A discussion on the debt review process and conflicting judgments from South African courts

September 1st, 2022

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There have been several conflicting judgments pertaining to the debt review process. The conflicting judgments pertained to whether –

  • a High Court has inherent jurisdiction to declare a consumer ‘no longer over-indebted’;
  • courts have power to terminate the process;
  • a High Court can be a court of first instance in matters of debt review; and
  • a High Court can use its inherent power to put words into a text of legislation, which words are neither expressed nor implied by the legislature.

In Magadze v ADCAP, Ndlovu v Koekemoer (GP) (unreported case no 57186/2016, 2-11-2016) (Neukircher AJ), the applicants applied to be declared over-indebted in terms of s 86(1) of the National Credit Act 34 of 2005 (the Act). However, their applications were never confirmed in terms of s 87(1), that is in terms of a court order of the magistrate’s court, but nonetheless they made necessary payments to their creditors and settled two of their debts, which resulted in an improvement of their finances. They sought to –

  • terminate the debt review process;
  • be declared no longer over-indebted; and
  • remove their debt review status from the credit bureau.

Neukircher J enquired whether a s 71 remedy of a clearance certificate has the same effect as the court order envisaged in s 88(1)(b) of the Act. She found that a s 71 clearance certificate has the consequence of expunging a consumer’s record from the credit bureau, whereas a s 88(1)(b) court order does not result to the expungement thereof. She thus held that, granting an order that falls short of expunging a credit record in toto would mean that s 71 carries more weight than an order of the court and such a situation would be untenable. In rejecting this, she held that the inherent jurisdiction of the High Court permits the declaration of no longer over-indebted, and the expungement thereof. Notably, at the time the order was granted, there was never an existing order that confirmed over-indebtedness. Accordingly, the court’s order signalled that a High Court, by virtue of its inherent jurisdiction, can be a court of first instance in matters of this nature.

In Mokubung v Mamela Consulting and Others (GP) (unreported case no 87653/2016, 14-6-2017) (Mbongwe AJ) and in Manamela v Du Plessis t/a Debt Safe and Others (GP) (unreported case no 78244/2016, 21-6-2017) (Mbongwe AJ), Mbongwe AJ held that there is no provision for a withdrawal of a debt review in the Act but the National Credit Regulator’s Guidelines for the Withdrawal from Debt Review, February 2015 (Withdrawal Guidelines), does provide a procedure of the withdrawal thereof. The tragedy he found was that the guideline is neither a supplement nor an amendment to the Act. Regardless of that, he confined himself with it and further exercised the High Court’s inherent jurisdiction in granting the orders.

In Du Toit v Benay Sager (NCRD2484) t/a Debt Busters and Others (WCC) (unreported case no 16226/17, 17-11-2017) (Thulare AJ), the facts and prayers sought were similar to the cases above. It was argued that the Act did not accommodate situations summarised above thus creating a lacuna and warranted a High Court, by its inherent jurisdiction, to intervene. Following Mbongwe AJ in Manamela, counsel in the proceedings invoked the Withdrawal Guidelines, to advance his arguments. The court held that obtaining a clearance certificate in terms of s 71(5) of the Act enables the removal of the record of debt re-arrangement from the National Credit Register. However, a clearance certificate is not a withdrawal from debt review and even if a debt counsellor would attempt to withdraw a debt review process, he would be acting ultra vires (Rougier v Nedbank Ltd (GJ) (unreported case no 27333/2010, 28-5-2013) (Nobanda AJ)). Secondly, it found no lacuna in the Act by reasoning that there was a deliberate decision by the legislature and where a debt counsellor does not come to assist the consumer with the assessment in order to issue a clearance certificate, a Tribunal can be approached. In situations where there is no existing court order declaring over-indebtedness due to failure of a debt counsellor to bring the proposal to the attention of the court for judicial oversight and the consumer’s financials improve, it was held that the magistrate court’s power to declare over-indebtedness is by implication conferred when it is given the jurisdiction by the Act. Therefore, a consumer can with the leave of the magistrate’s court, in terms of s 86(9) apply for a hearing and ‘must demonstrate circumstances and reasons that show that it is necessary, in the interests of justice and equity that the investigation should shift from the statutory body to the judicial authority, in its discretion’ (Du Toit at para 26). In doing so, the consumer can produce evidence that would persuade the court to reject the findings of the debt counsellor.

It was further held that a debt counsellor; the National Credit Regulator; the National Consumer Tribunal and the magistrate’s courts are central to consumer related matters. It therefore follows that statutory remedies must firstly be exhausted before approaching the courts. Thus, it was held that a High Court is not the forum of first instance on matters which both the Tribunal and the magistrate’s courts should deal with. The tone of the judge, appeared to suggest that he could have granted the application, had the applicants first exhausted the available domestic remedies.

In Phaladi v Lamara 2018 (3) SA 265 (WCC), Binns-Ward J held that where an area of law is regulated by a statute, a court is under duty to interpret and apply the legislative enactments in a manner that promotes the spirit, purport, and objects of the Bill of Rights and in doing so it cannot demolish the language used by a legislature in a legislative text.

He held that where applicants have fulfilled all their obligations under their credit agreements that are subject to debt rearrangement that are not long-term agreements, they are entitled to obtain a clearance certificate in terms of s 71 of the Act and the effect of which is the expungement of the record of debt rearrangement from the records in the credit bureau. Endorsing Thulare AJ in Du Toit, he held that when they encounter any hurdles in attaining the clearance certificate, they have to approach the Tribunal as it is a forum of first instance. Counsel for the applicant, sought to argue by relying on s 88(1)(b) of the Act that ‘the court has determined that the consumer is not over-indebted’ would require to be read as ‘the court has determined that the consumer is no longer over-indebted’, thereby necessitating the word ‘not’ to be deleted and be replaced by ‘no longer’. The judge espoused a contextual approach that the provision does entice that an application can be made to declare a consumer ‘not over-indebted’ and ‘no longer over-indebted’ and it neither envisages that a court can culminate a debt review process as the process is administrative, not iudicialis. He rejected the argument that ‘not’ over-indebted could be equated to ‘no’ longer over-indebted, under reasoning that if it would be construed so, he would be reading words into a statute where it is not necessary. The judge further endorsed Thulare AJ in Du Toit, when it was held that a magistrate’s court is conferred with power to reject the proposal and a consumer is not presented from providing evidence that would be opposed to the initial findings of a debt counsellor in order to persuade the court to reject the debt counsellor’s recommendations. Whereas, where a debt rearrangement has been confirmed, in whatever manner, the only way to exit it is in terms of s 71 read with s 88(1)(c) of the Act. The judge, however, unlike Thulare AJ, strictly confined himself to the requirements of s 71 when he said that ‘to the extent that they do not qualify for relief under that provision, they are remediless. The courts are not empowered to craft a remedy that the statute does not allow for’.

In Botha v Koekemoer t/a The Debt Expert 2 and Others; Mafakane v MSA Consultants t/a Consumer Financial Services and Others (LP) (unreported case no 7723/2017; 750/2018, 11-5-2018) (Muller J) Muller J, contrary to Neukircher AJ in Magadze found that there is no provision in the Act which entitles a consumer to terminate the process once it has commenced. Secondly, the judge found that the Act neither implies nor expressly allows withdrawal of a debt review process. However, he further opined that a court cannot disregard a consumer’s desire to withdraw from the process. Reinforcing the views of Binns-Ward J in Phaladi and those of Thulare J in Du Toit in paras 25 – 26, he said that a debt counsellor being intermedial to the process can provide a subsequent substantial information asserting a variation to the consumer’s financial circumstances in order for the court to reject the application in its entirety. In dismissing the application, the judge, following Phaladi held that, ‘courts do not have the inherent jurisdiction to disregard statutory provisions’ and ‘the applicants were at no time declared to be over-indebted by a competent court’.

The inconsistency in the judgments highlighted above landed in the hands of the Gauteng Division Judge President who in terms of s 14(1)(a) of the Superior Courts Act 10 of 2013 referred the uncertainties to the Full Court of the Division in the matter of Van Vuuren v Roets and Others (Banking Association of South Africa and Others as amici curiae) [2019] 4 All SA 583 (GJ). The Full Bench endorsing Phaladi and Du Toit, held that where there is no debt rearrangement order by the court despite findings of over-indebtedness by a debt counsellor, a consumer can submit additional information about his revived fortunes, whereupon the magistrate must conduct a hearing and thereafter decide whether to reject the recommendation or conclude that a consumer is not over-indebted.

Where there is an existing order, a consumer can exit by settling all his debts and can also by issue of a debt clearance certificate by a debt counsellor in terms of s 71 (provided that requirement of s 71(1)(b) are met) and if a debt counsellor refuses to issue same, the consumer may lodge a complaint with the Tribunal. Likewise, the court was also critical that if a consumer can satisfy s 71(1)(b) requirements, he can exit the debt review process, other than that, one cannot. The essence thereof was that no court has jurisdiction or power to order a release of a consumer from debt review. It was also held that neither the purpose nor the language of the text suggests a termination of a debt review process by any court. The Act merely created power for any court, by s 85, to set in motion a debt review process or itself to order a re-arrangement of a debtor’s obligations.


It has been now settled that to withdraw from a debt review process subsequent to material change in finances, but where there is no debt rearrangement order from the magistrate, a consumer can apply and produce evidence in his favour, which would be contrary to the findings of a debt counsellor. A magistrate after conducting a hearing may rule in favour of the consumer. When there is an existing debt re-arrangement order and a consumer’s financial position also changes to the better, in order for a consumer to exit the debt review, they can only approach their debt counsellor for a debt clearance certificate in terms of s 71 of the Act, provided that the requirement set out in s 71(1)(b) is strictly met and if a debt counsellor refuses, a complaint can be laid with the Tribunal as it is a forum of first instance. Lastly, a High Court is not a court of first instance in respect of debt review processes, as the Act confers no jurisdiction to it and it can neither use its inherent jurisdiction.

Limnandi Mtshemla LLB (UFH) Compliance Management (UCT) is a legal practitioner at Squire Smith & Laurie Inc in King William’s Town.

This article was first published in De Rebus in 2022 (Sept) DR 18.

De Rebus