THE NCA AND SEQUESTRATION APPLICATIONS by André Boraine and Corlia van Heerden University of Pretoria 1
THE NCA AND SEQUESTRATION APPLICATIONS - NCA presents challenges, especially due to extensive debt enforcement provisions as well as novel debt relief measures - Credit providers may still have reason to prefer to sequestrate and - debtors may prefer voluntary surrender 2
INITIAL OBSERVATIONS Debt relief prior to NCA Administration orders No discharge or time limit Voluntary re-arrangement Based on consent Sequestration Voluntary Compulsory Rehabilitation discharge 3
INITIAL OBSERVATIONS Since NCA debt review and debt rearrangement But NCA applies only to credit agreement debt 4
INITIAL OBSERVATIONS NCA does not contain bar against sequestration Additional requirements? Question ss 129 read with 130 and 88(3) bar against sequestration? 5
COMPULSORY SEQUESTRATION (GENERAL) Compulsory sequestration Applicant-creditor Formalities Act of insolvency/ actual insolvency Reason to believe to the advantage of creditors Alternatives to sequestration Intervention Inherent discretion of court Advantage To prevent abuse of powers 6
COMPULSORY SEQUESTRATION INVESTEC V MUTEMERI 2010 (1) SA 265 (GSJ) Facts: Application for compulsory sequestration Credit agreement debt only Applicants already applied for debt review prior to sequestration application- Application for debt restructuring enrolled to be heard in approximately year s time 7
COMPULSORY SEQUESTRATION Respondents argued that: Sequestration = debt enforcement Since under debt review, cannot sequestrate due to section 88(3) bar against debt enforcement Implication if correct - before credit provider can sequestrate must also send debtor section 129(1)(a) notice etc 8
Is sequestration debt enforcement for purposes of the NCA? Often said sequestration = collective debt collection procedure Answer debt enforcement no, reasons: Sequestration not civil suit to enforce rights; Brings about a concursus creditorum 9
Is sequestration debt enforcement for purposes of the NCA? Mutemeri confirmed in: Naidoo v ABSA Bank (391/2009) [2010] ZASCA 72 Effect: A credit provider need not comply with the procedure provided for in s 129(1)(a) of the NCA Application may be brought while consumer already subject to debt review/ restructuring 10
Observations re compulsory sequestration Creditor initiated + more relaxed onus Application does not show complete debt situation of debtor Usually relies on act of insolvency Cannot be required to address advantage of NCA debt relief unless debtor went for debt review and debt counsellor approached creditor with proposals etc 11
Observations re compulsory sequestration Creditor cannot force debtor to go for debt review or other creditors to co-operate Intervening creditor/debtor may argue NCA yields better advantage, thus may still play in on advantage principle 12
VOLUNTARY SURRENDER Applicant- debtor Requirements: Formal steps Factual insolvency Sufficient free residue to pay costs Advantage of creditors Discretion 13
VOLUNTARY SURRENDER Ex parte Ford 2009 (3) SA 376 (WCC): Voluntary surrender applications Major portion of debt: credit agreements in these instances Disproportionate: suspicion of reckless credit Section 85 of NCA: discretion to refer for debt review Applications turned down 14
VOLUNTARY SURRENDER Underlying principle: the procedure of voluntary surrender was primarily designed for the benefit of creditors, and not for the relief of harassed debtors. Per Holmes, J, Ex Parte Pillay 1955 2 SA 309 (N) 311. 15
VOLUNTARY SURRENDER: observations Debtor initiated + stringent onus re advantage Effect eventually same as compulsory sequestration Significance of NCA for voluntary surrender? Should not elevate debt review to statutory requirement Courts must not blindly exercise section 85 discretion 16
VOLUNTARY SURRENDER: observations Debt review per se transitory measureadvantage lies in debt rearrangement/ rescheduling Caveat to courts against blindly exercising section 85 discretion Should heed to intervention by creditors, or not Should consider effect of a particular debt relief procedure on total debt situation 17
FINAL OBSERVATIONS NCA has an impact on sequestration Quest for proper debt relief continues SA: discharge flows from sequestration Some other systems: Repayment plans time restricted (discharge in part) Sequestration not advantage requirement (exclude) NINA estates 18