Since the passage of the National Credit Act in 2005 («the Act»), there have been considerable uncertainties and divergent decisions as to whether or not transaction agreements and/or acknowledgements of debt constitute «credit agreements» within the meaning of the law that require a creditor to register as a lender. Mr A (debtor) and Mr.B (creditor) enter into a credit agreement, but Mr A is in arrears in his payments under the contract and receives a letter of formal notice for the immediate payment of the entire outstanding amount. Mr. A cannot afford to pay the full amount and contacts the creditor in the hope of reaching a settlement. Mr. A and Mr.B negotiate a monthly payment plan and the creditor agrees to delay further legal action. In exchange, he demands that Mr. A sign a document entitled «Admission of Guilt». M. A likes to do it – he just breathed, didn`t he? But what did he sign? Debt recognition, commonly referred to as «AOD», is a document containing a clear admission of guilt by the debtor. In this document, the debtor acknowledges that he owes the creditor a certain amount of money and undertakes to repay what is due.

An AOD does not need more than that to be legally valid and binding on the signatory. All other concepts that may be inserted into the document are secondary, but they are generally designed to protect the interests of the creditor. For example, the AOD generally provides that if the debtor does not pay a portion of debt, the full amount is due immediately. Thus, an AOD is a tool often used by creditors when debtors owe them money because it is primarily a «liquid document» proving a debt without foreign proof. Accordingly, an AOD should allow the creditor to obtain a prompt judgment against the debtor, without undergoing a lengthy procedure in which all the facts relating to the original credit agreement must be proved by the creditor. The judgment can be rendered simply on the entire amount entered in the AOD, since the court is faced with a document in which the debtor has expressly acknowledged that he owes the money. Armed with the award, the creditor may then issue a notice of enforcement against the debtor`s assets with respect to the value of the judgment debt and have the debtor`s property added for satisfaction. All this stems directly from the AOD signed by the debtor. Although a debtor is not always able to refuse to sign an AOD, they should always understand the impact. written by Amanda Swanson, Candidate Attorney in the Litigation Department at Garlicke & Bousfield Inc.

It is customary for a creditor to propose that a debtor sign an AOD allowing him to repay in instalments the amount due to the creditor when the creditor has initially requested the repayment of the full amount due. The debtor may not be able to afford to repay the full amount at that time and, therefore, a payment agreement in instalments is considered a benefit to the debtor. However, it is important to note that there have been devastating and severe consequences for non-recourse creditors, who take legal action against debtors on the basis of an agreement effectively governed by law. The ACA requires a person to register as a lender if the total debt owed to that lender under all outstanding credit agreements, with the exception of separate credit agreements, exceeds the threshold set by the Minister (currently R 0 (nil). Therefore, all credit providers (regardless of the amount of debt) must register with the National Credit Regulator (NCR) as credit providers….