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Promissory note – Success Story

October 13, 2015

We recently were confronted with the challenge of raising post commencement finance for a security company in Business Rescue. The only asset of any substantial value was a debt of over R13 million due to the company for security services rendered to the Mafikeng District Municipality (MDM).

MDM confirmed their indebtedness to the company but due to their own financial problems they indicated that they would only be able to make payment after a period of 60 days. We were able to raise funding for the payment of salaries on the back of a promissory note issued by MDM to the company, its bearer or order (funder).

The utilising of a promissory note in the normal course of business has over recent years gone by the wayside together with the issuing of cheques. The promissory note should in most instances be the preferred choice of security instead of the normal cession of book debts. The reason being that the debtor issuing the promissory note is not able to raise any defense against the claim based on the underlying cause of the debt. The promissory note is a new and separate cause of debt with the only possible defense available to the debtor that the signature on the document had been forged or that the signatory did have the necessary authority.

A promissory note is a relatively simple document whereby the debtor promises to pay the creditor, his order or the bearer of the document at a specified future date.

Should the debtor fail to pay on the due date the creditor can approach the court by means of an application (in the instance of business rescue normally on an urgent basis) for an order to make immediate payment thereby avoiding the lengthy process of issuing summons and in many instances encountering the delaying tactics of a willful debtor.

In our case the matter was successfully concluded with MDM effecting payment two days after the presentation of the promissory note for payment on the due date.


Disclaimer: The contents and information provided above are generalised and must not be acted upon as legal advice