When a debtor received a demand to repay the balance of a R10 million loan it replied that it “would like to make a settlement proposal” but the company was “struggling to turn the business around”. It was held in Absa Bank Limited v Hammerle Group (Pty) Limited that this letter was not only an unequivocal acknowledgement of indebtedness by the company that interrupted prescription but it also showed it was unable to pay its debts and was commercially insolvent.

Even if the letter was part of settlement negotiations, there are exceptions to the rule that these communications (including those marked “without prejudice”) are privileged from disclosure.

One of the exceptions is that a settlement offer made is admissible in evidence as an act of insolvency. Public policy dictates that such admissions should not be precluded from being admissible evidence in liquidation proceedings. Liquidation proceedings involve the public interest and admissions of insolvency cannot be considered privileged. In addition, the unequivocal admission of liability was not made in the course of negotiations but in response to a letter of demand for payment.

Be careful what you admit in any letter, even those marked “without prejudice”.