Exiting debt review: The conundrum of certainty in the how and when

October 1st, 2022
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The scheme of the debt review model in the National Credit Act 34 of 2005 (the NCA) was explained in better detail in the reported case of Janse van Vuuren v Roets and Others and a Similar Matter 2019 (6) SA 506 (GJ). It was a matter in which the Judge President of the Gauteng Division of the High Court, Dunstan Mlambo,  referred to the Full Court, in order to obtain clarity on debt review applications and more specifically, on what steps are to be taken by consumers in order to exit the debt review process. The Full Bench consisted of Sutherland J, Carelse J and Maier-Frawley AJ. The reason for the referral was because there was a difference in the application of the law with regard to this particular aspect of exiting debt review, especially between the various divisions of the High Courts and more specifically concentrating on the decisions on this aspect in the Western Cape Division, particularly the cases of Du Toit v Benay Sager (NCRD2484) t/a Debt Busters and Others (WCC) (unreported case no 16226/17, 17-11-2017) (Thulare AJ) and Phaladi v Lamara 2018 (3) SA 265 (WCC).

The issue at hand

In respect of ss 71 and 87(1)(a), I raise the following:

  • Question 1: Do either of the sections allow parties (the debt counsellor or the consumer) to bring applications to the magistrate’s court to have previous orders rescinded?
  • Question 2: Do either of the sections allow parties (the debt counsellor or the consumer) to approach the magistrate’s court for a rejection of a restructuring application where no order was made by the magistrate’s court?
  • Question 3: Do either of the sections allow parties (the debt counsellor or the consumer) to approach the magistrate’s court for the rejection of a restructuring application where no recommendation from the debt counsellor was put before the magistrate’s court?
  • Question 4: Do either of the sections allow parties (the credit providers or the consumer) to approach the magistrate’s court for a rejection of a restructuring application where a recommendation, from the debt counsellor, which determined that the consumer was over-indebted, was put before the magistrate’s court?
  • Question 5: Do either of the sections or r 55 of the Magistrates’ Courts Act 32 of 1944 (MCA) allow the debt counsellor or consumer to approach the magistrate’s court for an order declaring the consumer no longer over-indebted?
  • Question 6: If the answer to the above questions are in the negative, the further question is then whether or not there is a lacuna in the NCA.
Case law

The Phaladi case is a judgment handed down by Binns-Ward J. Counsel for the applicant in this matter sought to rely on s 88(1)(b) and para 4.2 of the Explanatory Note to the Withdrawal Guidelines as issued by the National Credit Regulator. In his judgment, Binns-Ward J referred to the clearance certificate to be obtained under s 71, and stated: ‘If they encounter problems in obtaining the relief to which they might contend they are entitled under s 71, their remedy lies in an approach to the National Consumer Tribunal [Tribunal]. It is only the Tribunal that is empowered to assist them at first instance. The process is an administrative one’ (at para 17). Binns-Ward J stated at para 26 that: ‘Section 87(1)(a) provides for a negative response by the court to the application brought before it. It is to that provision that s 88(1)(b) effectively cross-references. The Act most certainly does not contemplate an application to the magistrates’ court for a declaration that the consumer is not over-indebted. Any such declaration would require a positive response to an application for which the Act makes no provision’.

Binns-Ward J further stated at para 27: ‘In short, the NCA just does not make provision for the sort of application conjured in para 4.2 of the Explanatory Note’.

In the Janse van Vuuren case the court had regard to the contrasting cases of Du Toit and Phaladi. The court stated in para 32 that the debt counsellor in Nel’s (one of the applicants in Janse van Vuuren) instance, namely where no rearrangement order has been made, may present the proposal to the magistrate together with additional information whereupon the magistrate will conduct a hearing in terms of s 87(1). It is unclear on what basis the honourable court came to this conclusion. The reason I pose this concern is because the basis for approaching the magistrate has changed entirely from being one of over-indebted to no longer being over-indebted. This as was stated in the Phaladi case and is not allowed for in the NCA. The debt counsellor in the Janse van Vuuren case made a determination that the consumer was over-indebted. The status of the consumer as determined by the debt counsellor in the Janse van Vuuren case is, therefore, completely different from the status of the consumer mentioned under s 87(1) of the NCA.

The Phaladi case is, therefore, the case to be cited with authority when dealing with the circumstances of a consumer who wants to exit the debt review process at a stage before any debt rearrangement order was made by the court.

Section 87(1) refers to only two instances in terms of which the magistrate’s court can reject a recommendation by a debt counsellor or can reject an application by a consumer as provided for under s 87(1)(a) of the NCA. These instances can be described as two legs of s 87(1) and can be set out as follows:

First leg

The debt counsellor accepted the application by the consumer and concluded that the consumer is not over-indebted and the debt counsellor then proceeded to ‘recommend that the consumer and the respective credit providers voluntarily consider and agree on a plan of debt re-arrangement’. In the event that the respective credit providers and the consumer do not firstly accept the proposal from the debt counsellor and thus no consent to such proposal being given by either the consumer or the credit providers, then only in that instance will the debt counsellor refer the matter (make the proposal) to the magistrate’s court with the recommendation. It is this recommendation by the debt counsellor, which can then be rejected under the first leg of s 87(1). It is important not to lose sight of the fact that the consumer is not over-indebted at this stage and never was. The court may then as per this first leg of s 87(1)(a) reject the proposal, which contains the recommendation which the debt counsellor originally made to the credit providers and the consumer. As stated before, it is important to note that this leg, therefore, still deals with the consumer who at that stage was not over-indebted.

Second leg

The debt counsellor after being approached by the consumer, rejects the application by the consumer to be placed under debt review. The debt counsellor after conducting an assessment, therefore, concludes that the consumer is not over-indebted. The consumer may (with leave of the court) apply to the magistrate court’s for an order in terms of s 86(7)(c). The magistrate’s court must conduct a hearing and after considering all the information before it (which will include the conclusion of the debt counsellor (whereby the consumer’s application was rejected by the debt counsellor), the consumer’s financial means, prospects and obligations) may reject the application by the consumer.

In both instances as mentioned in the two legs above, the consumer was not over-indebted.

Summary

The magistrate’s court is a creature of statute. Therefore, if the magistrate’s court is approached under s 87 a rejection is only possible if it falls into that criteria as demonstrated in the two legs above. It is clear that consumers, who fall outside the categories as stated in the two legs above, will have no recourse to approach the magistrate’s court. The consumer also cannot rely on r 55 of the MCA and more specifically sub-r (1)(j)(iii) of the Rules regulating the Conduct of the Proceedings of the Magistrates’ Courts (the Magistrates’ Courts Rules), as the consumer at that particular stage was not opposed to the application by the debt counsellor. The problem the consumer has as highlighted above is actually self-imposed as the credit providers are ‘forced’ to receive re-structured payments before the court declared such a consumer over-indebted and confirms the restructured payment plan. In short r 55 of the Magistrates’ Courts Rules does not allow for the consumer to approach the magistrate’s court once the debt counsellor has acted pre-emptively by restructuring the payments to credit providers and effecting same to the particular credit providers before the magistrate’s court has made such an order.

As stated in the Phaladi case by Binns-Ward J, the scheme under the NCA is a statutory concept. If any amendments are necessitated it will fall solely under the province of the Legislature. In s 71, the powers and duties of the debt counsellor are fully set out. The issues raised above do not fall under s 71 as the consumer’s debt under those circumstances was not rearranged in terms of part D of ch 4 of the NCA. There is no lacuna in the NCA. In practice the situation or problem experienced above mostly occasioned by the debt counsellor asking the credit providers to accept the new instalments or payments as per the proposal before such proposal is made an order of court. It then happens that this informal restructuring leads to the consumer’s financial situation improving before the debt counsellor approaches the court for an order. Under these circumstances the first respondent being the consumer will not have recourse to approach the magistrate’s court under r 55(1)(j)(iii) of the Magistrates’ Courts Rules.

Conclusion

In respect of the questions posed above, the answers in my view posed are as follows:

  • Question 1: No. The NCA and the Du Toit, Phaladi and Janse van Vuuren cases are clear on this aspect that the procedure under s 71 of the NCA must be followed.
  • Question 2: No. As stated by Binns-Ward J in the Phaladi case: ‘The NCA just does not make provision for the sort of application conjured in para 4.2 of the explanatory note.’ Also a proper reading of s 87(1) informs that the NCA does not allow for the magistrate’s court to attend to applications of this nature. The two legs under which applications or proposals may be rejected are succinctly set out above.
  • Question 3: No. Powers executed by debt counsellor is purely administrative.
  • Question 4: No. However, rules 31 and 32 of the Magistrates’ Court Rules can be used by the parties to place the matter before the magistrate’s court and to ask that application (for consumer to be declared over-indebted) be dismissed even if the applicant (debt counsellor) is not at court.
  • Question 5: No. The court will not have jurisdiction to make such an order and an order dismissing such an application should be made. The function, which the court is asked to exercise is purely administrative in nature, and should be dealt with by the debt counsellor. The Tribunal can be approached if the debt counsellor is unwilling or unable to attend to same.
  • Question 6: In conclusion, therefore, there is no lacuna in the law on the particular aspects raised above. It is important, however, to note that the debt counsellor must stay within the timeframes set out by the NCA and the regulations and bring the necessary applications within the prescribed time periods. Also just as important is the fact that no restructuring or debt rearrangement should be effected until the magistrate’s court or Tribunal has made its order. If the debt counsellor complies and acts within the parameters of the NCA, then no difficulties will be experienced by the consumers, debt counsellors or credit providers in practice.
  • See also: Limnandi Mtshemla ‘A discussion on the debt review process and conflicting judgments from South African courts’ 2022 (Sept) DR

Wayne Raphels BProc LLB (UWC) is an Additional Magistrate in Johannesburg.

This article was first published in De Rebus in 2022 (Oct) DR 17.

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