Debt Collection


The current economic climate has, among other things, resulted in a number of people and businesses experiencing cash flow issues or, being simply unable to settle their debts. These circumstances tend to be ripe for litigation as patience withers, tempers flare, mistrust between business partners thrives and anxiety about potential bad debts and their consequences for the creditor becomes all consuming. As such, debt recovery litigation grows exponentially but, as with all things in life, it is not as simple as it appears.

Two parties enter into an agreement for services. This agreement may either be written or constituted by a series of discussions and/or oral agreement or both. The parties have identified what services are to be provided and the payment for same. Services are duly provided as agreed by one contracting party, however the other party reneges on its obligations and fails to make payment to the other within the stipulated agreed time. Despite promises to pay, there are no payments forthcoming.

What should you do?

If you are the creditor, you may be thinking your only option is to file a law suit. However, the most effective solution to recover debt many not necessarily be to launch into legal proceedings. Details such as the history of the relationship between the parties, the debtors’ economic viability and the potential for continuing the economic relationship between the parties as it relates to future projects are just some of the considerations. For example, if the parties have a long-standing, amiable commercial relationship, it may not be in anyone’s best interest to commence claim proceedings as this may undoubtedly dampen any cordiality between the parties and could effectively end a mutually beneficial commercial relationship. In these circumstances, the tone and message of any communication either by the creditor or his attorney to the debtor becomes crucial in not only resolving the debt issue but preserving the relationship between the parties if this is an outcome considered desirable by the party pursuing the debt.

Other considerations

Prior to filing a claim in Court and becoming a litigant, there are some other issues that may warrant some further consideration by you and discussion with your attorney at law. This includes whether the debtor has the finances to pay the debt owed.  In this regard, if the debtor has a number of creditors seeking payment of debts and is practically insolvent, bankrupt or has no assets, it may not be worth pursuing legal action against him.

You may also want to consider whether there is a genuine dispute over the facts, and whether the evidence to support your claim is strong. If your claim is unsuccessful, you will have to pay the legal costs of the other party in addition to the costs of your own attorney.

Furthermore, wherever a debt recovery court action is commenced, there is a time limit on bringing it, which is 4 years from the date the debt first arose. This is known as the limitation period. Limitation periods can however, be extended in certain circumstances. This issue becomes particularly relevant in circumstances where recovery of the debt will become statute barred which means that recovery of the debt through order of the court is no longer possible.

Quite often the aggrieved party finds themselves in a situation where they are hesitant to commence legal action given the relationship between the parties and the potential for future collaborations but unwilling to lose the opportunity to recover the debt that is owed.

In these circumstances, negotiation, mediation and even part-payment of the debt can resolve the issue.

The pre-action protocol letter

After discussing and considering the matter, your attorney may recommend issuing a ‘Pre-Action Protocol Letter’ to the debtor. A pre-action letter is not simply a letter stating that a debt is owed and demanding that the debtor resolves it. It is a letter sent in accordance with the pre-action protocols of the Civil Proceedings Rules, and among other things must stipulate a time frame by which there must be a formal response to the demand for payment, failing which, legal proceedings will be commenced.

Response to pre-action letter

In response to a letter of demand, a debtor may:

  1. pay the full amount owing
  2. present reasons why the debtor should not pay
  3. negotiate a compromise, for example, to make payment by instalments or part payment
  4. State whether it is prepared to enter into mediation or another alternative method of dispute resolution
  5. ask for more time to respond to the letter formally
  6. ignore the letter
  7. deny that any money is owed or respond to it in a way that is otherwise unsatisfactory to the creditor.

If the debtor fails to respond or to respond satisfactorily to the pre-action letter, then you may then want to consider proceeding with filing a claim in court.

Given the current economic climate, in many instances, debt recovery litigation is unavoidable as the only means of collecting on debt. However, before embarking on this step, a full appreciation of what this entails is recommended.

Disclaimer: This Document Provides General Guidance Only And Nothing In This Document Constitutes Legal Advice. Should You Require Specific Assistance, Please Contact Your Attorney-At-Law.

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This Article was authored by Cherie Gopie, Partner at M. Hamel-Smith & Co. She can be reached at

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