Short notes on:

THE LEGAL STANDING

An Acknowledgment of debt, commonly referred to as an “AOD”, ‘is a document which contains an

unequivocal admission of liability by the debtor. The debtor acknowledges that he or she owes a
particular sum of money to the creditor and undertakes to repay what is owing on terms so agreed
between the parties therein.

It is commonly used when customers or debtors fail to pay a supplier or creditor as they had initially
agreed. In that way the payment arrangement made between the parties is recorded in writing and
legally enforceable if needs be.

This is illustrated as follows:

A (debtor) and B (creditor) enter into a credit agreement whereby B by example renders certain
goods and services to A. For whatever reason, A begins to default on payments. Consequently B
sends A a letter of demand demanding payment of the outstanding amounts. A reacts on the letter
of demand and informs B that he cannot pay immediately. B values A’s support as a customer and
is also aware of the time and costs involved in the debt collection proceedings. As a result they
agree to enter into a settlement agreement whereby A will pay the outstanding amounts in equal
monthly instalments. By entering into a written settlement agreement or put differently AOD, B’s
rights are secured and A enjoys the certainty that he will not proceed with any further legal action.

The legal standing of the AOD

1
In instances where an AOD has been entered into with a natural person consumer on or after 1
June 2007 as a section 8(4)(f) credit transaction, it would mean that the creditor will have to comply
with the National Credit Act 34 of 2005 in all respects. Where an AOD is entered into as a small or

1 Corlia van Heerden, The impact of the National Credit Act 34 of 2005 on standard acknowledgment of debt
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intermediate section 8(4)(f) credit transaction with a small juristic person, the National Credit Act 34
of 2005 will have a limited application to the AOD as set out in section 6 of the National Credit Act
34 of 2005.

In terms of Section 57 of Magistrate Court Act 32 of 1944 (“the Act”)

Before the enactment of the National Credit Act 34 of 2005 acknowledgement of debt was commonly
used as a means to ensure that creditors could quickly enforce their rights in terms of debts so
acknowledged where the debtor also defaults in terms of the AOD. These AOD’s are commonly
drafted in terms of section 57 of the Magistrate’s Court Act.

In terms hereof:
“
(1) If any person has received a letter of demand or has been served with a summons demanding
payment of any debt, the defendant may in writing-

(a) Admit liability to the plaintiff for the amount of the debt and costs claimed in the letter
of demand or summons or for any other amount;

(b) Offer to pay the amount of the debt and costs for which he admits liability, in
instalments or otherwise;

(c) Undertake on payment of an instalment in terms of his offer to pay the collection fees
for which the plaintiff is liable in respect of the recovery of such instalment; and

(d) Agree that in the event of his failure to carry out the terms of his offer the plaintiff shall,
without notice to the defendant, be entitled to apply for judgment for the amount of the
outstanding balance of the debt for which he admits liability with costs in instalments
or otherwise in accordance with his offer,
and if plaintiff or his attorney accepts the said offer, he shall advise the defendant of
such acceptance in writing by registered letter.”

Section 57 of the Act as illustrated above provides that where the written admission of liability (AOD)
is breached by a debtor (defendant) the creditor (plaintiff) may apply to a court for judgment.

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Practically, this means that the creditor need not necessarily issue a summons, which means that
the litigious process is concluded much sooner than it would have been.

From a commercial perspective these agreements are fundamentally important and as such the
below are some important tips or pointers in order to ensure that the maximum benefits offered to
creditors are reaped:

(a) As a debtor, ensure that you understand the exact contents thereof before signature.

(b) As a debtor ensure that you pay the agreed instalment on time and in full each and
every month, where you do not do this a judgment may be taken and listed against
your credit record, making future lending extremely challenging if not impossible. In
addition in order to rectify this , it may be very costly;

(c) In most well drafted AOD’s a provision is further contained regarding the payment of
legal costs and interest. It is important to ensure that the legal costs has been fully
explained and the tariff on which it is based is fully disclosed to you.

(d) Creditors in turn need to ensure that the AOD is fully comprehensive in terms of the
amount owing and that the banking details are accurate and contained therein. It is
also of fundamental importance that these documents are professionally drafted in
order to ensure that they most appropriately secure your rights.

Conclusion

Acknowledgements of debt regardless of whether or not they comply with section 57 of the Act are
vital documents in terms of cash flow strategies to any creditor or business. As such it is important
that these documents are specially produced for you and your business. These are most effective
when coupled with other cash flow and credit control strategies. As such, we recommend that you
have any of our attorneys assist you with this.

Debtors should ensure that they are fully aware of the contents and the meaning of
acknowledgement of debt before signing them. It is best to ensure seek sound legal advice before
signing any such document, any of our attorneys would be pleased to assist.

© Meegan Henkeman | Schoeman Tshaka Attorneys 2014

t +27 (0) 21 425 5604 f +27 (0) 21 421 8913 e enquiries@schoemanlaw.co.za w www.schoemanlaw.co.za