisfaction. We also offer legal advice and representation where litigation becomes necessary.

Should you require the assistance of our collections team, you may contact us on 📧 collections@mhi-law.co.za 

📞 010 497 6281

[1] 2015 (4) SA 376 (LP)

[2] 1967 (1) SA 246 (A) at 253 H