A business rescue plan may provide that creditors will be paid only after a future event. That event could be the sale of an asset, the recovery of litigation proceeds or the receipt of third-party funding. If payment depends on such an event, when does prescription begin?
When a debt becomes due
Prescription is the legal process under which a debt is extinguished after the period prescribed by law. Sections 10 and 12(1) of the Prescription Act 68 of 1969 provide that the applicable period begins when the debt becomes due. A debt is due when the creditor has a complete cause of action and an enforceable right to demand payment.
Payment may be subject to a suspensive condition. This is a future uncertain event that must occur before the obligation to pay becomes enforceable. Where such a condition applies, the debt is generally not due until the condition has been fulfilled.
The effect of an acceleration clause
In Standard Bank of South Africa Ltd v Miracle Mile Investments 67 (Pty) Ltd and Another [2016] ZASCA 91, a facility agreement allowed the bank to accelerate the debt following default. Acceleration would make the full outstanding balance payable immediately.
The bank first had to give notice that it had elected to invoke the acceleration clause. The Supreme Court of Appeal held that the full balance became due only when the bank made that election. Prescription therefore began when the notice was given, not when the default occurred.
The Supreme Court of Appeal applied the same reasoning in Tight Business Enterprise CC v Lordan NO and Others [2025] ZASCA 133. The existence of contractual rights does not necessarily mean that a debt is already due. Where payment depends on a suspensive condition, prescription begins only when the condition is fulfilled and the creditor acquires an enforceable right to payment.
Loans repayable on demand
A different result may follow where the debt already exists and demand merely determines when it must be paid. In Trinity Asset Management (Pty) Ltd v Grindstone Investments 132 (Pty) Ltd [2017] ZACC 32, the loan was repayable on demand. The Constitutional Court held that prescription began when the loan was advanced. Demand did not create the debt or the right to payment. It merely fixed the time for enforcement.
The legal effect of the relevant event is therefore decisive. If the event creates the creditor’s right to immediate payment, prescription begins when the event occurs. If the right already exists and the event merely triggers enforcement, prescription may already be running.
Business rescue claims
A business rescue plan adopted under section 152 of the Companies Act 71 of 2008 may make payment dependent on a future event. If that event is a suspensive condition, the creditor cannot enforce payment until it occurs. Prescription generally does not begin before then.
Whether a claim under a business rescue plan has prescribed depends on the wording of the plan. The relevant date is not necessarily the date on which the plan was adopted. It is the date on which the creditor acquired an enforceable right to payment.
