Collection - Prescription of debt

03 January 2022 ,  Dries Knoetze 22

 

“I manage a successful hardware shop which allows customers to purchase building materials on credit. I have recently realized that the debtors’ book is outstanding for some time, and I have for the past three years not handed anyone of the debtors over to an attorney for collections. When does these debts prescribe?”

The act applicable to answer this question is the Prescription Act 68 of 1969 as amended, specifically Chapter 3 thereof, which provides for the extinction of debts.

This act states the following:

“Extinction of debts by prescription

  • Sec 10 (1) –, a debt shall be extinguished by prescription after the lapse of a period which be extinguished after the lapse of the period which in terms of the relevant law applies in respect of the prescription of such debt.
  • Sec 10 (2) – Subsidiary debt which arose from such principal debt shall also be extinguished by prescription;
  • Sec 10 (3) payment by the debtor of a debt after it has been prescribed in terms of either of the subsections, shall be regarded as payment of a debt.”

This means, inter alia, that the debt cannot be revived, not even by an acknowledgement of liability, unless the acknowledgement amounts to a new undertaking. A prescribed debt cannot be set off against any claim, but payment of a prescribed debt cannot be reclaimed.

In order to fully understand what is meant in the act, the terms debt should be defined, which was then also done recently in the matter Makate v Vodacom[1].

In this matter the court held that:

  • Debt – mean only an obligation to pay money, deliver goods or render services
  • Prior to this judgment – debt had a more wide and general meaning – whatever is due under any obligation, an obligation to do something or refrain from doing something
  • The position was confirmed that only personal rights and not real rights are capable of giving rise to debts which can be extinguished through prescription.

Section 11 of the act distinguish between 4 types of time periods:

  1. 30 years, which are debts as follows:
    • Any debt secured by mortgage bond;
    • Any judgement;
    • Any debt of any taxation imposed or levied by or under any law;
    • Debt owned to the State under any share of profits, royalties or right to mine minerals or other substances;
  2. 15 years, which are:
    • Debt owed to the State and arising out of an advance or loan of money or a sale or lease of land by the State to the debtor;
  3. 6 years, such as bill of exchange or other negotiable instrument or from a notarial contract.
  4. Save where an Act of Parliament provides otherwise, 3 years in respect of other debts.

Returning to the question above, goods sold and delivered on credit by the shop manager are categorized as other debts as per (c) above and as such prescription will be a period of 3 years.

Thus if the shop manager does not institute action, or enter into an acknowledgement of liability with the creditor or receive a payment from the creditor within a 3 year period after the goods were sold, then his claim will prescribed and result that he cannot collect the monies owed to him.

I advise that you at least annually approach an attorney, who specializes in collection with your debtor’s book to ensure that your money is not lost due to prescription.

Reference List:

  • Prescription Act 68 of 1969 as amended
  • Amler’s Precedents of Pleadings, Ninth Edition, Harms, Lexis Nexis


[1

Share: