Is the Unequal Treatment of Debtors in Natural Person Insolvency Law Justifiable?: A South African Exposition

• Date: 01 March 2016
• DOI: http://doi.org/10.1002/iir.1244
• Author: Hermie Coetzee
• Published date: 01 March 2016

Is the Unequal Treatment of Debtors in

Natural Person Insolvency Law Justifiable?:

A South African Exposition

Hermie Coetzee*

,†

Department of Mercantile Law, Faculty of Law, University of Pretoria, Pretoria, South Africa

Abstract

The South African natural person insolvency system has remained largely

creditor-orientated and excludes many honest but unfortunate debtors from its

ambit. This is despite the worldwide trend to accommodate all such debtors.

Although the system does provide for three different statutory natural person

debt relief procedures, the cumulative effect of these measures’entry require-

ments results in differentiation on financial grounds. This is as all statutory

measures require the debtor to have some form of disposable assets or income

available –thereby drawing a distinction between those debtors with and those

without assets and or income (the so-called no income no asset debtors). The

main aim of this article is to measure the South African natural person

insolvency system against the right to equality in terms of both the South

African Constitution and the Promotion of Equality and Prevention of Unfair

Discrimination Act. The article may benefit legislatures and policymakers in

constitutional jurisdictions that subscribe to the equality principle and that

directly or indirectly exclude some debtors from debt relief while providing others

therewith. Copyright © 2016 INSOL International and John Wiley & Sons, Ltd.

*E-mail: hermie.coetzee@up.ac.za

2

†BCom Law LLB LLM (by dissertation) (University of

Pretoria). Senior Lecturer, Department of Mercantile

Law, Faculty of Law, University of Pretoria. The au-

thor wishes to express her thanks to Professor Anton

Kok and Dr Ngwaru Maghembe for their valuable in-

sights and the anonymous referees whose comments

improved this article.

Copyright © 2016 INSOL International and John Wiley & Sons, Ltd Int. Insolv. Rev., Vol. 25: 36–55 (2016)

Published online 18 January 2016 in Wiley Online Library

(wileyonlinelibrary.com). DOI: 10.1002/iir.1244

I. Introduction

The South African natural person insolvency system has fallen behind the times

due to the fact that it has remained largely creditor-orientated and does not pro-

vide access to all ‘honest but unfortunate debtors’.

1

This approach is in contrast

with the worldwide trend to accommodate all such debtors.

2

Although there are

a number of statutory debt relief procedures available in South Africa, the entry

requirements of the individual procedures cumulatively result in the exclusion of

most natural person debtors from any form of recourse. These marginalised

debtors are in most instances indefinitely bound to their desperate financial

positions.

3

There are currently three statutory debt relief measures available to

overcommitted South African debtors.

4

These procedures stem from various

pieces of legislation, and only the sequestration procedure

5

in terms of the Insol-

vency Act

6

provides for a discharge of pre-insolvency debt.

7

Because successful se-

questration proceedings lead to a discharge of pre-sequestration debt, it is

deemed to be the primary South African debt relief measure.

8

However, the dis-

charge is not the main aim of the procedure and merely a consequence thereof.

9

In order to qualify for the ‘privilege’of a sequestration order and therefore also

for the eventual discharge that it brings about, the applicant has to prove,

among others, that sequestration will be to the advantage of creditors.

10

As

Erasmus J remarked: ‘[T]he whole tenor of the Act, inasmuch as it directly re-

lates to sequestration proceedings is aimed at obtaining a pecuniary benefit for

creditors.’

11

This results in many debtors being excluded from the procedure.

The other two statutory debt relief measures, which are (in light of the seques-

tration procedure) regarded as alternative measures, are the administration

order in terms of Section 74 of the Magistrates’Courts Act

12

and the debt

review procedure in terms of Section 86 of the National Credit Act.

13

Both

these procedures can be classified as repayment plans and do not provide any

actual debt relief in the form of a discharge. It seems that these procedures were

1. See Local Loan Co. v. Hunt 1934 292 US 234,

244.

2. See World Bank, Report on the treatment of the in-

solvency of natural persons (2012) 97, INSOL Interna-

tional Consumer Debt Report (2001) 14 and INSOL

International Consumer Debt Report (2011) 16 as

regards international principles and guidelines that

stress the importance of access to debt relief measures.

See H Coetzee and M Roestoff, ‘Consumer debt relief

in South Africa –should the insolvency system provide

for NINA debtors? lessons from New Zealand’, (2013)

22 Int. Insolv. Rev. 189 and M Roestoff and H Coetzee,

‘Consumer debt relief in South Africa; lessons from

America and England; and suggestions for the way

forward’, (2012) 24 SA Merc LJ 53 where the exclusion

of some South African natural person insolvents from

any and all debt relief measures is illustrated.

3. See Coetzee and Roestoff (n 2) 189 and Roestoff and

Coetzee (n 2) 59.

4. See in general Lienne Steyn, ‘Statutory regulation of

forced sale of the home in South Africa’, (LLD thesis,

University of Pretoria 2012) 349 et seq for a compre-

hensive explanation and consideration of the statutory

measures.

5. The sequestration procedure can be described as an

asset liquidation procedure.

6. 24 of 1936.

7. S 129.

8. See Coetzee and Roestoff (n 2) 193.

9. See Ex parte Ford and two similar cases [2009] 3 SA

(WCC) 376, 383 and Ex parte Shmukler-Tshiko and

another and 13 other cases [2013] JOL 29999 (GSJ)

in general.

10. See Ss 6, 10 and 12.

11. BP Southern African (Pty) Ltd v. Furstenburg

[1966] 1 SA (O) 717, 720.

12. 32 of 1944.

13. 34 of 2005.

Treatment in Natural Person Insolvency 37

Copyright © 2016 INSOL International and John Wiley & Sons, Ltd Int. Insolv. Rev., Vol. 25: 36–55 (2016)

DOI: 10.1002/iir