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De Jure

On-line version ISSN 1466-3597

De Jure (Pretoria) vol.45 n.1 Pretoria  2012

 

ARTICLES

 

A comparison between formal debt administration and debt review - the pros and cons of these measures and suggestions for law reform (Part 1)

 

'n Vergelyking tussen formele skuldadministrasie en skuldhersiening -die voor- en nadele van hierdie maatreëls en voorstelle vir regshervorming

 

 

André BoraineI; Corlia van HeerdenII; Melanie RoestoffIII

IBlur LLB LLM LLD Professor and Dean of the Faculty of Law, University of Pretoria
IIBLC LLB LLM LLD Associate Professor Department of Mercantile Law, University of Pretoria
IIIBLC LLB LLM LLD Professor Department of Mercantile Law, University of Pretoria

 

 


OPSOMMING

Ongeveer 'n dekade gelede het die Departement van Justisie en Konstitusionele Ontwikkeling, na aanleiding van klagtes deur verbruikers oor die misbruik van die administrasieprosedure, 'n projek ter hervorming van hierdie prosedure van stapel gestuur. Hierdie projek is egter opgeskort vanweë 'n onafhanklike inisiatief van die Departement Handel en Nywerheid om verbruikerswetgewing, wat in 2007 op die Nasionale Kredietwet 34 van 20051 uitgeloop het, te hervorm. Ongelukkig het die wetgewer met die invoering van die skuldhersieningsprosedure ingevolge die Nasionale Kredietwet 34 van 2005 'n gulde geleentheid laat verbygaan om die reg insake skuldverligtingsmaatreëls behoorlik en volledig te hersien. Daarbenewens het die wetgewer ook nie die verhouding tussen skuldhersiening en ander bestaande skuldverligtingsmaatreëls, in die besonder administrasiebevele, behoorlik oorweeg nie. Die doel van hierdie eerste gedeelte van die artikel is dus om administrasie ingevolge die Wet op Landdroshowe 32 van 1944 en skuldhersiening ingevolge die Nasionale Kredietwet 34 van 2005 te ontleed en sodoende sekere positiewe en negatiewe aspekte rakende hierdie twee prosedures te identifiseer. In die tweede gedeelte van die artikel word 'n vergelyking tussen administrasie en skuldhersiening gedoen en voorstelle ter regshervorming gemaak. Die skrywers doen aan die hand dat Suid-Afrika 'n volledige hersiening van sy huidige skuldherskeduleringsmaatreëls benodig en dat die wetgewer vir een enkele maatreël wat op alle skuldherskeduleringsgevalle van toepassing is, voorsiening moet maak. Na aanleiding van die vergelyking tussen administrasie en skuldhersiening belig die skrywers die hoofpunte wat die wetgewer na hul mening in ag moet neem wanneer so 'n nuwe prosedure ontwerp word.


 

 

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1 'n Nie-amptelike vertaling van die Nasionale Kredietwet 34 van 2005 is beskikbaar by http://www.vra.co.za/index.php?option=com_content&view=category&layout=blog&id=3&Itemid=3 (red).
2 Since June 2007 there has been an on-going deterioration of the number of consumers in "good standing". At the end of December 2011, credit bureaux had records of 19.34 million credit active consumers, of whom 8.93 million had "impaired credit records". Thus, at present only 53.8% of credit-active consumers are in "good standing". A consumer is regarded to be in "good standing" where he or she has not missed more than 1 or 2 instalments and his or her record does not reflect a judgment or administration order or any "adverse listings" such as accounts which has been "handed over" and/or "written off"' - National Credit Regulator Credit Bureaux Monitor Fourth Quarter (Dec 2011) - available at http://www.ncr.org.za.
3 32 of 1944 (hereafter the MCA). For sake of being complete, the possibility of a repayment plan following an offer by a debtor ito ss 57 & 58 MCA must also be noted, but these procedures are not discussed for the purposes of this article.
4 24 of 1936.
5 Ss 3-7 Insolvency Act 24 of 1936 (hereafter IA).
6 See s 129(1)(b) IA.
7 See ss 6, 10 & 12 IA.
8 For more detail see Boraine "Some thoughts on the reform of administration orders and related issues" 2003 De Jure 21 7.         [ Links ]
9 34 of 2005 (hereafter the NCA). For a discussion of the NCA, see in general Otto & Otto The National Credit Act Explained (2010).
10 Own emphasis. See also s 3(g) NCA providing for the "addressing and preventing of over-indebtedness of consumers, and providing mechanisms for resolving over-indebtedness based on the principle of satisfaction by the consumer of all responsible financial obligations" as one of the purposes of the NCA.
11 See ss 86-88 NCA.
12 See further as background Roestoff 'n Kritiese evaluasie van skuldverligtingsmaatreëls vir individue in die Suid-Afrikaanse insolvensiereg (LLD thesis UP 2002); Roestoff & Jacobs "Statutêre akkoord voor likwidasie: 'n toereikende skuldenaarremedie?" 1997 De Jure 189; Boraine 2003 De Jure 217.
13 Although the South African Law Reform Commission proposed another alternative formal debt relief measure in the form of a pre-liquidation composition, this process is not discussed as such for the purposes of this article, since the focus is on possible reform measures for debt administration and debt review, being the current procedures to be used for debt restructuring. See iro the Law Commission's proposal, Report on the Review of the Law of Insolvency (Project 63) Vol 1 (Explanatory Memorandum) and Vol 2 (Draft Bill) (February 2000) schedule 4. This proposal has also been included in the latest version of the Insolvency Bill contained in a working document of the Department of Justice dated 201006-30 - see clause 118 of the unofficial working copy, on file with the authors. In this document it is envisaged that the proposed measure be included in the proposed unified Insolvency Act and not in the MCA. The proposed measure is supposed to afford debt relief to debtors who are unable to show an advantage to creditors and are therefore excluded from the liquidation process (2000 Explanatory Memorandum 5). Where the composition is not accepted by the required majority of creditors, the court must, ito the latest proposal, declare that the proceedings have ceased and that the debtor is in the position that he was in prior to the commencement thereof. Alternatively the court must determine whether or not s 74 can be applied to the debtor and, if so, apply the provisions accordingly and within the discretion of the presiding officer (cl 11 8(22)(a) & (b)).
14 See Madari v Cassim 1950 2 SA 35 (D) 38; Barlow's (Eastern Province) Ltd v Bouwer 1950 4 SA 385 (E) 393; Volkskas Bank v Pietersen 1993 1 SA 312 (C) 315; Weiner NO v Broekhuysen 2003 4 SA 301 (SCA) 305; Fortuin v Various Creditors2004 2 SA 570 (C) 573; Ex Parte August2004 3 SA 268 (W) 271; African Bank Ltd v Weiner2004 6 SA 570 (C) 575 (hereafter African Bank v Weiner (C)).
15 See s 74(1)(b) MCA. The amount is determined by the Minister from time to time. See GN R1411 in GG 19435 of 1998-10-30 for the current provision. The order will not be invalid if the amount at some point in time exceeded the R50,000 limit - see s 74(2) MCA and Di Mata v Firstrand Bank Ltd 2002 6 SA 506 (W). The full amount of the judgment obtained and not merely the monthly instalment ito an emoluments attachment order should be included when determining what the total amount of all the debtor's debt due ito s 74(1)(b) MCA is - Jacobs v African Bank Bpk 2006 5 SA 21 (T) 24, 25 & 27.
16 See Harms Civil Procedure in Magistrates ' Courts (2011 update) par 48.2.
17 Should the debtor fail to make the payments as required by the administration order, the provisions of ss 65A-65L MCA shall mutatis mutandis apply. Where the court has in addition to the administration order authorised the issue of an emoluments attachment or a garnishee order and has suspended such authorisation conditionally and the debtor fails to comply with the conditions, the administrator may lodge a certificate to this effect with the clerk of the court and the clerk must thereupon issue the emoluments attachment order or garnishee order - cf s 74I(2) & (3) MCA.
18 See ss 74L & 74J MCA.
19 See s 74(1) MCA.
20 See Annex 1 Form 44 Magistrates' Courts Rules (hereafter MCR).
21 Ss 74A(1) and (2) MCA. For the sake of convenience Annex 1 Form 45 MCR may be used to set out all the required particulars. Form 45 may also be used where the application is made in terms of s 65I(2) MCA. The required particulars are briefly, the name and address of the debtor's employer; a list of the debtor's assets; the debtor's trade or occupation and income; a list of debtor's and his dependants' living expenses; a list of creditors and amounts owing to them; rights of security which creditors may have; full particulars of goods purchased under a credit agreement ito the NCA; mortgage bonds on immovable property; assets purchased under a written agreement other than a credit agreement ito the NCA; particulars iro previous administration orders; particulars iro the persons dependent on the debtor and particulars iro instalments which the debtor offers to pay towards settlement of his or her debts. Prescription with regard to any debt mentioned in the statement of affairs is interrupted on the date on which such statement is lodged, or where the debt is not mentioned in the statement, on the date when the claim is lodged with the court or the administrator - s 74V(1) MCA. Ito s 74V(2) MCA a debt cannot become prescribed until at least one year has elapsed since the date on which and administration order ceases to be of force and effect.
22 S 74A(3) MCA.
23 S 74(1)(b) MCA.
24 S 74A(5) MCA.
25 S 74A(4) MCA.
26 Ex Parte August supra 2 73.
27 See Fortuin v Various Creditors supra 575.
28 Ex Parte August supra 272. It is also not a pre-requisite for the granting of an administration order that the debtor should not be the cause of his or her own financial embarrassment - Ex Parte August supra 271.
29 Ex Parte August supra272; Fortuin v Various Creditors supra 575.
30 Ex Parte August supra 272. But see African Bank Ltd v Weiner (C) supra 575 where Griesel J observed that "it was never the intention of the Legislature that a debtor should be bound up in an administration order indefinitely, where there is no reasonable prospect of such order being discharged within a reasonable period of time. On the contrary, I am of the view that the mechanism of an administration order is intended to provide a debtor with a relatively short moratorium to assist in the payment of his or her debts in full and to ward off legal action and execution proceedings during such period".
31 Fortuin v Various Creditors supra 575.
32 S 74B(1) MCA.
33 S 74B(1)(b) MCA.
34 S 74B(1)(c) MCA.
35 S 74B(1)(e) MCA.
36 S 74B(2) MCA.
37 The content is regulated by s 74C MCA and the form by Annex 1 Form 51 MCR.
38 S 74C(1)(a) MCA.
39 S 74C(2)(a) MCA. When determining the "necessary expenses" ito s 74C(2)(a) MCA the income of the debtor's spouse may be taken into account. Where the debtor is married in community of property it may also be taken into account in determining the debtor's income - s 74C(3) MCA.
40 They are periodical payments which the debtor is obliged to make under a credit agreement ito the NCA or a mortgage bond or other written agreement for the purchase of an asset and periodical payments to be made ito an existing maintenance order - s 74C(2)(b)-(d) MCA.
41 See s 74C(2)(e) MCA.
42 Eg interest which has yet to accrue on a debt - Fortuin v Various Creditors supra 574.
43 See s 74C(2)(b)-(e) MCA.
44 The court may, however, in its discretion and in certain prescribed circumstances refuse to take into consideration the periodical payments with regard to a credit agreement or mortgage bond, eg where the goods ito the credit agreement are not exempt from execution ito s 67 MCA or where the court is not of the opinion that it is desirable to safeguard mortgaged property - see s 74C(2)(b) & (d) MCA.
45 S 74D MCA.
46 S 74(1)(b) MCA and see also s 74C(1)(b) MCA iro aspects which may be specified in the administration order.
47 See s 74C(1)(b)(i) and also s 74K(1) and (2) MCA.
48 S 74K(4).
49 If such a person is to be relieved of his or her appointment, it is the court, and not the appointed administrator, that must sanction it and the new appointment or substitution should also be done by the court - Stander v Erasmus 2011 2 SA 320 (GNP) 324. The court in Stander also referred to the practice of appointed administrators establishing juristic persons through which files under administration are administered without the approval of the court. According to the court this practice raises serious concerns as the said juristic persons have not been appointed by the court and if payments are received by persons not appointed by the court the interests of the debtors and creditors will be compromised.
50 See Oosthuizen v Landdros, Senekal 2003 4 SA 450 (O).
51 S 74E(1) MCA.
52 S 74E(3) MCA.
53 See Boraine 2003 De Jure 231.
54 S 74F(1) & (2) MCA.
55 See eg s 74J MCA. Ito s 74M MCA the administrator is obliged, upon payment of the fees prescribed in the rules, to furnish any creditor on request by him or her with information regarding the progress made iro the administration. The administrator must also furnish any person applying therefore with a copy of the application ito s 74 MCA and a statement of affairs ito s 74A(1) or 65I(2) MCA or with a list of creditors or distribution account ito s 74G(1) or 74J MCA. Within the ambit of his or her duties, the administrator may in terms of section 74J(2) MCA where any debt or the balance thereof, amounts to less than R10 pay it in full if such a payment will facilitate the distribution of funds in his or her possession. Out of the moneys received, the administrator may also pay any urgent or extraordinary medical, dental or hospital expenses incurred by the debtor after the date of the administration order - s 74J(4) MCA.
56 See s 74G, H & J MCA; Annex I Forms 47-50 MCR.
57 Deviation is only allowed in two circumstances: where the creditors all agree, or where the court otherwise orders - s 74J(1) MCA and Weiner v Broekhuysen supra 309.
58 Providing for a deduction of the remuneration and expenses of the administrator.
59 S 74J(3) MCA.
60 R 48(2) MCR.
61 See s 74G(1) & (10) MCA.
62 S 74G(2) & (3) MCA.
63 S 74G(4)-(6) MCA.
64 S 74G(7) MCA.
65 S 74G(9) MCA.
66 In such a case the provisions of s 74G(7)-(9) MCA explained above also apply. The creditor wishing to demand immediate payment will thus obtain a hypothec over the goods sold ito the credit agreement and may approach the court for an order authorising him to attach and sell the goods.
67 S 74H(1) & (4) MCA.
68 S 74H(2)-(4) MCA.
69 The procedure ito 74G(3), (4), (5) & (6) MCA explained above applies.
70 S 75H(2)-(4) MCA.
71 S 74O MCA.
72 S 74L(1)(a) MCA.
73 S 74L(2) MCA; and see Weiner v Broekhuysen supra 312 et seq and African Bank Ltd v Weiner 2005 4 SA 363 (SCA) 369 (hereafter African Bank v Weiner (SCA)). Prior to these judgments, many administrators assumed free reign as regards the cost and remuneration they charged for managing an administration - see Boraine 2003 De Jure 217 231 and 233. Where a state official is appointed as an administrator, the remuneration accrues to the state - r 48(5) MCR.
74 S 74L(2) MCA.
75 S 74L(1)(b) MCA read with r 48(4) MCR. The 12.5% cap ito s 74L(2) MCA does not cover the "costs" ito s 74L(1)(b) MCA and they can be recovered separately - see African Bank v Weiner (SCA) 371 and 378.
76 S 74P(1) MCA.
77 Ie a debt which has been rejected ito s 74B(2) MCA. Such creditor may, notwithstanding the provisions of s 74P MCA, institute proceedings or proceed with an action already instituted iro such debt - s 74B(3) MCA. If judgment is obtained the amount of the judgment debt shall be added to the list of debts - s 74B(4) MCA.
78 S 74P(1) MCA.
79 Except a debt due under a mortgage bond or a debt ito s 74B(3) MCA.
80 S 74P(2) MCA.
81 S 74S(1) MCA.
82 When the court suspends the order, it may impose such conditions as it may deem just and reasonable - s 74Q(1) MCA.
83 An administration order may also be amended at the request of the administrator in writing and with the written consent of the debtor - s 74Q(2) MCA.
84 S 74Q MCA and Annex I Form 52A MCR.
85 S 74Q(3)(b) MCA.
86 S 74U MCA.
87 See Madari v Cassim supra 38; Ex Parte Fortuin v Various Creditors supra 574; Ex Parte August supra 272.
88 See s 74U MCA discussed above.
89 See Boraine 2003 De Jure 217 249; Greig "Administration orders as shark nets" 2000 SALJ 622.
90 24 of 1936.
91 See s 86(1) NCA.
92 See ss 86(7), 86(8) & 87 NCA.
93 See s 8 read with s 1 NCA for the definitions of the different credit agreements ito the NCA. See also Otto & Otto 17 et seqfor a discussion of the scope of application of the NCA.
94 See s 6 read with s 78(1) NCA.
95 See s 86(6)(b) NCA.
96 S 88(3) NCA.
97 S 88(3)(b)(ii) NCA.
98 S 83 NCA.
99 See par 3 3 3 below.
100 R 1 Regulations made ito the NCA (GN R 489 of 2006-05-31) (hereafter CR).
101 For the registration requirements in respect of debt counsellors see reg 44 and 45 CR.
102 S 86(6) NCA.
103 See Van Zyl in Scholtz (ed) Guide to the National Credit Act (2008) par 5 2 5.
104 S 79(1)(a) NCA.
105 2009 3 SA 363 (W) par 47.
106 Standard Bank v Panayiotts supra par 77.
107 In this regard compare iro the administration order procedure s 74C(2)(b) and (d) MCA.
108 See s 87(1)(a) NCA and the discussion in par 4 7 3 below. The magistrate's court is a creature of statute and is limited to exercise the powers ito s 87 NCA. The court will therefore not be entitled to order that the relevant credit agreement be excluded from the debt re-arrangement order.
109 See Van Heerden in Scholtz ch 11 and 14 for a detailed discussion of the debt review process.
110 R 1 CR.
111 See s 85 NCA, as discussed hereinafter.
112 See s 86(2) NCA.
113 2011 3 SA 581 (SCA) 590 par 9.
114 S 86(2) NCA provides that an application for debt review may not be made iro a particular credit agreement if, at the time of the application the credit provider under that credit agreement has proceeded to take the steps contemplated in s 129 NCA to enforce that agreement.
115 The s 129(1)(a) NCA notice is a letter which a credit provider must send to a defaulting consumer before such credit provider may commence legal proceedings to enforce the agreement.
116 Commentators interpret s 86(2) NCA differently. See eg Boraine & Renke "Some practical and comparative aspects of the cancellation of instalment agreements in terms of the National Credit Act 34 of 2005" 2008 De Jure 1 9 n186;         [ Links ] Van Loggerenberg, Dicker & Malan "Aspects of debt enforcement under the National Credit Act" (Jan/Feb 2008) De Rebus 40; Roestoff et al "The debt counselling process - closing the loopholes in the National Credit Act 34 of 2005" 2009 PER 247 260; Coetzee The impact of the NCA on civil procedural aspects relating to debt enforcement (LLM dissertation, UP (2010)) 86. For a detailed discussion of s 86(2) NCA and its interrelation with s 129 NCA, see Van Heerden in Scholtz par 11 3 3 2.
117 Nedbank v National Credit Regulator supra par 14.
118 R 24(1)(a) & (b) CR. Alternatively, the following information must be provided to the debt counsellor: (a) Personal details, including name, initials, surname, identity number or passport number and date of birth, postal address, physical address and contact details. (b) All income, inclusive of employment income and other sources of income to be specified by the debtor. (c) Monthly expenses, inclusive of but not limited to taxes, unemployment insurance, pension, medical aid, insurance, court orders and others to be specified by the debtor. (d) List of all debts (not only credit agreement debt) disclosing monthly commitment, total balance outstanding, original amount and amount in arrears (if applicable) inclusive of but not limited to home loans, furniture retail, clothing retail, personal loans, credit card, overdraft, educational loans, business loans, car finances and leases, sureties signed and others to be specified by the debtor. (e) Living expenses, inclusive of but not limited to groceries. The aforesaid information must be accompanied by a declaration and undertaking to commit to the debt restructuring, a consent that a credit bureau check may be done and a confirmation that the information is true and correct - r 24(1)(b)(vi)-(viii) CR.
119 S 86(3) NCA read with r 24(1)(c) and (d) CR.
120 S 86(4) NCA and r 24(2)-24(5) CR.
121 R 24(3) CR.
122 S 86(5)(a) and (b) NCA.
123 For a discussion of the good faith requirement see Mercedes Benz Financial Services South Africa (Pty) Ltd v Dunga 2011 1 SA 374 (WCC).
124 R 24(4) CR.
125 S 86(6) NCA read with r 24(6) CR.
126 R 24(10) CR.
127 S 86(7) NCA.
128 S 86(7)(a) NCA. This is the situation even if the debt counsellor has concluded that a particular credit agreement was reckless at the time it was entered into. The debt counsellor must provide the consumer with a letter of rejection, containing the information prescribed by r 25 CR.
129 R 26 CR.
130 S 86(7)(b) NCA.
131 S 86(8)(a) NCA.
132 S 86(8)(b) NCA.
133 See the discussion in par 3 3 3 below.
134 See National Credit Regulator v Nedbank Ltd 2009 6 SA 295 (GNP) 317 (hereafter National Credit Regulator v Nedbank (GNP)).
135 S 86(7)(c) NCA.
136 S 87(1) NCA.
137 S 87(1) NCA.
138 S 86(7)(c)(ii)(aa)-(dd) NCA.
139 Van Heerden in Scholtz par 11. See further SA Taxi Securitisation (Pty) Ltd v Lennard 2012 2 SA 456 (ECG).
140 No form has as yet been prescribed in the regulations to the NCA.
141 See Van Heerden & Coetzee "Perspectives on the termination of debt review in terms of section 86(10) of the National Credit Act 34 of 2005" 2011 PER 37 for a discussion of cases decided prior to Collett v Firstrand Bank Ltd 2011 4 SA 508 (SCA). See also Van Heerden & Coetzee "Wesbank v Deon Winston Papier and the National Credit Regulator" 2011 De Jure 463.
142 Par 6 and 14.
143 Ibid.
144 Idem par 17.
145 Ibid. See also Mercedes Benz v Dunga supra.
146 R 27 CR.
147 S 88(1) NCA.
148 S 88(1)(a) NCA.
149 S 88(1)(b) NCA.
150 S 88(1)(c) NCA.
151 Thus, the provisions relating to over-indebtedness and reckless credit.
152 S 88(5) NCA.
153 S 88(3)(a) & (b)(i) & (ii) NCA.
154 "Consolidation agreement" is not defined in the NCA.
155 S 88(4) NCA.
156 Naidoo v ABSA Bank Ltd 2010 4 SA 597 (SCA). See further the discussion in par 4 10 below.
157 Firstrand Bank Ltd v Fillis 2010 6 SA 565 (ECP).
158 See the preamble to the NCA and s 3(g) NCA. In this regard the Supreme Court of Appeal in Collett v Firstrand Bank Ltd supra par 10 recently stated that "the purpose of the debt review is not to relieve the consumer of his obligations but to achieve either a voluntary debt re-arrangement or a debt re-arrangement by the Magistrate's Court".
159 In this regard Johnson & Meyerman Insolvency Systems in South Africa - Strengthening the Regulatory Framework (a publication produced for review by the United States Agency for International Development for Chemonics International Inc - December 2010) 25 state that the NCA, despite its aim to assist over-indebted consumers, only "perpetuates the over-indebtedness by not providing a simple debtor discharge mechanism".
160 These may include delictual claims, clothing accounts, professional services and municipal accounts where no interest is charged.
161 Secured credit agreements would include pawn transactions, instalment agreements, mortgage agreements and secured loans - see s 1 NCA for the definitions of these credit agreements.