An acceleration clause that allows a creditor to call in a full debt payable by instalments can be drafted to operate automatically on default by a debtor, or it can allow the creditor an election to accelerate the debt.

The distinction between automatic and elective acceleration clauses is important because it affects when prescription on a debt commences to run.

In Standard Bank v Miracle Mile Investments the court looked at the difference between elective and automatic acceleration clauses. In this case the bank had to first give notice to the debtor, on default, to remedy the default and pay the outstanding balance. Only after failure to pay following the first notice, would the bank have the right to accelerate the debt, also on written notice.

You should think carefully before drafting any clause providing for automatic consequences on default because unintended consequences can happen without anyone realising it. These clauses are sometimes used to beat the consequences of insolvency. In this Standard Bank case the chosen elective process saved it from the consequences of extinctive prescription.