Background to certain aspects relating to consumer insolvency law in South Africa. December 10,

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2 Background to certain aspects relating to consumer insolvency law in South Africa December 10,

3 From Memphis to SA Memphis, Tennessee, is famous for the blue suede shoes, barbeques and bankruptcies. - Neall Ferguson: The Ascent of Money There is a saying that you are not a true (black) South African if you haven t been on a credit list - Blade Nzimande 3

4 Consumer Insolvency Formal procedures Liquidation of assets: Sequestration Insolvency Act of 1936 (advantage) Administration (reschedule and liquidation with court s consent) Magistrates Courts Act of 1944 Debt restructuring: Debt review National Credit Act of 2005 (reschedule) Voluntary composition (work-out) No principled view and approach 4

5 Socio-economic background Population 50 million Unemployed: about 25% + Social grants- about 16 million Registered taxpayers - 6 million 19 million formal credit agreements 9 million debt stressed Sequestrations: (Sept ) (Garnishee orders: Zero pay cheques: certain areas 10% Significance of the Marikana strike 5

6 Liquidation of assets and discharge Sequestration: (Liquidation of assets: Insolvency Act) High Court (compulsory and voluntarily) Friendly sequestrations Requirement: Advantage of creditors (pecuniary benefit) Cost: about ZAR ($ 1400) In discretion of the court Rehabilitation: Discharge of pre-sequestration debt Time and procedure Practitioners: Trustee not formally regulated 6

7 Reschedule and liquidation with court s consent Administration: (Repayment ito Magistrates Courts Act) Industry: at stage 100, 000 applications per year Magistrates courts lack of capacity Limited relief ZAR ($5 500), excluding in futuro debt Administrators not regulated Many instances no dividends paid over Creditors write debt off but administrator still collects from debtor Fees controversial Inflated debt - no time limit, or discharge 7

8 Debt restructuring Debt Review: (Repayment ito National Credit Act) Disqualified if no regular income Magistrates Court (mostly) lack of capacity Apply only to credit agreements (including secured debt) Enforcement debt excluded Uncertainty re interpretation of provisions Problem court procedures and not property aligned with other procedures 8

9 Debt restructuring Debt Review: National Credit Act (continues) Practitioners: Debt counsellors (regulated) PDA No time-bound period or discharge NCA best place for this procedure? 9

10 Rehabilitation and discharge Only statutory discharge: Insolvency Act Upon rehabilitation Automatic rehabilitation after ten years Or application to court (discretion) Insolvency practitioners and regulation In a broad sense no regulated insolvency profession Indirectly some regulation: appointment and statutory bars Master of the High Court Department of Justice 10

11 Insolvency practitioners and regulation Debt counsellors (not viewed as IP) Certain statutory requirements National Credit Regulator Department of Trade and Industries Administrators (not viewed as IP) No formal requirements or disqualifications Magistrates and Magistrates Courts Act Department of Justice Fees of practitioners prescribed (in general no state funding) 11

12 Law reform Insolvency Act SALRC Report and Draft Insolvency Bill (2000) 2010 Unified (Individuals and other entities) No major principle changes Pre-sequestration composition Debt restructuring A prescribed majority of creditors can bind the minority Court driven 12

13 Law reform Administration order 2002 CCIL (UP) Proposals to reform Administration orders Regulation of administrators Debtors courts Time period for repayment linked with discharge Harmonize procedures 13

14 Law reform Administration order (continues) Other recommendations: Prevention of over-indebtedness and Debtor education Regulation of credit bureaus Unaware DTI initiatives no synchronization Process suspended in view of efforts of DTI re new NCA NCA then covered some of these aspects National Credit Act review (currently underway) 14

15 Conclusion South Africa Sequestration: Pro-creditor - advantage Discharge Exclusion of many and time 4 10 years Scattered landscape Lessons to be learned: Different state departments and legislation No real policy considered approach towards various options and discharge Those who can pay but only needs extended period? When revert to Insolvency Act (liquidation of assets)? 15

16 Conclusion South Africa Overall understanding - argued for policy based approach on: Liquidation of assets Debt restructuring Hybrids Assetless estates (NINA) Basic rights: equality (discharge)? Regulation of (ALL) insolvency practitioners 16

17 Conclusion General Law must provide a solution when creditors won t agree Policy considerations: single Insolvency Act or multiplicity What formal procedures available and selection criteria? Liquidation of assets v repayment plans Socio-economic and cultural realities Consequences, conditions and price of discharge 17

18 Every debt situation is unique and requires its own best solution - André Boraine 18