Your Client Is Drowning in Debt. What's Your Legal Role?
It starts with a phone call. Your client (a retail shop owner, a small contractor, a logistics operator) sounds different. The energy is off. Then it comes: "I can't pay the suppliers. The bank is calling. I think we're in trouble."
You've heard versions of this before. What you may not have asked yourself is: what does the law actually require of you in this moment? And where does your role end before someone else's begins?
The NCA and Your SME Clients: More Connected Than You Think
The National Credit Act 34 of 2005 (NCA) is not just a consumer protection statute about furniture store credit and personal loans. It reaches into the heart of every SME you advise. Loans, overdrafts, instalment sales, asset finance arrangements, revolving credit facilities, if one party defers payment and the other pays a fee or interest for that deferral, section 8 of the NCA defines it as a credit agreement.
There is, however, a critical carve-out that directly affects your advisory work: where both parties to a credit agreement are juristic persons (companies, close corporations, trusts) and the principal debt exceeds the prescribed threshold, the consumer protection provisions of the NCA fall away entirely. Business-to-business credit above that threshold sits outside the Act's protective reach.
This distinction matters enormously. When your sole proprietor client or small close corporation is borrowing from a bank or a credit provider, the full weight of the NCA applies, including the default procedures that must be followed before enforcement is lawful. When your larger incorporated clients borrow commercially above the threshold, the NCA's protections do not apply in the same way, and the engagement terms of the facility agreement govern instead.
Knowing which regime applies to your client's situation is the first thing you need to establish before you give any advice about their debt position.
The s129 Notice: A Procedural Landmine
When an NCA-regulated consumer is in default, a credit provider cannot simply proceed to enforcement. Section 129 of the NCA requires the credit provider to first send a written notice to the consumer, informing them of the default and proposing that they seek debt counselling, mediation, or another alternative resolution. Enforcement (litigation, repossession, judgment) may only follow after proper compliance with that notice requirement.
The Constitutional Court confirmed that reasonable measures must be taken to bring the s129 notice to the attention of the consumer (and not merely dispatch same) before enforcement proceedings may commence. A notice sent but not received does not satisfy the section. This is not a technicality. It has collapsed enforcement proceedings and given over-indebted consumers meaningful breathing room.
Why does this matter to you as an accountant? Because when your client tells you the bank is threatening legal action, the first question is whether they have received a valid s129 notice. If they have not, any enforcement that follows may be procedurally defective. That is not your advice to give, that is legal advice, and it belongs with an attorney. But recognising the flag is entirely within your scope. You identify it; you refer it.
Debt Review: Where the Line Is
Debt review is a formal statutory process under Chapter 4 of the NCA. Only a registered debt counsellor (registered with the National Credit Regulator) may conduct a debt review. The process involves a formal assessment of over-indebtedness, restructuring proposals to credit providers, and ultimately a consent order or court order restructuring payment obligations.
You cannot do this. Not because you lack the skill, but because the NCA makes it a regulated activity reserved for registered debt counsellors. Stepping into this space (even informally, even helpfully, even for free) creates exposure. If you negotiate directly with credit providers on your client's behalf, characterise their position as over-indebted, or structure a repayment proposal framed within the NCA regime, you are operating outside your authorised scope. As AW's earlier analysis on professional boundaries and designation scope makes plain, the boundary is not there to limit you, it is there to protect both you and your client.
What you can do is significant: analyse the financial position, quantify the debt burden relative to cash flow, model restructuring scenarios, prepare management accounts that a debt counsellor or attorney will need, and sit alongside your client through the process as their financial advisor. That is real, billable, high-value advisory work. It is also where you protect yourself from claims that you crossed a line.
The Scope Trap: When Helpful Becomes Harmful
The most common risk for accountants in the debt advisory space is not deliberate overreach, it is well-intentioned helpfulness that drifts across a jurisdictional line.
Consider this scenario: your client is in default. You spend three hours on the phone with the credit provider, explaining the financial position and negotiating a payment arrangement. You send follow-up emails. You draft a repayment schedule. The client is grateful. Six months later the arrangement collapses, the credit provider initiates proceedings, and the client (now with an attorney) claims you misrepresented the sustainability of the arrangement and induced them to forgo formal debt counselling.
Your PI policy will ask one question: what did your engagement letter say your mandate was? If it is silent on debt advisory, informal negotiation, and creditor engagement, you may find yourself in a gap. As covered in CIBA's recent article on the claim your PI insurance won't cover, the insurer's analysis begins with your engagement letter, and a vague or absent mandate clause is where claims slip through the cover.
Protect yourself with two practical steps. First, if your mandate expands to include financial restructuring advisory work, document it. Update the engagement letter. Second, build a clear referral protocol: when a client's situation crosses into debt counselling, legal enforcement, or insolvency territory, refer early, refer in writing, and keep a record that you did so.
The Advisory Opportunity on the Other Side
Over-indebtedness is not only a legal problem. It is a financial management problem, and that is your territory.
The business that is over-indebted almost always has a cash flow story behind the balance sheet. Extended debtor days. Overtrading. A fixed cost base that revenue no longer supports. A working capital facility drawn to cover operating losses rather than trading inventory. Your job is to find that story, model it, and present it, to the client, to their attorney, to a business rescue practitioner if the matter escalates there.
This is also where the construction sector client who is waiting 90 days on municipal payments, the hospitality operator running on overdraft through winter, and the wholesale trader whose retail customers are themselves distressed will need you most. Sector-aware advisory (understanding how money actually flows (and stops flowing) in your client's industry) is the difference between a reactive number-checker and the kind of trusted advisor that clients pay more for and keep longer.
The NCA creates a structure. You do not practise within it. But you advise around it, behind it, and alongside it, and that is a service worth charging for.
Practical Checklist: When a Client Is in Financial Distress
When a client raises debt problems, work through these questions before advising further:
Step 1 — Establish the regime. Is the credit agreement NCA-regulated (consumer or juristic person below threshold) or a commercial arrangement outside the Act?
Step 2 — Check the notice. Has the client received a valid s129 notice? If enforcement is threatened without one, that is a flag for the attorney.
Step 3 — Define your scope. What does your engagement letter authorise? If restructuring advisory is not in it and you plan to assist, amend the letter first.
Step 4 — Refer early. Debt counselling, enforcement defence, and insolvency are regulated or legal functions. Refer before you drift into them.
Step 5 — Document the referral. A written record that you identified the issue and referred the client appropriately is your professional protection.
Step 6 — Do the financial work. Model the position. Prepare the management accounts. Quantify the gap. That is your role — and it is indispensable.
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Further Reading
Your Client Signed the Loan. Are You Exposed Too? — Covers how the NCA governs credit agreements and where accountant liability arises when financials are used to secure facilities
The Claim Your PI Insurance Won't Cover — Explains why engagement letter scope is the first thing your insurer reviews before paying out
Your PI Cover Has a Hole. Here's Where It Is. — The legal mechanics of professional indemnity cover, and why most accountants don't understand theirs until it's too late
What's Keeping Business Accountants Up at Night — Advisory services as the growth frontier for practices, and how to position for it