Consumer Debt Relief in South Africa; Lessons from America and England; and Suggestions for the Way Forward
| Jurisdiction | South Africa |
| Pages | 53-76 |
| Date | 25 May 2019 |
| Citation | (2012) 23 SA Merc LJ 53 |
| Author | M Roestoff |
| Published date | 25 May 2019 |
Consumer Debt Relief in South Africa; Lessons
from America and England; and Suggestions for
the Way Forward*
M ROESTOFF**
University of Pretoria
H COETZEE***
University of Pretoria
1 Introduction
In Ex parte Ford and Two Similar Cases
1
the Court, in response to the
argument advanced on behalf of the applicants that they had a ‘constitutional
right’ to the acceptance of the surrender of their estates, confirmed that the
primary object of the South African Insolvency Act
2
is to benefit creditors and
not to grant debt relief to harassed debtors.
3
The Court also pointed out that
there is a consonance between the objects of the relevant provisions of the
National Credit Act
4
and the Insolvency Act, namely, ‘not to deprive creditors
of their claims but merely to regulate the manner and extent of their
payment’.
5
One of the purposes of the National Credit Act is to protect consumers by
providing mechanisms for resolving over-indebtedness.
6
The Act thus
provides debt relief to over-indebted consumers by allowing them to apply to
a debt counsellor to conduct a debt review and to be declared over-indebted.
7
However, although s 3(g) lists the resolving of over-indebtedness as one of its
purposes, this purpose is still subject to the principle of ‘satisfaction by the
consumer of all responsible financial obligations’.
8
As pointed out below,
the debt review procedure does not offer the consumer an opportunity to
obtain a discharge from pre-existing indebtedness.
* This article is based on the paper delivered by the authors at a conference entitled ‘Consumer
Finance Post-Apartheid: The South African Experience’ presented by the University of Connecticut
School of Law, Hartford, Connecticut, USA, on 20 November 2009.
** BLC LLB LLM LLD (Pretoria). Professor, Department of Mercantile Law, Faculty of Law,
University of Pretoria.
*** BCom Law LLB LLM (Pretoria). Lecturer, Department of Mercantile Law, Faculty of Law,
University of Pretoria.
1
2009 (3) SA 376 (WCC) at 383.
2
24 of 1936.
3
and Others 1957 (3) SA 614 (N) at 619; Fesi and Another v Absa Bank Ltd 2000 (1) SA499 (C) at 502.
4
34 of 2005.
5
In this regard the Court in Ford referred to Nel NO v Body Corporate of the Seaways Building and
Another 1996 (1) SA 131 (A) at 138.
6
See s 3(g).
7
See s 86(1).
8
See s 3(g) – our emphasis. See also s 3(i).
53
(2012) 24 SA Merc LJ 53
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Since June 2007 the number of consumers in ‘good standing’ has continued
to deteriorate. At the end of June 2011, credit bureaux had records of 18.84
million credit active consumers, of which 8.8 million had impaired credit
records. Thus, at present only 53.3 per cent of credit-active consumers are in
‘good standing’.
9
These numbers should be understood against the backdrop
of challenging economic conditions, job losses and income reduction
experienced by South Africans during the economic down-turn.
10
However,
they also clearly indicate the urgent need to afford some form of relief to
overburdened consumers. Unfortunately, debt review has not provided the
necessary solution in this regard. At the end of August 2011, more than
269 000 consumers had applied for debt review, with an average of 6 000 new
applications made each month. Of the 269 000 consumers under debt review,
between 65 000 and 70 000 are making regular payments. Only an estimated
50 per cent of registered debt counsellors are active in the profession, and
there are huge back-logs in the courts to approve new debt repayment plans.
11
Apart from sequestration in terms of the Insolvency Act and the debt relief
measures provided for by the National Credit Act, South African insolvency
law provides for administration orders in terms of s 74 of the Magistrates’
Courts Act.
12
Furthermore, the South African Law Reform Commission (‘the
Commission’) has proposed that provision be made for a pre-liquidation
composition with creditors.
13
The aim of this article is to discuss the current
state of affairs with regard to consumer debt relief in South Africa and to
address the question of whether current procedures provide adequate relief for
over-indebted consumers. By briefly referring to relevant aspects of the
insolvency system of the United States of America and recent developments
regarding debt relief measures in England and Wales, we also aim to suggest a
way forward for law reform regarding consumer debt relief in South Africa.
9
National Credit Regulator Credit Bureaux Monitor Second Quarter (June 2011), available at
www.ncr.org.za.
10
See the remark of Peter Setou, former senior manager for Education and Strategy at the National
Credit Regulator on statistics for 2010 (referred to by Bronwynne Jooste ‘10 Million have Debt
Hangover’ Daily News (15 July 2010)). In 2010, 8.3 million of the 18.2 million credit-active consumers
had impaired credit records.
11
Statistics provided by Ismail Kharwa, Acting Debt Counselling Manager at the National Credit
Regulator on 21 September 2011.
12
32 of 1944.
13
The Law Reform Commission has proposed that provision be made for such composition by
inserting a new section, s 74X, in the Magistrates’ CourtsAct (South African Law Commission Report
on the Review of the Law of Insolvency (Project 63) Vol1 (Explanatory Memorandum) and Vol 2 (Draft
Bill) (February 2000) Sched 4 – hence the ‘2000 Explanatory Memorandum’ and ‘2000 Insolvency Bill’
respectively). This proposal has also been included in the report of the Centre for Advanced Corporate
and Insolvency Law (SACIL) at the University of Pretoria entitled Final Report Containing Proposals
on a Unified Insolvency Act (January 2000) and in the latest version of the Insolvency Bill dated 30 June
2010 – see cl 118 of the unofficialworking copy, on file with the authors (hence the ‘2010 Insolvency
Bill’). In the two last-mentioned documents it is envisaged that the proposed measure should be
included in the new unified Insolvency Act and not the Magistrates’ Courts Act. The Commission’s
initial proposal has also been amended with regard to the powers of the court if the composition is not
accepted by the required majority of creditors (see the discussion of the latest proposal in par 3.3
below).
(2012) 24 SA Merc LJ54
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