Acceleration Without Due Care May Lead To A Bumpy Ride

A recent South African decision serves as a valuable reminder of the care that should be taken when exercising a right of acceleration.

Rights of acceleration

In debt finance transactions, it is common to expressly provide in the loan or facility agreement for the lender to have a right to accelerate the debt before the scheduled repayment date, usually as a result of an event of default occurring, thus making the full balance of the debt payable immediately. Such a mechanism is necessary in order for the lender to be able to enforce its security, for instance by exercising a right of sale under a mortgage over any assets, so as to recover the full balance of the debt upon the occurrence of an event of default.