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The Improved Protection of Debtors in South-Africa: the Interaction between the New National Credit Act and the Insolvency Act Professor Leonie Stander, North-West University, South Africa

Objective of NCA: Debt-relief to over-burdened consumers Purpose of NCA: Promote responsibility Encouraging responsible borrowing Avoidance of over-indebtedness Fulfilment of financial obligations Discourage reckless credit

Aims of NCA: –Address + prevent over-indebtedness –Provides mechanisms –Resolving over-indebtedness –S 3(g) formulates core principle: Satisfaction by consumer Of all responsible financial obligations –Clear: Does not afford discharge Same manner as IA

Relevant: 3 procedures S 85 – 88 (court + consumer) –Provides for alleviation of over-indebtedness through process of debt relief S 81 – 84 –Concerns reckless credit; prevention + remedies thereof S 129 – 133 (credit provider) –Deal with debt enforcement

Over-indebtedness (s 79) –Debt-review + restructuring/re-arrangement plan –By agreement or court order period of the agreement extended + amount of each payment reduced or payments due postponed during specified period Or combination of both

A 88(3): effect of debt review/re-arrangement plan –credit provider (creditor) –Not entitled to exercise or enforce –Rights or security under agreement –By means of litigation –Or any other judicial process

Reckless credit (s 80) –setting aside of debtor’s rights + obligations –Suspension of force + effect of agreement

Debt enforcement –S 129(1)(a): creditor obliged –written notice propose that debtor refer the credit agreement to debt counsellor proposing a debt repayment plan If creditor agrees to the plan debt enforcement procedure is stayed

Questions: While under debt review/subject to debt restructuring: –Will creditor be able to apply for compulsory sequestration? –Will such application amount to debt enforcement? –Will debtor be able to apply for voluntary surrender?

Should court refuse since debtor does not, in doing so, avail himself debt relief measures provided for by NCA? –Is the sequestration procedure (as a collective debt settlement procedure; Species of execution; Equal treatment of creditors) –Ousted by the debt review procedure (as a procedure for satisfaction of all responsible financial obligations by an over-indebted consumer)

Point of departure: Insolvency Act ousted? –S 2(7): provisions of NCA do not –Limit, alter, amend or repeal –Any provision of any other act –Except when specifically set out in or necessarily implied by NCA

No reference to IA in any section Refer in Schedule 2 –To s 84 and amend –To include installment agreement –Conclusion?

Excluded by necessary implication? –NCA regulates “credit agreements” only –Unfair + unjustified as against ordinary creditor To prevent him from sequestrating debtor Because under debt review with regard to CA To which creditor is not party

Application for voluntary surrender –Court has discretion to grant order –If satisfied that: Insolvent Formalities Free residue Advantage creditors

Advantage of creditors decisive role –Court will consider alternatives –Such as debt arrangement/restructuring –What is the best option/solution? Ex parte Ford 2009 (3) SA 376 (WCC) –Major portion of liabilities: credit agreements –Huge debts, small income

–Indicates over-indebtedness, reckless credit –Court referred to its powers in s 85 –Information given insufficient –Decided in effect: NCA more appropriate mechanism in circumstances

Thus: Necessary implication - before making application –Debtors must take into account –Options outside sequestration –Where debt largely consists of CA’s –Remedies provided by NCA

Compulsory sequestration –Court has discretion to grant order –If satisfied that: Applicant is creditor Debtor insolvent/act of insolvency Formalities Reason to believe: Advantage creditors

20 Again advantage of creditors decisive –Other alternatives also relevant –Same factors as in Ford-decision Other scenario: –Investec Bank v Mutemeri 2010 (1) SA 265 (GSJ) Debtor applied for debt review Would be heard one year later –2 Questions:

Is s 88(3) applicable? –(when notice of debtor's application for debt review received –creditor may not exercise/enforce any right under CA) No, creditor may rely on claim ito CA to qualify as creditor to apply for sequestration It does not exercise/enforce its rights in doing so

Is application for seq “order to enforce credit agreement” ito s 130? –Then notice ito s 129 essential Court: not ordinary debt enforcement –“The purpose or effect of the sequestration is merely to bring about a convergence of claims against an insolvent estate to ensure that it is properly wound up in an orderly fashion and that the creditors are treated equally.” S 29 notice not necessary

23 Crux: estate of debtor subject to debt review may be sequestrated Naidoo v ABSA Bank Ltd 2010 (4) SA 597 (SCA) –Debtor sequestrated –Appealed: creditor did not give notice ito s 129

–Although not debt enforcement –S 130(3): “any proceedings …in respect of a credit agreement” –Decision: Seq of debtor's estate not an order for enforcement of sequestrating creditor's claim, but species of execution S 130(3) must be read in context

Observations

The organisers of the Conference thank the following for their support Conference Sponsor Academic Forum SponsorConference Supporter Consiglio Nazionale dei Dottori Commercialisti e degli Esperti Contabili

The organisers of the Conference thank the following for their support Conference Sponsor Academic Forum SponsorConference Supporter Consiglio Nazionale dei Dottori Commercialisti e degli Esperti Contabili

The organisers of the Conference thank the following for their support Conference Sponsor Academic Forum SponsorConference Supporter Consiglio Nazionale dei Dottori Commercialisti e degli Esperti Contabili

The organisers of the Conference thank the following for their support Conference Sponsor Academic Forum SponsorConference Supporter Consiglio Nazionale dei Dottori Commercialisti e degli Esperti Contabili