By Lebo Raborife-Nchabeleng
Administration orders are regulated by ss 74, 74A to 74W of the Magistrates’ Courts Act 32 of 1944. Section 74 provides that an administration order can be granted by the court with jurisdiction in the area where the debtor resides, carries on business or is employed if –
‘(1) … a debtor –
(a) is unable forthwith to pay the amount of any judgment obtained against him in court, or to meet his financial obligations, and has not sufficient assets capable of attachment to satisfy such judgment or obligations; and
(b) states that the total amount of all his debts due does not exceed the amount determined by the Minister from time to time by notice in the Gazette [which is currently R 50 000].’
The North West High Court, in Ex Parte MMK Maluleke and Related Applications (NWM) (unreported case no 7216/09, 10-11-2009) (Gumbo AJ), was called on to decide the following:
The presiding magistrate in the court a quo had granted the relief sought in an application in terms of s 74, but had suspended its operation in terms of the actual payment to creditors on condition that the affected creditors had to prove that they were not involved in reckless lending. In a review of this decision, Gumbo AJ in the North West High Court held that the presiding magistrate had erred in mixing the issues related to the NCA with those that are specifically dealt with in s 74 administration orders. Since the matters were unopposed, the presiding magistrate ought to have finalised the applications solely in accordance with the provisions of s 74 of the Magistrates’ Courts Act.
The decision in Ex Parte Maluleke only relates to a situation where the applicant is unable to satisfy an existing judgment and where he does not have assets that are capable of attachment to enable him to do so. Logic dictates that the court that granted that judgment considered whether the credit granted was reckless and whether the applicant was over-indebted.
The ruling did not, however, deal with the situation where a person applies for an administration order on the basis of an inability to meet financial obligations.
Does s 74 operate in isolation of, or exclusively from, the NCA?
The NCA came into force in different phases, namely 1 June 2006, 1 September 2006 and 1 June 2007.
The preamble to the NCA states that its purpose is, among others:
‘To promote a fair and non-discriminatory market place for access to consumer credit and for that purpose to provide for the general regulation of consumer credit and improved standards of consumer information; … to prohibit certain unfair credit and credit-marketing practices; [and] promote responsible credit granting and use and for that purpose to prohibit reckless credit granting… .’
Section 4(1) of the NCA provides that the Act applies to every credit agreement between parties dealing at arm’s length and made within, or having effect within, the Republic. This section also sets out exceptions and is to be read subject to both ss 5 and 6. Sections 8 to 11 set out what constitutes a credit agreement.
The applicant in an application for an administration order will, on most occasions, have debts arising from credit agreements. In practice, the difficulty presented by the NCA and the Magistrates’ Courts Act is that s 74A sets out the particulars that must appear in form 44 (application for an administration order under s 74(1)), without specifically mentioning that credit agreements for money loaned must form part of the documents to be submitted. Legal practitioners have argued in court that the magistrate’s court is a creature of statute and, if the drafters did not see the need to include such agreements in s 74A, the court cannot mero motu require same. However, if one looks at the words ‘inter alia’ in s 74A(2), the list is not exhaustive and any information or document of relevance can be added to form 44.
In instances where the applicant has submitted a list of his creditors and the amounts owing to them in terms of s 74A(e), and the court has required that the credit agreements entered into with those creditors be submitted to determine whether or not such are reckless, then the provisions of s 83 of NCA apply. Section 83 provides as follows:
‘(1) Despite any provision of law or agreement to the contrary, in any court proceedings in which a credit agreement is being considered, the court may declare that the credit agreement is reckless, as determined in accordance with this part.
(2) If a court declares that a credit agreement is reckless in terms of section 80(1)(a) or 80(1)(b)(i), the court may make an order –
(a) setting aside all or part of the consumer’s rights and obligations under that agreement, as the court determines just and reasonable in the circumstances; or
(b) suspending the force and effect of that credit agreement in accordance with subsection (3)(b)(i).
(3) If a court declares that a credit agreement is reckless in terms of section 80(1)(b)(ii), the court –
(a) must further consider whether the consumer is over-indebted at the time of those court proceedings; and
(b) if the court concludes that the consumer is over-indebted, the court may make an order –
(i) suspending the force and effect of that credit agreement until a date determined by the court when making the order of suspension; and
(ii) restructuring the consumer’s obligations under any other credit agreements, in accordance with section 87.
(4) Before making an order in terms of subsection (3), the court must consider –
(a) the consumer’s current means and ability to pay the consumer’s current financial obligations that existed at the time the agreement was made; and
(b) the expected date when any such obligation under a credit agreement will be fully satisfied, assuming the consumer makes all required payments in accordance with any proposed order.’
This raises the question whether the NCA empowers the court to raise the issue of the recklessness or otherwise of the credit agreement mero motu. The court is empowered by the following words in s 83(1): ‘Despite any provision of law or agreement to the contrary, in any court proceedings in which a credit agreement is being considered …’. The court is not empowered to raise any matter mero motu where the specific section in the Act is preceded by words such as ‘the court may upon application by either party, or applicant or affected person’, etcetera. If the court is not specifically excluded from raising the issue, then it must do so.
The effect of a failure to apply the provisions of the NCA to debts arising from credit agreements in applications for administration orders is that the court will indirectly encourage or promote irresponsible credit granting or credit applications. In all other civil actions or applications to enforce the credit agreements, the court has to determine whether the provisions of the NCA have been complied with before granting judgment.
In most instances, an application for an administration order will contain two or three debts from the same credit provider, which raises the question of reckless lending. That credit provider is supposed to have the resources to check whether the applicant is or will be over-indebted before granting credit. If the court fails to raise recklessness, the credit-providing industry will not be adequately regulated, which will defeat the purpose of the NCA.
Creditors or their attorneys are in a position to provide proof of their debts by submitting the credit agreement and any assessment done to prevent recklessness or over-indebtness.
Which Act would take precedence?
Magistrates derive their powers from the Magistrates’ Courts Act and from any other Act that specifically empowers them to make a particular ruling. I agree with Gumbo AJ in Ex Parte Maluleke that the NCA has not repealed s 74 of the Magistrates’ Courts Act; it is clear that both Acts can operate side by side.
It is often argued by attorneys that s 74B of the Magistrates’ Courts Act deals with how the hearing for an application for an administration order should be conducted and this does not make provision for a reckless credit inquiry in terms of s 80(1) of the NCA. However, if one looks at s 74B(1)(c), it provides for the court to require a creditor to substantiate its debt with evidence and defences in s 81(4) can be raised at this stage.
This shows that the two Acts can operate side by side, and it will be up to the court to decide which one empowers it to arrive at a particular ruling.
Lebo Raborife-Nchabeleng BProc (University of Botswana) is a magistrate in Northam.
This article was first published in De Rebus in 2012 (July) DR 36.
