Few of you are aware of the Prescription Act 68 of 1969 which relates to the extinguishment of a debt after a prescribed period of time. There are various rules which dictate the time period over which a debt may be considered extinguished or prescribed. There are also various actions which may interrupt or delay the period of prescription and cause a new period to start running afresh.
It is my goal to ensure that YOU, BOSASA’s loyal staff, are made aware of the defense of prescription. I encourage you to acquaint yourselves with your rights in respect of the Prescription Act and the National Credit Act, seek advice from debt counsellors and legal experts and fully understand the nature of prescription and the effect this may have on your financial health.
If a debt collector contacts you, and the unpaid portion is older than three years, then it is illegal for them to collect it. So why do debt collectors continue to do it? Two reasons
- people are ignorant and do not know “the law of prescription” and thus do not “claim the defense of prescription”
- they, the debt collectors, rely on this ignorance to reactivate the debt
- and because they, the debt collectors, stand to make a financial killing.
Debt collectors hound consumers for debts by making use of blatantly unethical methods to get indebted consumers to acknowledge that they still owe the money. Debt collectors will try some very dirty tricks to get you to agree to the debt. They do this mainly by intimidating you over the phone and sending threatening e-mails. Seldom will they send you letters as it suits them to instead catch you off guard and record your verbal acknowledgment of debt. Once they have your verbal acknowledgment of debt, they proceed to perform financial strangulation until they choke you. They use salary garnishees to achieve their ends.
The onus is therefore on YOU, the consumer, to “claim the defense of prescription”. Even though credit providers are not legally entitled to collect a debt after the debt owing has technically prescribed (i.e. become extinguished), they will do so if YOU, the debtor, have not raised the defense of prescription. In March 2015, the President signed into law the National Credit Amendments Act (“NCAB”). S126B[i] of the NCAB specifically relates to debt which has prescribed in terms of the Prescription Act.
S126B requires the credit provider to cease collecting on prescribed (extinguished) accounts where the debtor raised prescription as a defense or where the debtor would have raised prescription as a defense had he/she been aware of this defense.
The law will also prohibit the sale by credit providers of prescribed debts arising from credit agreements. The sale of debtors’ books is a common practice among businesses, which see it as a more profitable alternative to writing off bad debts. Periods of prescription differ for different types of debt, but for credit agreements it typically lasts for three years. The aim of the amendments is to prevent the harassment of consumers by debt-enforcement agents wanting to collect debts that have expired under the Prescription Act by getting consumers to acknowledge the debt.
Under the Prescription Act some types of debt are prescribed and not liable for payment if in the prior three years there was no acknowledgment of the debt, no payment was made against the debt and no summons were issued against the debtor. However, if approached after the expiry of this period for repayment, the onus is on the consumer to raise prescription as a defence.
By acknowledging the debt, prescription is interrupted and the consumer is obliged to pay.
The new act should also put an immediate stop to banks and micro lenders selling prescribed debt to specialised debt-collection firms at a discount, a process that has grown into a huge industry. These companies, some listed on the JSE, let loose a barrage of threatening letters, midnight phone calls from debt collectors and endless e-mails threatening consumers with a variety of penalties. Under the new legislation, this will be, maybe, totally outlawed and prescribed debt should no longer be the profitable tradable commodity that it has become.
Adra, the Association of Debt Recovery Agents, comments that it is not opposed in principle to the prohibition on the recovery of proven prescribed debt, but opposes the shifting of the onus onto the credit provider or debt-enforcement agent to determine whether a debt has in fact prescribed, rather than waiting for the consumer to raise this defence. It argues that this is an unrealistic expectation, as the information needed to make such a determination is not always available and often requires an investigation of the debtor’s conduct. The bill may make creditors more aggressive and the amendments will lead to more aggressive pursuit of outstanding debt in the courts before prescription takes effect. This could clog up the judicial system and add to the cost of debt collection. Once judgment is obtained, the period of prescription will extend to 30 years. There is a likelihood we could see a flood of judgments to ensure debts are collected before they prescribe.
There is a further amendment that should a court rule in favour of the consumer on a question of prescription, the credit provider is exposed to a maximum penalty of R1m or 10% of its annual turnover, whichever is the greatest. The severity of this penalty should dissuade credit providers and debt enforcement agents from seeking relief from the courts, as is their constitutional right. In short, prescription favours the debtor. Creditors will now probably opt rather to write off debt and become more vigilant in collecting credit before it prescribes. Adra understandably is in favour of the onus remaining on the consumer to raise the defence of prescription.
Prescription may also have some unintended consequences. The proposal have already hit municipalities hard as it applies to their large outstanding debts for water and electricity accounts, which are subject to the National Credit Act. If a substantial percentage becomes irrecoverable as a result of the proposal, service delivery will naturally deteriorate further as embattled municipalities facing severe cash flows, will see their cash inflows reduced further. The inability of municipalities and legitimate businesses to recover outstanding debts will add to their cash-flow problems and threaten their survival. Business Say reported on November30, 2015 that ESKOM will switch off the lights at 27 broke municipalities if they renege on payment agreements. ESKOM is owed some R4bn and water boards R3bn.
The inability of these municipalities to pay for these basic necessities stems from prescription of debt owing to them for the past decade.
The Prescription Act (National Credit Amendments Act promulgated on 13 March 2015) provides that “a debt shall be extinguished by prescription after the lapse of the period which in terms of the relevant law applies in respect of the prescription of such debt, prescription does not depend on the effluxion of time alone.
This has the effect that, even if the prescription period has elapsed, the debt in question may be enforced if the debtor has not raised prescription as a defence.
The Prescription Act contains certain provisions indicating that, even if the applicable prescription period has elapsed, the debt in question may in effect not yet be “extinguished”. The relevant principles are set out in paragraphs below and you should acquaint yourselves with them.
- Lack of knowledge on the part of the creditor: If the debtor willfully prevents the creditor from knowing that the debt exists, prescription will not begin to run until the creditor becomes aware that the debt exists. The courts have held that the word ‘willfully’ in this subsection means ‘deliberately’ or ‘intentionally’, not ‘fraudulently’. A debt is also not deemed to be due until the creditor has, or ought to have had knowledge of the identity of the debtor and of the facts from which the debt arises.
- Delay of the completion of prescription under certain circumstances: Even if the applicable prescription period has elapsed, the completion of prescription may be delayed in certain circumstances, such as absence of the debtor from the Republic, or the death, insolvency or liquidation of the debtor.
- Acknowledgement of liability by the debtor: Further, even if the applicable prescription period has elapsed, it may appear that the debtor had acknowledged liability for the debt during the running of the prescription period, thereby interrupting the running of prescription and causing it to begin to run afresh.
- Service of summons: Service of legal process interrupts prescription indefinitely, but the interruption lapses “if the creditor does not successfully prosecute his claim” (under court rules). If judgment is obtained against the debtor, a new prescription period of 30 years begins to run.
- The existence of a reciprocal contractual debt: The Prescription Act provides in respect of reciprocal contractual debts that one such debt does not become prescribed before the other, so that the interruption of prescription in respect of contractual debt has the effect of keeping alive a reciprocal debt, even if all requirements for prescription have been met in respect of such reciprocal debt.
- Payment: Even if prescription has taken effect, “payment by the debtor of a debt after it has been extinguished by prescription shall be regarded as payment of a debt”. A debt can therefore be validly paid by the debtor if he or she for whatever reason has not raised prescription as a defence.
- Section 126B(1)(a) prohibits credit grantors selling prescribed debt relating to credit agreements which fall within the National Credit Act.
- Section 126B(1)(b)(i) makes it an offence to collect on a debt where a debtor has raised the defence of prescription in terms of the Prescription Act.
- The latter part of Section 126B(1)(b)(ii) extends the protection of the defence to uneducated consumers who are not aware of the existence of the defence of prescription. It follows that this additional protection does not extend to a consumer who was aware of or alternatively was made aware of the defence of prescription. Therefore, where the Credit Provider can prove that the consumer was aware of the existence of the defence, alternatively was made aware of the defence of prescription and did not raise the defence of prescription, the re-activation and continued collection of prescribed debts is not prohibited.
I specialised in strategic business planning, company valuations, analysis of financial statements and the design and implementation of business systems.
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