In the world of legal settlements and debt negotiations, the term “without prejudice” has often been used to signify an offer or agreement that cannot be admitted or revealed in court proceedings. However, recent insights from legal rulings raise questions about the true nature of these agreements. PJ Veldhuizen, Managing Director of Gillan and Veldhuizen attorneys, sheds light on the matter.

In a recent statement, Veldhuizen stated, “It’s crucial for both individuals and corporations to understand the implications of ‘without prejudice’ offers when you are proposing to settle debts. While they may seem protective, they can inadvertently make you vulnerable, especially if you admit an inability to pay immediately.”

The Supreme Court of Appeal has weighed in on this matter, ruling that a debt settlement negotiation, marked as ‘without prejudice,’ may not earn privilege under certain circumstances. Public policy considerations come into play when there’s clear evidence of an inability to pay the debt immediately.

Veldhuizen elaborates, “Let’s say an individual owes a debt and proposes a settlement arrangement, acknowledging that they can’t make an immediate payment but can pay in instalments over several months. While correspondence may be marked as ‘without prejudice,’ admitting an inability to pay the immediate debt can be seen as an act of insolvency. This admission can potentially lead to a sequestration application in the case of an individual or trust. Additionally, in the case of a company, although it cannot commit an act of insolvency, an application for liquidation can be filed based on the company’s admission that it cannot pay its debts as and when they fall due.”

In essence, making an offer to pay off a debt can have unintended consequences in the eyes of the law.

Veldhuizen advises individuals, trusts and companies to exercise caution when entering without prejudice financial correspondence.

In all legal agreements between parties, there are inherent vulnerabilities. Veldhuizen stresses the importance of taking proper advice to consider all possible scenarios that have the potential to lead to significant legal complications.

As individuals and businesses grapple with debt settlements and negotiations are high, it becomes imperative to seek legal guidance to understand the nuances of ‘without prejudice’ offers and how they may impact their financial future.