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Instituting Legal Action – A pre-liminary vetting process

Debt Collection

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When deciding whether to institute legal action for amounts due to either you personally, or to your company, it is a fantastic idea to do a vetting process before making the decision whether or not to sue. There are several factors which to consider, the most important hereof being whether there is a likely collection to be made. Below we explore a summary of what to look out for before deciding whether to institute action.

  1. Quantum of debt:

If the amount due to you or your company is a rather small amount, especially in relation to the costs that will likely be expended, a credit would be well advised not to engage in litigation. Our advice is usually that amounts under R20 000 is rather small and legal action may not be advisable in normal circumstances. Bear in mind that, should the creditor be a natural person, that the Small Claims Court may be approached for debts up to an amount of R20 000.00. This aspect is however open for a far larger discussion and determination on quantum alone should not be considered.

  1. Jurisdiction:

Many creditors decide on an attorney that they feel comfortable using in recovery of their debts. Creditors with a large book debt invariable will be left in a situation where its attorney will be required to appoint a correspondent as the attorney is not within a 15-kilometer radius of the Court from which the debtor is to be sued.In cases where a correspondent attorney is necessary, the costs will necessarily be higher and therefore this needs to be taken into consideration before issuing summons.

  1. Trading status of companies or close corporations:

This is a criterion that is of paramount importance. If your debtor is either a company or close corporation and is in the deregistration process or has been deregistered or liquidated, it would be a mute exercise to pursue legal action against it.This is for the simple reason that a company that has any of the above statuses is likely not trading or soon will not be trading any longer. If one obtains judgment against a company, the creditor is in a position to execute its judgment against any of the assets of the company. A company that is not trading however, likely has no assets and therefore the judgment becomes mute.

If a company is in liquidation, it most likely will not have enough assets to liquidate in order to settle all of its creditors.Therefore, it should only be considered to proceed against companies with a status of “trading”. The trade status of a company or close corporation can be easily ascertained from a CIPC report.

  1. Judgments listed on credit bureaus:

Your attorney will likely be in a position to obtain a credit bureau report on your debtor. On this report, any judgments granted against the debtor will be listed, along with the amount for which judgment was granted. These records are telling, especially when having regard to how long outstanding the judgments are. If your debtor has a few judgments which were granted quite some time ago, this is a clear indication that this debtor has no intention of settling its debts, even when judgment is obtained.

It further indicates that the debtor likely has no assets which to attach, as many other creditors have likely proceeded to attempt execution of the said judgments.

  1. Assets:

If your attorney has access to a credit bureau, they will likely also have access to certain functionalities offered that may indicate whether an entity owns assets such as immovable property or vehicles. It is a good idea to gather information regarding assets before instituting action as this will give the creditor an idea of what attachable assets the debtor owns.

  1. Contactability of debtor:

Have you been able to make contact with the debtor and is the details you have accurate, if so, your costs will be lower and the likelihood of accurate service and execution will be higher.

  1. Willingness to make payment:

If your debtor is willing to make payment but cannot make payment of the full amount or an adequate settlement amount, the chances of successfully recovering the amounts due as well as costs and interest, is heightened. The debtor may simply not be able to make a lump sum payment.

Once summons is issued, a creditor is able to claim both legal fees and interest at a prescribed rate. Should your debtor be willing to settle, they will now be in a position where costs and interest is added, and the recovery made by the creditor will be larger even though an instalment arrangement may be necessary to enable the debtor to settle.

  1. Merits of matter:

It is always important to look at the specific facts in any recovery to be made. Here your attorney will look at all correspondence and claim documents handed over and advise on the best route forward. Should the facts not be in your favour and the attorney is of the opinion that a Court will not likely find in your favour, then the suggested action should be to abandon the recovery.

If the merits are however in favour of the creditor and the remaining factors taken into consideration favour a successful recovery, then the attorney’s suggested route will be to proceed with legal action.

  1. Completeness of documentation:

It is important to realize that an attorney drafts the required legal documents using the documents that regulate your relationship with your client. If there are no documents, it makes the process of proving your claim to Court more difficult and may in some cases make it impossible.

When issuing summons for non-payment of a contractual debt, the attorney will need the agreement between the parties and invoices sent to the debtor. The documents required differs from case to case, but in all instances, there will likely be some form of agreement and invoice. If there is a lack of documentation and a dispute which has been made clear by a debtor the creditor may not be able to prove its case, or it may come down to evidence to be led at trial.

Therefore, the chances of success are greater, and the costs will ultimately be lower if the documentation is in proper order.

Therefore, when handing over your debtors, always make sure that you request a feasibility report from your attorney in order to prevent throwing good money after bad. Vermeulen Attorneys are glad to assist in your debt collection needs and endeavour to provide a holistic service which takes cognizance of the above factors.

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