Category

Debt Recovery

Jan 27
0

Suing a Debtor – Make Sure Your Victory Isn’t a Hollow One

By | Debt Recovery, Litigation

“Pyrrhic victory”, n. A very costly victory, wherein the considerable losses outweigh the gain, so as to render the struggle not worth the cost (Wiktionary)

With our economic woes unlikely to abate any time soon, expect an increasing number of your debtors to find themselves in financial difficulty. If you end up litigating against any of them the last thing you will want to do is to throw good money after bad.

And whilst fighting a court case and winning against a recalcitrant debtor is all very well, it’s a hollow victory if by the time you come to enforce your judgment the debtor has no assets left to execute against. You may have won the battle, but you’ll have lost the war. You’ll be left with nothing but a large legal bill and a very sour taste in your mouth.

So what can you do if, during the litigation, you realise that the court case is nothing but a delaying tactic to give the debtor time to dispose of or hide assets? Or perhaps the debtor genuinely thinks it has a valid defence to your claim but decides to get rid of assets just in case it loses. Either way, you risk having no assets left to execute against if you eventually win.

Fortunately our law has an effective remedy for you in the form of an “anti-dissipation interdict” (sometimes referred to as a “Mareva Injunction” which is a similar English remedy). Its effect is to freeze, until your case is finalised, enough of your debtor’s assets to satisfy any judgment in your favour.

A R230m case illustrates what you must prove 
  • A plaintiff suing in the High Court for R230m plus interest and costs became aware through media reports of a potential dissipation of the defendant’s assets in the form of a corporate unbundling exercise.
  • It obtained an order that the defendant provide security of R430m and when this security was not forthcoming the plaintiff applied for an anti-dissipation interdict. 
  • The Court set out what you must prove thus –
    • That the defendant “is dissipating assets or hiding assets”. 
    • That “there is reason to believe that such dissipation or hiding of assets is taking place mala fide [in bad faith] with the intention of defeating [your] claims”.
    • In addition you “must satisfy the Court that all the other requirements for the granting of an interim interdict have been established.” These other requirements, as set out in many other cases, are proof of – 
    • A prima facie (“at first view”) right, even if it is subject to some doubt,
    • A reasonable apprehension of irreparable and imminent harm to the right if an interdict is not granted,
    • The balance of convenience must favour the granting of the interdict, and
    • You must have no other remedy.
  • Finding on the facts that the defendant (a company) was indeed disposing of its assets and would be left as only an empty shell after doing so, and that it was acting in bad faith and “with the view to frustrate the [plaintiff’s] claims and to render its victory in the pending action pyrrhic”, the Court granted the interdict.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

Jul 29
0

Can Your Bank Take Your Money Without Permission?

By | Debt Recovery, General Interest

“A bank is a place that will lend you money if you can prove that you don’t need it” (Bob Hope)

A recent High Court decision has settled the knotty question of whether your bank can take money it holds for you in one account to cover your debt to it in another, without your permission and without notice to you.

Firstly, what is “set-off”?

To understand how important this new decision is, we need to go back to our common law (unwritten law) principle of set-off. In simple terms, common law set-off allows one debt to be cancelled out by another. So if for example I owe you R1,000 and you owe me R900, I am both your creditor and your debtor, and vice-versa. If we come to blows, I can then set the one debt off against the other with the net effect that I owe you R100.

Credit-lenders, and in particular banks, used to make extensive use of this to collect debt. If for instance you fell behind in your mortgage bond or credit card payments, your bank could, if it was so inclined, take the arrears out of your current account as soon as your salary was paid into it – without your consent and without notice to you. 

Banks have always argued that this ability has made it easier for them to lend money to us when we ask for it, as it reduces their risk by giving them more security if things go wrong. Giving notice or asking for consent would, they argue, allow a recalcitrant debtor to quickly withdraw the funds and frustrate the debt collection. But the other side of the coin of course is that you could suddenly find yourself without money to live, let alone to service your other debt payments – a situation particularly hard on lower earners and those struggling with mountains of debt.

Enter the NCA (National Credit Act) in 2005…

How the NCA changed things

In broad terms, the NCA (when it applies – see next paragraph) restricts set-off in such a way as to give the consumer the right to choose whether or not to consent to set-off, which accounts it may be applied to, in respect of which amounts, when it is to be applied, and in respect of which debts. 

But does the NCA apply to your particular debt? In most cases, yes. In a nutshell (there are some “ifs” and “buts” here so ask your lawyer for specific advice) the NCA applies to most personal loans, home loans, overdrafts, credit card debt, asset finance agreements, lease agreements and so on. It covers consumers who are individuals and some – not all – “juristic persons” (companies and the like – take advice for details).

Which brings us to the High Court…

Nevertheless at least one bank (which is unlikely to be alone in this practice) has continued until now to apply common law set-off without consent, in other words they would take money from a customer’s account to cover the customer’s debt on a separate credit agreement. The bank argued that the NCA’s set-off restrictions did not apply on its interpretation of the NCA, in its circumstances and to its credit agreements. Importantly, its agreements omitted any mention of set-off (where an agreement does mention set-off, there is no argument – the NCA restrictions definitely apply). 

Having received complaints from consumers to this effect, the National Credit Regulator asked the High Court to interpret the NCA’s provisions and to rule on the legality of the bank’s practice.

The High Court’s decision 

Common law set-off without your consent as above cannot happen if the NCA applies to your credit agreement. 

In a nutshell – you have the choice! Banks and other credit-lenders must ask you before taking money from one account to cover your debts in another.  

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews