Statute of limitations
Many businesses don't realize that their money claims, invoice claims or other payment claims can become time-barred. Statute of limitations is a legal term that indicates that a claim or demand will lapse. If a monetary claim exceeds its statute of limitations, it will no longer be possible to claim the amount and thus no longer be able to pursue debt collection or similar on the claim.
Limitation is regulated in the Limitation Act:
Monetary claims generally expire after 3 years - or after 10 years, depending on the type of debt.
Note that there are special rules for the statute of limitations for fines, which is not covered in this post.
Which claims are only time-barred after 3 years?
The vast majority of monetary claims between two companies, or between a company and a private individual, are simple claims. A simple claim is a claim consisting of an unpaid invoice or overdraft.
Invoice claims become time-barred after 3 years, unless you as a creditor actively interrupt the limitation period.
Which claims are only time-barred after 10 years?
As a general rule, all claims other than simple claims become time-barred after 10 years. These are typically claims that are acknowledged in writing, where the debtor has actively signed and acknowledged owing a certain amount.
This could be, for example, a bank loan, promissory note or a promissory note signed by the borrower/debtor.
Other debts that have a limitation period of 10 years include, for example, judgments, voluntary settlements, court orders for payment and the like.
Can a statute of limitations be extended?
If a statute of limitations is extended, it is legally referred to as an interruption of the statute of limitations. Interruption of the statute of limitations can occur for both claims with 3 and 10 year limitation periods.
A creditor cannot simply interrupt the limitation period by continuously reminding the debtor of their outstanding balance, but can, for example, ask the debtor to acknowledge their claim in writing or verbally. This could be done, for example, by the creditor asking the debtor to sign a statement of debt confirming that the debtor owes a certain amount, such as an invoice claim.
The limitation period can also be interrupted by obtaining a judgment or a payment order from the enforcement court.
When does the statute of limitations start to run?
We generally recommend that you start counting the limitation period from the payment date on an invoice if it is issued in direct connection with the delivery of goods. For example, if an invoice should have been paid on January 1, it will therefore expire on January 1, 3 years later.
However, if you study the statute of limitations carefully, chapter 2, "Commencement of limitation periods", states that "The limitation periods are calculated from the earliest point in time at which the creditor could demand satisfaction of the claim".
In practice, this means that if a debtor orders a piece of work and the creditor does not invoice this until a long time after it could have been invoiced and thus "the creditor could claim satisfaction of the claim", the limitation period may in some cases be considered to be closer to the time when it could be expected that an invoice should have been sent.
In practice, we find that it is often the invoice that forms the basis for the limitation period. Therefore, we also recommend that the creditor interrupts the limitation period well in advance - for example, 6 months before the limitation period.
