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We recently had a commercial client provide services to a trust in the medical industry that had a standard trading name that was attributable to a discretionary trading trust. With our client failing to perform any searches at the initial credit acceptance stage, they were unaware of this when they instructed us to collect the debt for them.
Our clients in the accounting, legal and medical segments are more likely to have a good working knowledge of discretionary trading trusts. However even some of these clients fail to cover themselves adequately when setting up their trading terms, performing the appropriate searches and seeking guarantees.
When it comes to credit acceptance and Trusts it is important to correctly identify you are trading with a trust, and to setup your credit acceptance appropriately.
It is important to note that you cannot sue a trust, and a trust cannot sue you.
When dealing with a trust, you should be invoicing and taking action against a trustee who is liable for the trusts liabilities.
This then raises the issue of who the trustee actually is. It is common to have a corporate trustee for trusts (Pty Ltd), with the corporate trustee typically an entity that has no assets and is in place to limit the liability of the people involved. To mitigate this risk when providing credit, you should therefore seek personal guarantees from the people you are dealing with.
It is also prudent to determine what income and assets these guarantors actually have. This will govern the collection actions available to you when seeking to enforce your debt. This step can be applied to dealings with all companies when you supply them credit, and is a simple, yet often not followed step.
Please note that this article is not intended to be legal advice and does not constitute legal advice.