Rampersad - Kereen - 2013 Book

The interface between the Insolvency Act 24 of 1936 and the National
Credit Act 34 of 2005
by
Kereen Rampersad
Submitted in partial fulfilment of the requirements for the degree
Masters in Business Law
in the
School of Law
at the
University of KwaZulu-Natal
Howard College
Supervisor: Professor Lienne Steyn
January 2013
ACKNOWLEDGMENTS
Firstly I would like to express my gratitude to God for providing me with strength and
confidence during the process of completing my dissertation, and for always guiding
me through life.
I am truly grateful to my supervisor, Professor Lienne Steyn. Even though she has a
very demanding career and a very busy life due to her meetings and workshops, she
made me her priority when I needed guidance and had always shown interest in me.
Thank you Professor Steyn for all the guidance and support, you are truly amazing.
I am thankful to my parents for supporting and encouraging me throughout the year. I

am especially grateful to my dad, Mr H Rampersad, for providing me with the
opportunity of furthering my studies and for always being my pillar of strength. I love
and adore you both very much.
I thank my best friend, my fiancé, Sherwin Munsamy for always believing in my

capabilities and for always supporting and encouraging me. Thank you for being
beside me through my trying times and for always lifting my spirit. I am truly grateful
to have you in my life.
i
ABSTRACT
The Insolvency Act 24 of 1936 regulates the debtor’s estate when sequestrated for the
benefit of creditors. The debtor must prove that sequestration will be to the advantage
creditors and as such creates a stumbling block in the way of the debtor when
applying for the voluntary surrender of his estate. Sequestration is viewed as a drastic
measure due to the consequences attached to it. The sequestration procedure is often
used by debtors as a form of debt relief as, subsequent to the sequestration procedure,
the debtor may become rehabilitated. The effect of rehabilitation is that it discharges
the debtor of all pre-existing debts and disabilities resulting from sequestration.
Compulsory sequestration is often used as a debt relief measure by the debtor in the
form of the so-called ‘friendly sequestration’. One of the reasons for this is that the
onus of proof is much less burdensome as compared to the onus required in voluntary
surrender by the debtor of his estate.
South African law provides for alternative debt relief measures falling outside the
scope of the Insolvency Act, including debt rearrangement in terms of section
86(7)(b) or debt restructuring in terms of section 86(7)(c) as a result of debt review in
terms of the National Credit Act 34 of 2005 (NCA). However this procedure does not
offer the debtor the opportunity of any discharge from his debts as the order expires
only after the administration costs and all of the listed creditors have been paid in full.
Further the NCA does not mention the Insolvency Act and this has led to problems in
the application of both Acts and inconsistencies between them. An application for
debt review by the debtor has been held to constitute an act of insolvency. Thus the
creditor can use this very act of the debtor to have the debtor’s estate sequestrated.
This is possible as an application for the sequestration of the debtor’s estate is not
considered to be an enforcement of a debt by legal proceedings for the purposes of
section 88(3) of the NCA and such actions by the creditor are not prohibited by the
NCA. This was stated in Investec Bank Ltd v Mutemeri 2010 (1) SA 265 (GSJ) and
was subsequently confirmed by Naidoo v ABSA Bank 2010 (4) SA 597. The
consequence of this is that a debtor’s estate may be sequestrated even where he has
applied for debt review. Currently, as stated by Van Heerden and Boraine, there is no
explicit regulation by the legislature of the interaction between the provisions of the
Insolvency Act and the NCA. In terms of FirstRand Bank v Evans 2011 (4) SA 597
ii
(KZD) a debtor’s estate may be sequestrated even after a debt rearrangement order
has been confirmed by a court in terms of the NCA. This clearly operates to the
disadvantage of a debtor.
Comparing the position with that in foreign jurisdictions such as the United States of
America and England and Wales shows a lack of balance between the interests of the
creditor and the debtor. South African insolvency law is not aligned with
internationally acceptable standards because it is too creditor orientated and debtors
are not provided with effective remedies to deal with their financial difficulties.
This research paper will focus on reform in South African law to assist debtors in
need of debt relief. There is a need for a system to be put into place to regulate
application for debt review by a debtor and the application for the sequestration of the
debtor’s estate by the creditor. In addition there is a need for the introduction of new
legislation or amendment to the NCA which could be effective in redressing the
current situation.
iii
TABLE OF CONTENTS
Acknowledgment i
Abstract ii
CHAPTER 1 INTRODUCTION 1
1.1 Background 1
1.2 Statement of purpose 4
1.3 Research methodology 5
CHAPTER 2 THE INSOLVENCY ACT 24 OF 1936 6

2.1 Background 6
2.2 Sequestration 7
2.2.1 Procedure and requirements 8
2.2.1.1 Voluntary surrender 8
2.2.1.2 Compulsory sequestration 10
2.2.2 Effects of sequestration 12
2.2.3 Rehabilitation of the insolvent debtor 13
2.3 Topical issues in the law of insolvency 14
2.3.1 Advantage of creditors 14
2.3.2 Acts of insolvency 16
2.4 Conclusion 17
CHAPTER 3 THE NATIONAL CREDIT ACT 34 OF 2005 19

3.1 Background 19
3.2 Over-indebtedness 19
3.3 Debt relief for over-indebtedness 20
3.4 Debt review 20
3.5 Debt restructuring 21
3.6 Debt enforcement 22
3.7 Conclusion 23
CHAPTER 4 THE INTERFACE BETWEEN THE INSOLVENCY ACT AND
THE NATIONAL CREDIT ACT 24
4.1 Background 24
4.2 Does an application for compulsory sequestration amount to
enforcement of a credit agreement ? 24
4.2.1 Investec Bank v Mutemeri 24
4.2.2 Naidoo v ABSA bank 26
4.3 Impact of section 8(g) of the Insolvency Act on the National Credit Act 28
4.3.1 Background 28
4.3.2 FirstRand Bank v Evans 29
4.3.2.1 Facts and issues 29
4.3.2.2 Decision 30
4.3.3 Collett v FirstRand Bank 31
4.3.4 FirstRand Bank v Janse van Rensburg 33
4.3.4.1 Facts and issues 33
4.3.4.2 Decision 33
4.4 Conclusion 34
CHAPTER 5 COMPARATIVE COMMENTS

AND RECOMMENDATIONS FOR SOUTH AFRICAN LAW
REFORM 38
5.1 Background 38
5.2 Comparative comments 38
5.2.1 The United States of America 38
5.2.2 England and Wales 41
5.3 Recommendations for South African law reform 44
CHAPTER 6 CONCLUSION 48
BIBLIOGRAPHY 50
CHAPTER 1
INTRODUCTION
1.1 Background
The main aim of the Insolvency Act 24 of 1936 (hereafter referred to as ‘the
Insolvency Act’) is to regulate the debtor’s estate when sequestrated, for the
‘advantage of creditors’. Section 2 of the Insolvency Act defines a sequestration order
to mean ‘an order made by the court whereby an estate is sequestrated’. The purpose
of a sequestration order is to secure an equitable distribution in a predetermined order
of the debtor’s assets among all creditors. South African insolvency law recognises
two methods in which a debtor’s estate may be sequestrated. The first is voluntary
surrender where the debtor himself applies to the court for the surrender of his1 estate.
The second is compulsory sequestration in which case one or more creditors of the
debtor apply for the sequestration of the debtor’s estate. It should be noted that the
burden of proof between these two methods differs in that the onus of proof is much
stricter in the case of voluntary surrender. This will be discussed further in 2.2.1.
South African insolvency law requires the satisfaction of ‘advantage of creditors’ as a

requirement for sequestration of the debtor’s estate. As a result it places a ‘stumbling
block’ in the path of debtors who wish to use sequestration as a means of debt relief.
When courts exercise its discretion in making a decision as to whether or not a
debtor’s estate should be sequestrated, the requirement of ‘advantage of creditors’ is
important. 2
Sequestration is viewed as a drastic measure. South African law provides for

alternative debt relief measures which fall outside the range of the Insolvency Act.
Such alternative measures may include making use of debt repayment plans with
creditors, debt rearrangement in terms of section 86(7) (b) or debt restructuring in
terms of section 86(7) (c) as a result of debt review under the National Credit Act 34
of 2005 (hereafter referred to as the NCA) which will be discussed further in chapter
1
Please note that the word ‘his’ connotes ‘her’ and the word ‘he’ connotes ‘she’.
2
Boraine and Roestoff (1993) De Jure 229 235-241.
1
3.3 Other alternatives are administration orders in terms of the Magistrates’ Courts
Act.4 The debtor may apply in terms of section 74 of the Magistrates’ Courts Act to a
magistrate for an administration order. This is subject to the debtor’s debts not
exceeding R50 000. This procedure, however, does not offer the debtor a discharge
from his debts because it is only after all listed creditors and administration costs have
been paid in full that the order expires. Consequently it prevents the debtor being
rehabilitated. In addition once the debtor has applied for an administration order and
notified all creditors, the creditor is not prohibited from applying for the debtor’s
estate to be sequestrated. A debtor, who applies for an administration order is obliged
to state that he is unable to pay any of his debts. Hence the debtor commits an act of
insolvency.5
Goosen J stated in the case of FirstRand Bank v Janse van Rensburg, that the
application to be placed under administration required for example, a submission of a
detailed statement of affairs setting out the financial affairs of the applicant in
addition to the delivery of a notice of the application to creditors. The application
itself meets the particular requirements of section 8(g) of the Insolvency Act, namely,
notice in writing delivered to a creditor in which the debtor states that he or she is
unable to meet his financial obligations.6
According to Van Heerden and Boraine, the debt restructuring process creates many
problems owing to a lack of procedural clarity. Van Heerden and Boraine state further
that the purpose of debt restructuring is fulfilment of financial obligations and without
any time limit being specified or the possibility of discharge, a credit might have no
other choice but to accept the payments according to the proposed restructuring order
even if it means that the restructuring of debts has the effect of taking the whole of the
debtor's lifetime to settle.7
3
Boraine and Van Heerden ‘To sequestrate or not to sequestrate in view of the National Credit Act 34
of 2005: a tale of two judgments’ 2010 13(3) PELJ 84.
4
Magistrates’ Courts Act 32 of 1944.
5
Volkskas Bank v Pietersen 1993 (1) SA 312 (C) 316; Sharrock , Smith & Van der Linde Hockly’s
Insolvency Law 8 ed (2006) ch 3.
6
FirstRand Bank v Janse van Rensburg 2012 (2) All SA 186 (ECP) (hereafter referred to as
FirstRand Bank v Janse van Rensburg) par 23-24.
7
Van Heerden and Boraine ‘The interaction between the debt relief measures in the National Credit
Act 34 of 2005 and aspects of Insolvency Law’ 2009 12(3) PELJ 31.
2
The NCA is a comprehensive piece of legislation which introduces into South African
law, new methods for protecting credit debtors.8 In terms of section 3 of the NCA, the
purposes are ‘to promote and advance the social and economic welfare of South
Africans, promote a fair, transparent, competitive, sustainable, responsible, efficient,
effective and accessible credit market and industry, and to protect debtors. Some of
the aims of the NCA are to discourage reckless credit granting as provided for in
section 80 and 81, to address and prevent over-indebtedness of debtors, and to provide
methods for resolving over-indebtedness based on the principle of satisfaction of all
financial obligations. This is achieved through the application for debt review by the
debtor as provided for be sections 86 of the NCA.
However, an application for debt review by the debtor has been held to constitute an
act of insolvency under the Insolvency Act.9 Thus the creditor can use this very act of
the debtor to have the debtor’s estate sequestrated. This would be possible since an
application to have the debtor’s estate sequestrated is not considered to be an
enforcement of a debt by legal proceedings for the purposes of the NCA10 and such
actions by the creditor are not prohibited. This was stated in Investec Bank Ltd v
Mutemeri11 and was subsequently confirmed by Naidoo v ABSA Bank.12 It is
submitted that as a result of this, a debtor’s estate may be sequestrated even if he has
applied for debt review. Consequently, there is a need for the regulation of
applications for sequestration when a debtor has applied for debt review. It is
submitted that, currently there, is no explicit regulation by the legislature of the
interaction between the provisions of the Insolvency Act and the NCA.
Section 2(1) of the NCA provides that the Act must be interpreted in a manner that
‘gives effect to the purposes of the Act’. Section 2(7) of the NCA provides that
‘except as specifically set out in or implied by the Act, its provisions should not be
construed as limiting, amending, repealing or otherwise altering any provision of any
other Act’. It is submitted that the NCA does not make mention of the Insolvency Act.
Schedule 1 of the NCA sets out rules regarding conflicting legislation and no mention
8
Otto & Otto The National Credit Act Explained 2 ed (2010) Lexis Nexis p 4.
9
Please refer to discussion on s 8 of the Insolvency Act in ch 2, par 2.3.2 below.
10
See s 88(3) of the NCA.
11
Investec Bank v Mutemeri 2010 (1) SA 265 (GSJ) (hereafter referred to as Investec Bank v
Mutemeri’).
12
Naidoo v ABSA Bank 2010 (4) SA 597 (hereafter referred to as Naidoo v ABSA Bank).
3
of the Insolvency Act is made. Van Heerden and Boraine state that had the legislature
intended for the provisions of the NCA to prevail over conflicting provisions of the
Insolvency Act, then the legislature would have expressly stated so in Schedule 1.13
A further aspect is that, in terms of FirstRand Bank v Evans,14 a debtor’s estate may
be sequestrated even after a debt rearrangement order has been confirmed by a court
in terms of the NCA. The sequestration order may be granted on the basis that the
debtor committed an act of insolvency by his very act of applying for debt review
under the NCA. This clearly operates to the disadvantage of a debtor. The debtor
resorts to a debt relief measure that the NCA affords him, only to find that he has
placed himself in the position where it is much easier for the creditor to obtain a
sequestration order against him. His act of seeking debt relief under the NCA forms
the very basis of the sequestration proceedings.
A comparative study with foreign jurisdictions such as the United States of America
(USA) and England and Wales shows a lack of balance in South Africa between the
interests of the creditor and the debtor. Insufficient attention is being given to the need
for debt relief measures that operate in the interests of debtors. In addition South
African insolvency law is not aligned with internationally acceptable standards
because it is too creditor orientated and debtors are not provided with effective
remedies to deal with their financial difficulties.
1.2 Statement of Purpose

The purposes of this study are as follows.
• This study seeks to address an apparent undue advantage given to the creditor
by the Insolvency Act. Such an undue advantage is that the creditor is entitled
to apply for an order to have the debtor’s estate sequestrated upon the debtor’s
application for, and while under, debt review in terms of the NCA. An
application for debt review, in terms of the NCA, has been held not to
preclude a creditor from applying for and obtaining an order for the
13
Act 34 of 2005 and aspects of insolvency law’ 2009 12 (3) PELJ 36.
14
FirstRand Bank v Evans 2011 (4) SA 597 (KZD) (hereafter referred to as ‘FirstRand Bank v Evans’)
pars 24 -26.
4
sequestration of the debtor’s estate. This is unsatisfactory from the debtor’s
perspective due to the severe consequences of a sequestration order. The
sequestration order does not only affect the debtor in a harsh and adverse
manner but also his or her family and dependants.
• This study seeks also to consider the need for the Insolvency Act and the NCA
to become aligned with each other so that the debtor is not deprived by the
creditor of the relief offered by the NCA and thus leaving the debtor in a
worse off situation.
• Further, the purpose of the research is also to provide comparative comments

on the systems in England and Wales and in the USA in order to consider
appropriate reforms which could be brought about in South Africa to ensure a
more debtor friendly approach.
1.3 Research methodology

The research methodology for this dissertation is desk-top based. It will involve
locating and researching case law and journal articles dealing with the interface
between the Insolvency Act and the NCA. This dissertation will consist of research on
articles providing discussion of whether the Insolvency Act and the NCA are in line
with each other or not. Research will also consist of comparisons being drawn
between the South African insolvency and consumer-debtor legislation and the
systems in the USA and England and Wales.
5
CHAPTER 2
THE INSOLVENCY ACT 24 OF 1936
2.1 Background
The primary objective of the Insolvency Act is not to grant relief to the debtor. This
was stated in the case of R v Meer,15 where the court stated that ‘the Insolvency Act
was passed for the benefit of creditors and not for the relief of harassed debtors’.
Further, in section 6 and section 10 of the Insolvency Act, one of the requirements
which must be met in order for the debtor’s estate to be sequestrated, is that it must be
to the ‘advantage of creditors’. Thus South African insolvency law is very creditor
orientated.
The debtor himself or his agent may apply to the court for the voluntary surrender of
his estate or a creditor or creditors may apply to the court for the compulsory
sequestration of the debtor’s estate. The purpose of a sequestration order is to ‘secure
an equitable distribution in a predetermined order of the debtor’s assets among all of
creditors’.16 Section 8 of the Insolvency Act provides for acts of insolvency which,
once committed by the debtor, entitles a creditor to apply for the compulsory
sequestration of the debtor’s estate without proving actual insolvency.
Section 124 of the Insolvency Act allows an insolvent to apply for rehabilitation.
Section 129(1) of the Insolvency Act provides that rehabilitation of an insolvent offers
him a discharge from pre-sequestration debts, except those arising out of fraud on his
part. It also relieves him of every disability resulting from sequestration.
This chapter will provide a brief overview on the sequestration procedures that are
available under the Insolvency Act. Further the chapter will provide an explanation of
how rehabilitation of an insolvent debtor is granted and its effect. This chapter will
provide an analysis of the requirement ‘advantage of creditors’ and whether or not it
operates unfairly towards the insolvent debtor. Finally this chapter will provide an
15
R v Meer 1957 (3) SA 614 (N) at 619 (hereafter referred to as R v Meer).
16
Sharrock, Smith & Van der Linde Hockly’s Insolvency Law 8 ed (2006) ch 2.
6
overview of the acts of insolvency as provided in section 8 of the Insolvency Act.
Focus will be specifically on section 8(g).
2.2 Sequestration
The Insolvency Act regulates the sequestration of the debtor’s estate. The main aim of
the sequestration process is to provide for a ‘collective debt collection process,17 by
ensuring an orderly and fair distribution of the debtor’s assets in circumstances where
these assets are insufficient to satisfy all the creditors’ claims’.18 For the purposes of
sequestration proceedings the legal test for insolvency is namely, ‘whether or not the
debtor's liabilities, fairly estimated, exceed his assets, fairly valued’.19
A requirement of the Insolvency Act is that sequestration can only take place if it is
proved to be to the ‘advantage of creditors’, as the very purpose of the Insolvency Act
is to secure an advantage for creditors. The law proceeds from the principle that once
a sequestration order is granted, a ‘concursus creditorum’ is established and the
interests of all the creditors as a group enjoy preference above the interests of
individual creditors.20
In Walker v Syfret,21 the court explained the legal position as follows:

The object of the Insolvency Act is to ensure a due distribution of assets
among creditors in order of their preference. The sequestration order
crystallises the insolvents position; the hand of the law is laid upon the
estate, and at once the rights of the general body of creditors have to be
taken into consideration. No transaction can thereafter be entered into
with regard to estate matters by a single creditor to the prejudice of the
general body.
17
Steyn Statutory regulation of forced sale of the home in South Africa (Doctor of Laws thesis,
University of Pretoria, 2012) 14-15; The terms ‘collective debt collection process’ and ‘collective debt
enforcement process’ are commonly used by many authors, for example Bertelsman et al Mars and
refers to the insolvency process. In South Africa, these terms are given a meaning that is known to be
wrong, in light of the decision in Investec Bank Ltd and Another v Mutemeri the court held that
sequestration does not amount to an ‘enforcement’ of a credit agreement for the purposes of s 88(3) of
the NCA.
18
Bertelsmann et al Mars The Law of Insolvency 9 ed (2008) ch 1; Sharrock, Smith & Van der Linde
Hockly’s Insolvency Law 8 ed (2006) ch 1.
19
Venter v Volkskas Ltd 1973 (3) SA 175 (T) 179.
20
Bertelsmann et al Mars The Law of Insolvency 9 ed (2008) ch 1; Sharrock, Smith & Van der Linde
Hockly’s Insolvency Law 8 ed (2006) ch 1.
21
Walker v Syfret 1911 AD 141 (hereafter referred to as ‘Walker v Syfret’).
7
A debtor’s estate may be sequestrated in one of two ways in terms of the Insolvency
Act. This is either through voluntary surrender by the debtor of his estate or through
compulsory sequestration by one or more creditors of the debtor. The sequestration
procedure is often used by debtors as a form of debt relief because, subsequent to the
sequestration procedure, the debtor becomes rehabilitated. The effect of rehabilitation
is that it discharges the debtor of all pre-existing debts and disabilities resulting from
sequestration. Compulsory sequestration is commonly used as a debt relief measure
by the debtor in the form of the so-called ‘friendly sequestration’. One of the reasons
for this is that the onus of proof is much less burdensome as compared to the onus
required in voluntary surrender by the debtor of his estate. Courts have thus become
wary of possible abuse of the sequestration procedure in the form of friendly
sequestration. 22
It has been stated that sequestration would not be possible if the debtor’s assets will
be consumed by sequestrating the estate and nothing will be left for creditors. Courts
will only grant a sequestration order if the result of the sequestration would be an
‘appreciable dividend’ for creditors.23 Further the sequestration process was not meant
for the benefit of debtors; however the sequestration procedure has this effect as it
relieves the debtor from legal proceeding by creditors. This means that once the
sequestration procedures have commenced, it has the effect of staying all legal
proceedings against the debtor by creditors. In addition, in terms of section 129(1) (b)
of the Insolvency Act, the debtor, through rehabilitation becomes free of all pre-
sequestration dents.24
2.2.1 Procedure and requirements
2.2.1.1 Voluntary surrender

Section 3(1) of the Insolvency Act provides that the debtor or his agent may apply to
court for acceptance of the surrender of his estate. Section 6(1) of the Insolvency Act
provides the requirements which must be satisfied when an application for the
voluntary surrender of the debtor’s estate is made. Section 6(1) of the Insolvency Act
22
23
Sharrock, Smith & Van der Linde Hockly’s Insolvency Law 8 ed (2006) p 4.
24
8
provides that the court may accept the surrender of the debtor’s estate only if the court
is satisfied that:
• the debtor’s estate is factually insolvent, that is the debtor’s liabilities must
exceed his assets;
• the debtor owns realisable property of sufficient value to cover all
administration costs which will be payable out of the free residue25 of his
estate in terms of the Insolvency Act;
• the sequestration will be to the ‘advantage of creditors’; and
• all the formalities set out in section 4 of the Insolvency Act have been
complied with.
It should be noted that the debtor bears the onus of proof. Section 4 of the Insolvency
Act, sets out the steps which must be followed by the debtor before applying for the
surrender of his estate.
Notice of intention to surrender:

The first step is to publish a notice of surrender in the Government Gazette, as well as
in a newspaper circulating in the area where he resides. Further if the debtor is a
trader, the notice must be published in a newspaper in the district where he has his
principal place of business. The notice must provide full details about the debtor, state
the date upon which the application to surrender will be made to court and state where
and the period the debtor’s statement of affairs will lie for inspection. The notice
serves the purpose of alerting creditors to the fact the debtor wishes to surrender his
estate. Publication of the notice to surrender must take place no more than 30 days
and not less than 14 days before the date sated in the notice for bringing the
application to court.26
Notice to creditors and other parties:

The debtor must provide a copy of the notice of intention to surrender to creditors and
other parties within 7 days after the publication of the notice. In terms of section 4(2)
(a) of the Insolvency Act, ‘the debtor must deliver or post a copy of the notice to each
25
S 2 of the Insolvency Act defines ‘free residue’ as ‘that portion of the estate which is not subject to
any right of preference by reason of any special mortgage, legal hypothec, pledge or right of retention’.
26
9
creditor whose address he knows or can ascertain’. It is submitted that the object of
this requirement is to ensure the creditors’ interests are protected. Section 4(2) (b) (i)
of the Insolvency Act requires that the debtor post a copy of the notice to every
registered trade union which represents his employees. Further section (2) (b) (iii) of
the Insolvency Act requires that the debtor send a copy of the notice by post to the
South African Revenue of Services.27
Section 4(3) of the Insolvency Act requires that the statement of affairs of the debtor
together with supporting documentation must be lodged in duplicate at the Master’s
office. The statement of affairs must lie at all times during the office hours for a
period of 14 days in order for creditors to inspect them. This is required by section
4(6) of the Insolvency Act. It should be noted that although a court may be satisfied
that the requirements have been met and formalities have been adhered to, the court
still has discretion to reject the surrender of the debtor’s estate in terms of section 6(1)
of the Insolvency Act.28
2.2.1.2 Compulsory sequestration

Section 9(1) of the Insolvency Act provides that a creditor (or his agent) may apply to
the court to have the debtor’s estate sequestrated. The court must be satisfied that:
• the applicant has established a claim which in terms of section 9(1) of the
Insolvency Act entitles him to do so;
• the debtor has committed an act of insolvency29 or is insolvent;30
• there is reason to believe that the sequestration will be to the advantage of
creditors if his estate is sequestrated in terms of section 10 of the Insolvency
Act.31
27
28
Sharrock, Smith & Van der Linde Hockly’s Insolvency Law 8 ed (2006) p 22-27.
29
S 8 of the Insolvency Act deals with acts of insolvency and list eight acts which once performed by
the debtors is conclusive that the debtors is insolvent. For example, s 8(g) provides that a debtor
commits an act of insolvency ‘if he gives notice in writing to any one of his creditors that he is unable
to pay any of his debts’.
30
In the case of Venter v Volkskas 1973 (3) SA 175 (T) 179, the court held that the legal test for
insolvency is namely, whether or not the debtor's liabilities, fairly estimated, exceed his assets, fairly
valued.
31
10
In compulsory sequestration, the creditor bears the onus of satisfying the court that the
requirements are met. The court must be satisfied that there is reason to believe that
the sequestration will be to the advantage of creditors. It must be shown that creditors
are actually going to get some money from the sequestration and not just a negligible
dividend.32
In a case of compulsory sequestration, the sequestrating creditor will have to appear

before the court twice. In the first instance, the sequestrating creditor will have to
apply for a provisional order for sequestration in terms of section 10 of the Insolvency
Act. For a provisional order, a prima facie case must be established. The purpose of
the second appearance before the court is to have the provisional order confirmed and
made final in terms of section 12 of the Insolvency Act. For a final order, proof is
required on a balance of probability.33
Friendly sequestrations
It has become a common practice for debtors to arrange with a family member or a
friend to whom he owes money, to have his estate sequestrated. Commonly both
parties may agree that the debtor will write a letter indicating that he cannot meet his
financial obligations with respect to the debt owed and as such the other person would
then apply for the sequestration of the debtor’s estate on the basis that the debtor
committed an act of insolvency. It has been stated that friendly sequestrations are not
illegal in nature but nevertheless open the door for collusion and other malpractices
and thus courts are wary of this.34
35
In the case of Mthimkhulu v Rampersad, the court described the manner in which
sequestration procedures may be abused. From the judgment it is evident that friendly
sequestrations are often brought with the aim of obtaining a stay in civil proceedings
and the stay of a sale in execution. The debtor resorts to friendly sequestration instead
of voluntary surrender because it may be obtained on an urgent basis without having
to satisfy the preliminary requirements or giving creditors notice. Further it involves a
32
33
S 10 and 12 of the Insolvency Act; Sharrock, Smith & Van der Linde Hockly’s Insolvency Law 8 ed
(2006) ch 2.
34
Sharrock Business Transactions Law 8 ed (2011) p 799.
35
Mthimkhulu v Rampersad (2000) 3 All SA 512 (N) 514.
11
less stringent onus as the creditor merely has to establish that there is reason to
believe that sequestration will be to the advantage e of creditors and not that it will
be.36
Nevertheless, case law reveals that the court has a duty to scrutinize and examine the
application for friendly sequestration with diligence, to establish advantage of
creditors and, to prevent them from being prejudiced.37
2.2.2 Effects of sequestration

Sequestration is viewed as a very drastic measure in South African insolvency law. As
a result alternative methods to sequestration would be applied and considered. These
are means provided in terms of the NCA such as debt review. Sequestration is seen as
a last resort due to its harsh consequences, not only for the insolvent himself but also
for his spouse.38
In the case of Spencer v Standard Building Society39 the court held, ‘sequestration of
the debtor’s estate imposes upon him a form of reduction in status, which as a result
curtails his capacity to contract, earn a living, to litigate and hold office’.
Some of the consequences of sequestration on the debtor are as follows:

• According to section 23(3) of the Insolvency Act, during the sequestration of
the debtor’s estate, he may not, without the trustee’s written consent, carry on,
or be employed in any capacity or have any direct or indirect interest in the
business of a trader.
• Upon the sequestration of the insolvent debtor’s estate, the insolvent is
disqualified from holding various positions. For example, in terms of section
55(a) of the Insolvency Act, the insolvent cannot be appointed as a trustee in
an insolvent estate if he is already a trustee when his estate is sequestrated.
Section 58(a) of the Insolvency Act requires that the insolvent vacate his
office.
36
37
Craggs v Dedekind 1996 1 SA 935 (C), Ex Parte Steenkamp 1996 3 SA 822 (W).
38
See s 21 of the Insolvency Act.
39
Spencer v Standard Building Society 1931 TPD 481 484.
12
2.2.3 Rehabilitation of the insolvent debtor
Section 127A of the Insolvency Act provides that if an insolvent is not rehabilitated
by a court within the period of 10 years from the date on which his estate was
sequestrated, he is deemed to be rehabilitated unless, upon the application by an
interested, the court orders otherwise. The consequence of the rehabilitation of the
insolvent debtor is that he regains his solvent status.40
The circumstances in which a court may rehabilitate an insolvent debtor are the
following:
a) in terms of section 124(1), a statutory composition in terms of which the dividend
to concurrent creditors of at least 50cents in the rand has been paid or security has
been given;
b) in terms of section 124(2)(a) an insolvent may apply to the Court after twelve
months have expired from the confirmation by the Master of the trustee’s first
account in the insolvent debtor’s estate subject to the following:
• The current sequestration should be the first in the insolvent debtor’s history:
• The insolvent debtor should not have been convicted of a fraudulent act or
offence under the Insolvency Act; and
• He must have the recommendation of the Master where, at the date of the grant of
the application, four years from the date of sequestration of his estate have not
elapsed;
c) the insolvent debtor may apply to Court after the expiration of six months from the
date of sequestration if no claim has been proved against his estate, and his estate has
not been previously sequestrated;
d) section 124(5) allows the insolvent debtor to apply to the Court for rehabilitation
any time after confirmation by the Master of a distribution plan providing for
payment in full of all claims proved against the estate with interest and of all the costs
of sequestration.
Once the insolvent debtor is rehabilitated, whether it is automatic (after 10 years) or

granted by the Court, the result is that, it eliminates the debtor’s status as an insolvent,
it puts an end to sequestration and relieves the insolvent of all disabilities resulting
40
Sharrock Business Transactions Law 8 ed (2011) p 856; INSOL International Consumer Debt Report
II 277-279.
13
from sequestration. It also discharges each of the debtor’s debts existing at the date of
sequestration.41
2.3 Topical issues in the law of insolvency

Discussions in the law of insolvency have centred on the requirement of ‘advantage of
creditors’. Advantage of creditors as a requirement for sequestration applications
creates difficulties for debtors that wish to make use of sequestration as a debt relief
measure. The Insolvency Act ensures creditors benefit and as such the requirement of
‘advantage of creditors’ cannot be separated from the Insolvency Act. Further, acts of
insolvency, especially section 8(g), have captured much attention as it is commonly
used during an application for the so-called ‘friendly sequestration’. An understanding
of section 8(g) is important as its relationship with the NCA is considered below.42
2.3.1 Advantage of creditors

South African insolvency law requires the satisfaction of ‘advantage of creditors’ as a
requirement for the sequestration of the debtor’s estate. As a result it places a
‘stumbling block’ in the way of the debtor.43 It is submitted that the Insolvency Act
makes certain that the sequestration will be to the ‘advantage of creditors’ and as such
this requirement cannot be separated from the Insolvency Act.
In the case of Lotzof v Raubenheimer44 the court held that the word ‘creditors’ meant
‘all or at least the general body of creditors’. In the case of Walker v Syfret 45 the court
held that ‘the sequestration order crystallises the insolvent’s position. As such the
hand of the law is placed upon the estate, and the rights of the general body of
creditors have to be considered’. The court stated that it is often on the basis of
‘advantage of creditors’ that a court will refuse to grant an order for sequestration
despite all the other requirements been satisfied. It is important to note that the
‘advantage of creditors’ requirement is more strict in an application for voluntary
surrender than in compulsory sequestration. In compulsory sequestration, the
applicant merely has to allege that ‘there is reason to believe that it will be to the
41
Sharrock Business Transactions Law 8 ed (2011) p 861.
42
Please refer to ch 4, subheading 4.3 for further discussion.
43
44
Ltozof v Raubenheimer 1959 (1) SA 90 (0) 94.
45
Walker v Syfret 1911 AD 141.
14
advantage of his creditors’ as provided for in section 10 of the Insolvency Act.
However in voluntary surrender the court must be satisfied that ‘it will be to the
advantage of the creditors’ if the debtor’s estate is sequestrated as provided for in
section 6 of the Insolvency Act.46 In the case of Ex Parte Bergh47 it was stated that’
there are two key requirements in a voluntary surrender, namely that there must be
sufficient reasonable assets to defray the costs of the sequestration, and that the
surrender will be to the advantage of creditors’.
According to Meskin,48 a civilised system of law which allows the obtaining of credit,
must provide a means to help a debtor that is harassed by unpaid creditors,
particularly where the cause of his financial crisis is not dishonesty but due to
misfortune.
In the case of Trust Wholesalers and Woollens (Pty) Ltd v Mackan49 the court held
that in establishing ‘advantage of creditors’ the question to ask is ‘whether a
‘substantial portion’ of the creditors will derive a benefit from sequestration of the
debtor’s estate?’. It was stated further that for sequestration to be to the advantage of
creditors it must ‘yield at the least, a non negligible dividend’. In Ex parte Steenkamp
and related cases50 the court held that, if after the costs of sequestration have been
met, there is no payment to creditors, or, if there is payment’ it is only a negligible
one, then there is no advantage to creditors.51
The case of Nedbank v Thorpe52 dealt with the expression of ‘advantage of creditors’.
Nedbank v Thorpe has made mention of two important cases mentioned below. It was
stated in Nedbank v Thorpe that the leading case is Meskin & Co v Friedman53 where
Roper J stated as follows:
46
Van Heerden and Boraine "The interaction between the debt relief measures in the National Credit
Act 34 of 2005 and aspects of Insolvency Law" 2009 12(3) PELJ 43.
47
Ex Parte Bergh 1938 CPD 131.
48
Meskin, PM “Advantage to creditors: a misconceived requirement” Unpublished conference paper
presented at the Annual Banking Law Update, held at Rand Afrikaans University, Johannesburg,
August (1995).
49
Trust Wholesalers and Woollens (Pty) Ltd v Mackan 1954 (2) SA 109 (N) 111.
50
Ex parte Steenkamp and related cases 1996 (3) SA 822 (W).
51
52
Nedbank v Thorpe (7392/2007) [2008] ZAKZHC 72 (26 September 2008) (available at
http://www.safli.org/za/cases/ZAKZHC/2008/72.html) hereafter referred to as Nedbank v Thorpe.
53
Meskin & Co v Friedman 1948 (2) SA 555 (W) 558 559.
15
Sequestration confers upon the creditors of the insolvent certain
advantages which, though they tend towards the ultimate pecuniary benefit
of the creditors, are not in themselves of a pecuniary character…In my
opinion, the facts put before the Court must satisfy it that there is a
reasonable prospect - not necessarily a likelihood, but a prospect which is
not too remote - that some pecuniary benefit will result to creditors. It is
not necessary to prove that the insolvent has any assets. Even if there are
none at all, but there are reasons for thinking that as a result of enquiry
under the Act some may be revealed or recovered for the benefit of
creditors that are sufficient.54
The expression ‘advantage of creditors’ is regarded as a ‘misconceived’ requirement

for sequestration by many academics, including Meskin. It should be noted that
advantage of creditors is not a requirement in the winding up of a company. In such a
case the court considers advantage of creditors in the exercise of its discretion, but
does not and cannot refuse to grant a winding up order merely on the grounds that
there will be no advantage of creditors. It is submitted that what this expression
entails is that the court must utilise its discretion, upon investigation into the debtor’s
affairs to determine whether granting the sequestration will be to the advantage of
creditors. It is submitted further that the requirement of ‘advantage of creditors’ is a
clear indication of the creditor orientated approach that is followed by South Africa. It
is submitted that honest and poor debtors that wish to use sequestration procedures as
a form of debt relief are saddled with having to satisfy the ‘advantage of creditors’
requirement in order to have their estate sequestrated.
2.3.2 Acts of insolvency

The legislature has designated certain acts or omissions by a debtor as ‘acts of
insolvency’ in section 8 of the Insolvency Act. This was done because it is possible
that a creditor may have grounds to believe that the debtor is insolvent but may not be
in a position to prove that the debtor is insolvent. If a creditor is able to show that the
debtor has committed an act of insolvency, the creditor may seek an order to have the
54
Nedbank v Thorpe (7392/2007) [2008] ZAKZHC 72 (26 September 2008) par 38.
16
debtor’s estate sequestrated without having to prove actual insolvency.55 In the case of
DP du Plessis Prokureurs v Van Aarde56 the court stated that ‘the debtor’s estate may
be sequestrated even if he is theoretically solvent’.
For purposes of this paper, the focus will be on section 8(g) of the Insolvency Act. In
terms of this subsection, a debtor commits an act of insolvency ‘if he gives notice in
writing to any one of his creditors that he is unable to pay any of his debts’. Section
8(g) requires inability to pay any single debt.57 The debtor does not commit an act of
insolvency merely by notifying the creditor orally that he is incapable of paying his
debts.58 In the case of Court v Standard Bank of SA Ltd; Court v Bester59 the court
held that ‘when a debtor gives notice of inability to pay to the creditor, the court must
consider whether a reasonable person in the position of the receiver who had
knowledge of the relevant circumstances would have interpreted the notice to mean
that the debtor could not pay his debts’.
A common occurrence of a section 8(g) notice is where the debtor or his attorney
writes a letter to the creditor which informs the creditor that the debtor is presently
unable to pay the debt and offers to pay it in instalments.60 If further information
indicates, from the debtor’s circumstances that he is not unable to pay, but simply
unwilling to pay his debts, then on such basis the debtor does not commit an act of
insolvency.61
2.4 Conclusion
It is submitted that South African insolvency law is very creditor orientated. It is
submitted further that the sequestration procedures are mainly in place to ensure that
creditors benefit and that their interests are protected. Courts have become aware of
possible abuse of sequestration proceedings when brought as a friendly sequestration
and as a result are stricter when considering such an application. Sequestration does
55
De Villiers v Maursen Properties (Pty) Ltd 1983 (4) SA 670 (T) 676; Sharrock , Smith & Van der
Linde Hockly’s Insolvency Law 8 ed (2006) ch 3.
56
DP du Plessis Prokureurs v Van Aarde 1999 (4) SA 1333 (T) 1335; R D Sharrock , A D Smith & K
Van der Linde Hockly’s Insolvency Law 8 ed (2006) ch 3.
57
Optima Fertilizers (Pty) Ltd v Turner 1968 (4) SA 29 (D) 32-33.
58
Patel v Sandy 1936 CPD 466 469.
59
Court v Standard Bank of SA Ltd; Court v Bester 1995 (3) SA 123 (A) 133.
60
Goldblatt’s Wholesalers (Pty) Ltd v Damalis 1953 (3) SA 730 (O) 732.
61
Barlow’s (Eastern Province) Ltd v Bouwer1950 (4) SA 285 (E) 390.
17
have a negative impact on the debtor. For example, it affects the debtor’s status, as
stated above.
It is submitted further that the requirement of ‘advantage of creditors’ creates a

challenge for debtors who wish to use sequestration as a debt relief mechanism. It is
submitted that in satisfying this requirement, there are difficulties faced by poor and
honest debtors that experience financial crisis due to misfortune and are unable to
account for administration costs in proving advantage of creditors.
It is submitted that because of the requirement of ‘advantage of creditors’ being a pre-

requisite for sequestration of the debtor’s estate, poor or underprivileged debtors are
unable to obtain sequestration orders.
It is of interest to note that the unofficial working draft of a proposed Insolvency and
Business Recovery Bill 201062 does not include the ‘advantage of creditors’ as a
requirement for sequestration. This can be viewed as a positive step as it will facilitate
even poor debtors to successfully apply for sequestration, regardless of their wealth.
However, this also has a negative effect, such as the abuse of procedure by dishonest
debtors. As such, measures should be introduced to prevent dishonest debtors from
obtaining rehabilitation until they have paid all their previous debts. However it is
submitted that to reach a conclusion as to whether or not a debtor is dishonest may be
difficult.
62
A copy of the latest version of the Bill is on file with the author and is available upon request from
Mr MB Cronje, of the Department of Justice and Constitutional Development, who was the researcher
responsible for the South African Law Reform Commission’s review into the law of insolvency,
completed in 2000.
18
CHAPTER 3
THE NATIONAL CREDIT ACT 34 OF 2005
3.1 Background
Section 3 of the NCA states the purpose of the NCA. For example, section 3(g) of the
NCA state that it attempts to deal with over-indebtedness through debt review. This
method is based on the principle of ‘full satisfaction of the debtor's financial
obligations’. The debtor may, through debt review, obtain a rescheduling of his debt,
either by voluntary rearrangement plan63 including all of his credit providers or as
ordered by a court.64 Section 86 (c) (ii) of the NCA provides that rescheduling of the
debt due may involve a rearrangement of the debtor's obligations. This is done by
extending the payment period and accordingly reducing the amount of each payment
due.
Otto and Otto state that, the NCA introduces extremely important new provisions into
South African law which aim at granting debtors who are over-committed with a
‘second chance’ by being declared over-indebted with rescheduling of their debt
payments.65 In the case of FirstRand Bank Ltd v Olivier66 the court held that the
purpose of the NCA is:
‘to provide for debt reorganisation of a person who is over-indebted, thereby
affording that person to survive the immediate consequences of his financial
distress and to achieve a manageable financial position.’
3.2 Over-indebtedness
According to section 79(1) of the NCA a debtor is over-indebted ‘if the
preponderance of available information at the time the determination is made,
indicates that the debtor is or will be unable to satisfy in a timely manner all the
obligations under all the credit agreements to which the debtor is a party’.
Consideration of the debtor’s financial means, prospects and obligations and possible
tendency to satisfy in a timely manner all obligations under credit agreements are
63
S 86(7) (b) of the NCA.
64
S 86(7) (c) of the NCA.
65
Otto & Otto The National Credit Act Explained 2 ed (2010) Lexis Nexis 58.
66
FirstRand Bank Ltd v Olivier 2009 (3) SA 353 (SECLD) 357.
19
taken into account.67 According to Van Heerden and Boraine, over-indebtedness does
not only relate to existing incapability to fulfil obligations but, extends to future or
immediate inability. Hence the use of the words ‘or will be unable to satisfy’ in
section 79(1). 68
3.3 Debt relief for over-indebtedness

When a debtor finds himself to be in a position where he is over-committed and
unable to satisfy his financial obligations, he may make use of the debt relief
mechanism provided by the NCA. A purpose of the NCA, as stated in section 3(g), is
to address and prevent over-indebtedness of debtors and provide methods for
resolving over-indebtedness. The section 86 of the NCA offers debtors who are in
financial difficulty the option of debt review. Section 86(1) of the NCA allows a
debtor to apply to a debt counsellor to have himself declared over-indebted.69
3.4 Debt review

Section 86 of the NCA, read simultaneously with regulations 24 to 26, sets out the
procedure for debt review. Debt review generally consists of two different stages.
Firstly, in terms of section 86 (1) of the NCA debt review, takes place before the debt
counsellor who reviews the debtor’s credit agreements and makes a determination as
to whether the debtor is over-indebted or whether credit was granted recklessly.
Secondly, in terms of section 138 of the NCA, the debtor files a voluntary repayment
plan with the court as a consent order or in terms of section 85 of the NCA70 in court
proceedings. At this stage it is alleged that a debtor is over- indebted. The court may
67
S 79(3) of the NCA.
68
Act 34 of 2005 and aspects of Insolvency Law’ 2009 12(3) PELJ 22.
69
Act 34 of 2005 and aspects of Insolvency Law’ 2009 12(3) PELJ 25; Otto & Otto The National Credit
Act Explained 2 ed (2010) 59.
70
S 85 of the NCA: ‘Court may declare and relieve over-indebtedness despite any provision of law or
agreement to the contrary, in any court proceedings in which a credit agreement is being considered, if
it is alleged that the consumer under a credit agreement is over-indebted, the court may-
(a) refer the matter directly to a debt counsellor with a request that the debt counsellor evaluate the
consumer's circumstances and make a recommendation to the court in terms of s 86 (7); or
(b) declare that the consumer is over-indebted, as determined in accordance with this Part, and make
any order contemplated in s 87 to relieve the consumer's over-indebtedness’.
20
either refer the matter to a debt counsellor for evaluation and recommendation, or the
court itself may declare the debtor over-indebted.71
In terms of section 88(3) of the NCA, while a debt review is pending, litigation by the
credit provider against the debtor is suspended. However this suspension is subject to
a number of exceptions.72 Therefore, while the debtor is under debt review, the credit
provider is not entitled to enforce his rights under the agreement by means of
litigation.73 A debtor who applies for debt review is prohibited from incurring further
charges under a credit facility or entering into further credit agreement with any credit
provider.74 It is submitted that this section grants some sort of relief to the debtor in
the sense that debtors are generally harassed by their creditors for payment of debts.
3.5 Debt restructuring

As pleasing as the debt restructuring procedure sounds, it raises several problems due
mainly to ‘lack of procedural clarity’. For example, the NCA does not impose any
time limitation with regard to the payment period and thus has the effect that
restructuring orders granted by the court may sometimes run over unreasonably long
periods of time. In addition, there is no discharge of debt after a certain period of
payment of the original debt. Without any time limit or possibility of a discharge, the
proposed restructuring order of a debt may take the whole of the debtor’s lifetime to
pay off. It has been stated by authors that although one of the aims of the NCA is to
provide debt relief through debt re-structuring in cases where the debtor is of over-
indebted, this aim is still subject to the principle of ‘satisfaction by the creditor of all
responsible financial obligations’. It has been stated further that the debt review
71
Boraine, Van Heerden and Roestoff ‘A comparison between formal debt administration and debt
review - the pros and cons of these measures and suggestions for law reform (Part 1)’ 44 vol (1) 2012 p
94-95; Otto & Otto The National Credit Act Explained 2 ed (2010) 58-60; Van Heerden and Boraine
‘The interaction between the debt relief measures in the National Credit Act 34 of 2005 and aspects of
Insolvency Law’ 2009 12(3) PELJ 28.
72
Otto & Otto The National Credit Act Explained 2 ed (2010) 62.
73
Act 34 of 2005 and aspects of Insolvency Law’ 2009 12(3) PELJ 22-23.
74
review - the pros and cons of these measures and suggestions for law reform (Part 1)’ 44 vol (1) 2012
101.
21
procedure does not offer the debtor the opportunity to obtain a discharge from pre-
existing indebtedness.75
3.6 Debt enforcement

When a credit agreement76 is breached by the debtor, the credit provider is entitled
under the NCA to have the agreement enforced. The two most important sections of
the NCA in this regard are section 129 and section 130. Debt enforcement is provided
for in the NCA in two stages: firstly, the required procedures prior to debt
enforcement; and, secondly, debt procedures in court. Section 129(1) of the NCA is
very important in the enforcement of credit agreements as it introduced a novel
procedure prior to debt enforcement. According to section 129 of the NCA, when a
debtor defaults under a credit agreement, the credit provider has a duty to bring the
default to the attention of the debtor in writing and recommend that the debtor seek
debt counselling. This enables the parties to the credit agreement to resolve any
dispute under the credit agreement and agree on a payment plan. Section 129(1) (b) of
the NCA, read together with section 130(1) and 130(3) (a) of the NCA, in essence
requires a credit provider to deliver a notice in terms of section 129(1) (a) of the NCA
to the debtor prior to enforcement of a credit agreement to which the NCA applies.
The provisions of section 129 and section 130 of the NCA are cast in mandatory
terms. It is clear that the section 129(1) (a) notice presents a debtor with certain
alternatives that he or she may consider prior to debt enforcement, in order to deal
with the debt, alternatives which, if successful, might obviate the need for costly and
often protracted litigation.77
With regard to the application for debt review by the debtor and the application for
the enforcement of debt by the creditor, there are a few important considerations to
note. Where the credit provider has already proceeded with the enforcement of the
credit agreement due to the debtor’s default, the debtor will not be allowed to apply
for a debt review in respect of the credit agreement.78 According to Otto and Otto,
75
review - the pros and cons of these measures and suggestions for law reform (Part 1)’ 44 vol (1) 2012
102-103.
76
S 1 of the NCA defines ‘credit agreement' to mean ‘an agreement that meets all the criteria set out in
s 8’.
77
Van Heerden and Boraine ‘The Conundrum of the Non-compulsory Compulsory Notice in terms of
Section 129(1) (a) of the National Credit Act’ (2011) 23 SA Merc LJ 45–63.
78
See s 129 of the NCA.
22
debt review is prohibited by section 86(2) of the NCA only to the extent that the credit
provider ‘has proceeded to take steps contemplated in section 129 of the NCA to
enforce that agreement’.79
3.7 Conclusion
As indicated above, the NCA introduces important new forms of protective measures
for debtors in South Africa. The aim of the provisions of the NCA is to grant
financially distressed debtors with a ‘second chance’ by rescheduling their debt
payments. Further, the NCA is more user-friendly and better worded than the previous
pieces of legislation, thus allowing debtors to understand the NCA more effectively
and make use of it.80 It is submitted, however, that despite the welcoming of the NCA
and the tremendous impact the NCA has on debtor debt legislation, difficulties exist.
It is submitted that due to lack of clarity in procedural requirements, as stated above,
debtors are unable to effectively resolve their financial situation.
Further, it is submitted that the NCA impacts on other legislation, such as the
Insolvency Act. Schedule 1 of the NCA contains rules regulating conflicting
legislation but does not mention the Insolvency Act. This omission by the legislature
has led to challenges and problems which are disadvantageous to the debtor who
makes use of the debt relief mechanisms provided by the NCA. The next chapter will
provide a discussion on the interface between the Insolvency Act and the NCA.
79
Otto & Otto The National Credit Act Explained 2 ed (2010) Lexis Nexis 99-100.
80
Otto & Otto The National Credit Act Explained 2 ed (2010) Lexis Nexis 4.
23
CHAPTER 4
THE INTERFACE BETWEEN THE INSOLVENCY ACT AND THE
NATIONAL CREDIT ACT
4.1 Background
A current issue in insolvency law relates to whether or not being under debt review
should bar sequestration proceedings by way of an application for the compulsory
sequestration by the creditor of a debtor’s estate. This part of the paper will be based
on a discussion of Investec Bank v Mutemeri and Naidoo v ABSA Bank.81
4.2 Does an application for compulsory sequestration amount to an enforcement

of a credit agreement?
For one to have an understanding of whether an application for compulsory
sequestration would amount to an enforcement of a credit agreement, it is important to
consider the cases of Investec v Mutemeri and Naidoo v ABSA Bank and the reasoning
provided by the courts.
4.2.1 Investec Bank v Mutemeri

The applicants applied for the compulsory sequestration of the respondents common
estate who were deemed to be married to each other in community of property. The
debt resulted from credit agreements in terms of the NCA. The respondents applied
for debt review in terms of section 86 and were declared over-indebted. The
respondents gave notice to the creditors and subsequently applied for their debts to be
restructured in terms of sections 86 and 87 of the NCA. The respondents argued that
until the hearing of their debt-restructuring application, no legal proceedings could be
instituted against them for enforcement of claims under the credit agreements and, the
application for sequestration amounted to debt enforcement proceedings and was
barred by the NCA.82
81
See also Maghembe ‘The Appellate Division has spoken – Sequestration Proceedings to Enforce a
Credit Agreement under the National Credit Act 34 of 2005: Naidoo v ABSA Bank 2010 4 SA
597’2011 14(2) Potchefstroom Electronic Law Journal p 171-180.
82
Investec Bank v Mutemeri par 1-2.
24
The application was based on a section 8(g) act of insolvency.83 The court stated that
the real legal issue which had to be answered in this case ‘was whether an application
for compulsory sequestration of the estate of a debtor amounted to ‘an order to
enforce a credit agreement’ within the meaning of section 130(1) of the NCA’.84
Trengove AJ stated in Investec Bank v Mutemeri:85

… It does not apply to an application by a credit provider for the
sequestration of a consumer’s estate based on a claim in terms of a credit
agreement between them. Such an application is not one for an order
enforcing the credit provider’s claim against the consumer. Section 9(2) of
the Insolvency Act indeed makes it clear that the sequestration creditor’s
claim need not even be due, that is, need not yet be enforceable. An
application for sequestration may be made on the strength of a claim
which is not yet enforceable, because a sequestration order is not an order
for enforcement of the claim. Its purpose and effect are merely to bring
about a convergence of the claims in an insolvent estate to ensure that it is
wound up in an orderly fashion and that creditors are treated equally…I
conclude that an application for sequestration is not an application for
enforcement of the sequestrating creditor’s claim and is thus not subject to
the requirements of section 130(1) of the National Credit Act.
Trengove AJ referred to the case of Collett v Priest which made the following very
significant statement on the nature of sequestration proceedings:
Sequestration proceedings are instituted by a creditor against a debtor not
for the purpose of claiming something from the latter, but for the purpose
of setting the machinery of the law in motion to have the debtor declared
insolvent…there is no claim by the creditor against the debtor to pay him
what is due nor is the court asked to give any judgment, decree or order
against the debtor upon any such claim.86
83
Investec Bank v Mutemeri par 11.
84
85
Investec Bank v Mutemeri par 19-20.
86
25
Thus from the above statements made by Trengove AJ it can be stated that the
outcome of the case is that an order to have the debtor’s estate sequestrated is not
considered to be an order for the enforcement of the claim rising out of the credit
agreement by the sequestrating creditor. Sequestration of the debtor’s estate is not a
legal proceeding to enforce an agreement in terms of the NCA.
4.2.2 Naidoo v ABSA Bank

The appellant failed to meet his payments in terms of sale agreements and home loan
agreements. As a result a sequestration order was sought against the debtor’s estate.87
The appellant argued that the respondent was allowed to institute proceedings for his
sequestration without complying with the procedure provided for in section 129(1) (a)
of the NCA.88
In this case Cachalia JA agreed with Trengove AJ and stated ‘that an order for the
sequestration of a debtor's estate is not an order for the enforcement of the
sequestrating creditor's claim, and sequestration is thus not a legal proceeding to
enforce an agreement’. Cachalia JA stated further that the appellant had conceded
carefully that ‘sequestration proceedings are instituted by a creditor against a debtor
not for the purpose of claiming something from the latter, but for the purpose of
setting the machinery of the law in motion to have the debtor declared insolvent they
are not proceedings for the recovery of a debt’. The court described a sequestration
order as a ‘species of execution’, stating that ‘it is not an ordinary judgment entitling
a creditor to execute against a debtor’.89
The court held that from the language used in section 130 (3) (a) it is clear that the
proceedings referred to do not extend the ambit of section 129 as argued by
appellant.90 Therefore Cachalia JA held that ‘sequestration proceedings are not legal
proceedings to enforce the agreement within the meaning of section 129(1) (b) of the
NCA’.
87
Naidoo v ABSA Bank 2010 4 SA 597 (SCA) par 1.
88
89
90
26
According to Maghembe91 Cachalia JA made the correct decision in confirming that
sequestration proceedings are not ‘legal proceedings to enforce the agreement’ within
the meaning of section 129(1) of the NCA and that section 130(3) does not extend the
ambit of section 129.
It is submitted that the views expressed by Maghembe are correct as Cachalia JA had
reached a correct decision which was supported by strong authority. It is further
submitted that the concerns that developed as a result of this decision should be
addressed immediately as it has a negative impact on the purpose and function of the
NCA. These concerns have also been raised by many academics such as Kupiso as to
how this precedent, that does not give the debtor the option to continue with debt
review when he is sequestrated, will affect the effectiveness of the NCA.92
As stated above, in terms of section 3 of the NCA, its purpose is ‘to promote and
advance the social and economic welfare of South Africans, promote a fair,
transparent, competitive, sustainable, responsible, efficient, effective and accessible
credit market and industry, and to protect consumers’. One way in which this is
attained, for example, is stated in section 3(g) of the NCA. This is by addressing and
preventing over-indebtedness of debtors and providing mechanisms for resolving
over-indebtedness based on the principle of satisfaction by the debtor of all
responsible financial obligations.93
Maghembe submits correctly that the debtor by fulfilling his financial obligations,
avoids becoming insolvent and remains a useful member of society. Maghembe states
further that a debtor should not forcefully loose his assets and be subjected to social
stigma without being given a chance to choose between insolvency and alternative
debt relief. Maghembe states that the decision in Naidoo v ABSA is inconsistent with
this goal as the debtor’s choice to have his financial responsibilities fulfilled and
avoid becoming insolvent may now be taken away by a credit provider who applies
for sequestration directly. Maghembe believes that once debt restructuring has been
91
Maghembe ‘The Appellate Division has spoken – Sequestration Proceedings to Enforce a Credit
Agreement under the National Credit Act 34 of 2005: Naidoo v ABSA Bank 2010 4 SA 597’2011 14(2)
Potchefstroom Electronic Law Journal p 171-180.
92
See Kupiso ‘Can Debt Enforcement Procedures Be Circumvented by Insolvent Proceedings?’ De
Rebus November 2011 pg 26. Kupiso questioned whether the debt relief mechanism is circumvented
by the insolvency law, which is an important question yet to be fully answered.
93
See section 3 of the NCA.
27
granted, this should prohibit credit providers from proceeding with sequestration
proceedings against the debtor.94
It is submitted that this view expressed by Maghembe is correct, logical and fair
towards debtors, giving them an opportunity to resolve their financial situation rather
than being sequestrated and being subject to social stigma. It was correctly stated that
allowing sequestration applications against a debtor who is under debt review is not
consistent with the principle of encouraging debtors to pay off their debts.95
It is submitted that the decision of Naidoo v ABSA has an impact on the NCA which
is unfavourable towards the debtor. The result is that the debtor is given a helpline to
deal with his financial difficulty but that is taken away by application of the
Insolvency Act’s compulsory sequestration process. This is possible since
sequestration proceedings are not ‘legal proceedings to enforce the agreement within
the meaning of section 129(1) (b) of the NCA’.96 As a result the creditor is not
prohibited from applying for the debtor’s estate to be sequestrated even after the
debtor gives the creditor notice that he under debt review. It is submitted that this
conflict between the NCA and the Insolvency Act has drastic consequences for the
debtor. It is submitted that specific sections of the NCA should be amended or there
should exist another viable option available to a debtor who finds himself in financial
difficulty.
4.3 Impact of section 8(g) of the Insolvency Act on the National Credit Act
4.3.1 Background
An important issue in insolvency law deals with the relationship between the
Insolvency Act and the NCA. Some of the main considerations in this regard revolve
around the application for debt review in terms of the NCA, acts of insolvency
(specifically section 8(g) of the Insolvency Act), compulsory sequestration by the
94
Agreement under the National Credit Act 34 of 2005: Naidoo v ABSA Bank 2010 4 SA 597’ 2011 14(2)
PELJ 178.
95
Agreement under the National Credit Act 34 of 2005: Naidoo v ABSA Bank 2010 4 SA 597’ 2011 14(2)
PELJ 176-178.
96
Investec Bank v Mutemeri 2010 (1) SA 265 (GSJ) par 19-20.
28
creditor of the estate of the debtor who commits section 8(g) act of insolvency and the
concept of reckless credit granting by the creditor. Such issues have been the subject
of discussion in recent case law97 as well as numerous academic articles.98
4.3.2 FirstRand Bank v Evans

4.3.2.1 Facts and issue(s)
Evans borrowed substantial amounts from First National Bank (FNB), a division of
the applicant, First Rand Bank Limited. In 2005 he acknowledged his indebtedness, in
an amount of R1 200 000, in a mortgage bond registered over his property. In 2006 he
acknowledged a further indebtedness of R1 000 000, in a subsequent mortgage bond
over the same property. In 2007 he entered into a Commercial Property Finance Loan
Agreement under which he borrowed a further amount of R724 500. Overall by June
2009 he owed FNB some R2 800 000 which gave rise to the application for the
provisional sequestration of his estate. The application was brought on two bases
namely, Evans had committed a section 8(g) the act of insolvency by giving written
notice of his inability to pay his debts and he was factually insolvent.99
Evans made an application for debt review on 29 January 2009 and FNB was
subsequently notified of this through a letter. Thereafter on 18 May 2009 FNB gave
notice in terms of section 86(1) of the NCA that it was terminating the debt review in
respect of the ‘account/s in our books which are now in arrears’.100 FNB launched the
application for the sequestration of Evans’ estate on 8 April 2010. FNB contended
that the NCA did not preclude an application for sequestration of a debtor’s estate and
that insofar as the judgment debt was concerned the debt review process had been
97
FirstRand Bank Ltd v Evans 2011 (4) 597 (KZD); Collett v FirstRand Bank Ltd and Another 2011
(4) SA 508 (SCA), FirstRand Bank Ltd v Janse van Rensburg and a related matter [2012] 2 All SA
186 (ECP).
98
Act 34 of 2005 and aspects of insolvency law’ 2009 PELJ 22; Boraine and Van Heerden "To
sequestrate or not to sequestrate in view of the National Credit Act 34 of 2005: a tale of two
judgments" 2010 PELJ 84; Maghembe ‘The Appellate Division has spoken – sequestration
proceedings do not qualify as proceedings to enforce a credit agreement under the National Credit Act
34 of 2005: Naidoo v ABSA Bank 2010 (4) SA 597’ 2011 PELJ 171; and Steyn ‘Sink or Swim? Debt
review’s ambivalent ‘Lifeline’…a second sequel to ‘… A tale of two judgments’ Nedbank v Andrews
and another (240/2011) [2011] ZAECPEHC 29 (10 May 2011); FirstRand Bank Ltd v Evans 2011 (4)
597 (KZD) and FirstRand Bank Ltd v Janse van Rensburg and a related matter [2012] 2 All SA 186
(ECP)’ 2012 PELJ (15)4 189-231.
99
FirstRand Bank v Evans par 1.
100
29
terminated.101 From a reading of the facts of the case it is clear that there were
disputes regarding the proper amount of indebtedness by Evans.102 FNB however
continued to seek a provisional sequestration order.103
4.3.2.2 Decision
In this case the letter relied on by FNB as constituting an act of insolvency indicated
that Evans was under debt review in terms of section 86(1) of the NCA. It was stated
that the reason for applying for debt review was to obtain a declaration that he was
over-indebted. It was stated by the court that what comprises over-indebtedness for
the purpose of the NCA is that a debtor informs his creditor that he has applied for
debt review, and is essentially notifying the creditor that he is over-indebted and
unable to pay his debts.104
According to Wallis J, the approach that must be taken in determining’ whether a

letter constitutes a notice of inability to pay in terms of section 8(g) of the Insolvency
Act is to consider how it would be understood by a reasonable person in the person of
the creditor receiving the letter’.105 Wallis J further stated that the question to be asked
is ‘what does the notice mean to the recipient at the time of its receipt?’ In the view of
Wallis J, ‘a notice of inability to pay debts does not cease to be an act of insolvency as
a result of circumstances obtaining subsequently to the giving thereof…’. At the time
FNB received the notice from Evans the most pertinent fact known to FNB was that
Evans was significantly in default of his obligations under both bonds and the loan
agreement.106
It was argued on behalf of Evans that the letter conveyed an intention to have Evans’
debts rearranged in terms of section 87 of the NCA. It was further pointed out that the
purpose of the NCA is that the debtor should discharge his debts lawfully owed by
him. It was argued that, once the debtor’s debts have been rearranged by an order of
court under section 87(1) (b) (ii) of the NCA, the debtor is then only obliged to make
101
FirstRand Bank v Evans par 7,8.
102
103
104
105
FirstRand Bank v Evans par 15 with reference to Court v Standard Bank of SA Ltd; Court v Bester
No & others 1995 (3) SA 123 (A) 133. Please refer to chapter 2, subheading 2.3.2.
106
FirstRand Bank v Evans par 16-17.
30
payments in terms of that order. Wallis J stated that the points made on behalf of
Evans may be valid but they do not alter the fact that Evans wrote the letter
‘unequivocally conveying’ to FNB that he was at that time unable to pay his debts.
Wallis J stated that the requirements of section 8(g) are satisfied when the notice
given by the debtor to the creditor conveys that the debtor is at present unable to pay
his debts. The debtor’s willingness to attempt to pay the debts in future is not relevant.
A distinction must be drawn between an inability to pay and an unwillingness to pay.
If a reasonable person in the position of the creditor to whom the notice is addressed
would understand the notice to mean that while the debtor was unwilling to pay his
debt forthwith he could nonetheless do so if pressed, then the notice will not
constitute an act of insolvency.107 Wallis J held that the letter relied on by FNB
constituted an act of insolvency by Evans in terms of section 8(g) of the Insolvency
Act.108
It is submitted that the above decision is unfavourable to many debtors who wish to
make use of the debt review process. This is because a notification to the creditor by
the debtor, that he is applying or under debt review would in effect constitute an act of
insolvency. It is submitted further that despite the ‘novel concepts’ introduced by the
NCA to assist financially distressed debtors, such measures are restricted by the
application of the Insolvency Act by the creditor.
4.3.3 Collett v FirstRand Bank

In this case the appellant was in default with her repayments under the bond and, due
to her failure to pay, the whole outstanding amount became payable. The appellant
applied for debt review in terms of section 86(1) of the NCA and the respondent was
notified. A debt-restructuring proposal was made available to all the appellant's
creditors including the respondent. However the proposal was not accepted by any of
the creditors. The appellant subsequently applied to court for an order to be declared
over-indebted and for her debt to be rearranged.109
107
FirstRand Bank v Evans par 18-20.
108
109
Collett v FirstRand Bank Ltd and Another 2011 (4) SA 508 (SCA) (hereafter referred to as Collett v
FirstRand Bank) pars 1-4.
31
The court held that an application for debt review, to be declared over-indebted, and
to have debts rearranged are novel concepts introduced by the NCA. The purposes of
these concepts are to assist not only debtors who are over-indebted, but also those
who find themselves in 'strained' circumstances. It was held that a debtor who finds
himself in any of these circumstances may apply for debt review in terms of section
86(1) of the NCA. The court stated that the approach of the NCA to ‘over-
indebtedness is based on the principle of satisfaction of all responsible consumer
obligations’. It was held that by providing for a harmonised system of debt relief, the
NCA ‘places priority on the eventual satisfaction of all responsible consumer
obligations’.110
It is submitted that the above case provides an indication of the importance of the
NCA in assisting a debtor to solve his financial situation. It is submitted further,
Collett v FirstRand Bank clearly provides that the debtor does not have to be over-
indebted in order to utilise the NCA. The NCA would apply to debtors that are
financially strained but not over-indebted. It is submitted that this case emphasises
that the aim of the NCA is to ensure that the debtor meets his financial obligations by
making use of the means provided by the NCA, such as debt review. It is submitted
that the importance of the NCA is clearly appreciated and recognised. Debtors are
provided with measures which may effectively help them solve their financial crisis.
It is submitted however, that due to the fact that the NCA did not exclude the
Insolvency Act in schedule 1, a creditor is entitled, through the application of the
Insolvency Act to apply for the debtor’s estate to be sequestrated even if the debtor
applies for debt review. It is submitted that this is clearly a problem which requires
urgent rectification.
In a more recent case, FirstRand Bank v Janse van Rensburg, the court referring to
Collett v FirstRand Bank, clarified the decision made in FirstRand Bank v Evans.
FirstRand Bank v Janse van Rensburg will now be considered.
110
Collett v FirstRand Bank par 9-10.
32
4.3.4 FirstRand Bank v Janse van Rensburg
4.3.4.1 Facts and issues
The applicant’s application for a provisional sequestration order was based solely
upon the alleged commission of a section 8(g) act of insolvency of the Insolvency
Act. It was alleged that each of the respondents had made an application for an order
in terms of section 86(7) (c) of the NCA for a declaration of over-indebtedness. The
applicant relied upon a consumer profile report issued by a Credit Bureau, reporting
that the respondents applied for debt review.111
The credit bureau reports reflected merely that the consumer had applied for debt
rehabilitation or to be placed under debt review with a registered debt counsellor and
that no further details were supplied except that application had been made on 23
March 2011. The court required counsel to address the question as to whether an
application for debt review constituted an act of insolvency and whether the applicant
had established that a section 8(g) act of insolvency of the Insolvency Act had been
committed.112
4.3.4.2 Decision
Goosen J held that the FirstRand Bank v Evans judgment is not authority for the
general proposition that an application for debt review constitutes compliance with
the provisions of section 8(g) of the Insolvency Act. The finding that an act of
insolvency had been committed by the respondent in the FirstRand Bank v Evans
matter turned upon the delivery by the respondent to the creditor of a written notice
drawing to the attention of the applicant that the respondent was under debt review,
and, given the particular facts of FirstRand Bank v Evans, the reasonable
interpretation of that written notice by the applicant creditor. Goosen J pointed out
that Wallis J did not find that notice of the mere fact of an application for debt review
constitutes written notice of inability to pay a debt as required by section 8(g). The
application for debt review in terms of section 86 accordingly does not involve a
notice given by the debtor to the creditor in which the debtor declares an inability to
pay one or more of his or her debts. A notice of inability to pay a debt envisaged by
section 8(g) must be given deliberately and with the intention of giving such notice.
111
FirstRand Bank v Janse van Rensburg; par 1-5.
112
FirstRand Bank v Janse van Rensburg; par 6-7.
33
The notice must be such that upon its receipt the recipient creditor can reasonably
conclude that the debtor is unable to pay his or her debts. If the words of the
notification do not convey an unequivocal statement of inability to meet a debtor’s
obligation, the fact that the creditor may have construed the notice in that manner
does not render the notice one in terms of section 8(g) of the Insolvency Act. 113 It is
submitted that this decision is welcomed as it clarifies the true position.
4.4 Conclusion
The aims of the NCA are largely attained by ‘encouraging consumers to fulfil the
financial obligations under credit agreements for which they are responsible’. One of
the main aims of the Insolvency Act however is the ‘beneficial distribution of an
insolvent's estate to various creditors’. It is submitted that the differences in the aims
of the Acts stands to reason that conflicts are bound to rise during the application of
the Acts. An over-indebted debtor may have the financial potential to overcome his
debt if given assistance, and may consequently use the processes of the NCA to avoid
becoming insolvent and having the stigma arising out of this title attached to him.
However, any potential that the debtor may have in fulfilling his financial
responsibility may be weakened by a credit provider who applies directly for
sequestration.114
According to Otto and Otto,115 Van Heerden pointed out that a debtor’s application
for debt review may in itself constitute an act of insolvency entitling a creditor to
apply for the debtor’s sequestration. Otto also argues that the NCA provides for a
unique procedure, namely debt review and the consequent rearrangement of debts,
and that this well-intentioned legislative initiative will become frustrated if
sequestration is allowed to follow upon an application for debt review. Otto states that
the NCA should enjoy preference over the Insolvency Act and insolvency law in this
particular instance. Otto further states that an application for sequestration is not
barred by the NCA, even if the debtor has already referred his matter to a debt
113
FirstRand Bank v Janse van Rensburg; par 16, 17, 18, 28.
114
Jordaan ‘The NCA v the Insolvency Act: a need for reconciliation in a consumer friendly society’
available at http://www.polity.org.za, accessed on 10 July 2012.
115
Otto & Otto The National Credit Act Explained 2 ed (2007); with reference to Van Heerden and
Boraine ‘The interaction between the debt relief measures in the National Credit Act 34 of 2005 and
aspects of Insolvency Law’ 2009 12(3) PELJ 22.
34
counsellor. An application for sequestration does not constitute enforcement of a debt,
nor does it constitute litigation or a judicial process to enforce any right or security.116
It is submitted that it is correct that sequestration proceedings do not qualify as

enforcement of debts as stated above. However, by allowing a debtor’s estate to be
sequestrated by a creditor while the debtor is under debt review goes against the main
purpose of the NCA, that is, to provide debt relief to financially distressed debtors to
help remedy their situation.
With regard to the impact of section 8(g) of the Insolvency Act on the NCA, the
decision of FirstRand Bank v Janse van Rensburg is welcomed as it clearly indicates
and explains instances in which a notice given by the debtor to the creditor would
constitute an act of insolvency for the purpose of section 8(g) of the Insolvency Act.
The judgment also clarifies the main issue that existed in this context which improves
the decision in the case of FirstRand Bank v Evans. It is submitted that the result of
the decision is that it brings about certainty when dealing with notices given by the
debtor to the creditor that he is undergoing debt review as provided for by the NCA.
According to Steyn,117 following the decision in FirstRand Bank v Janse van

Rensburg, significant points may be made. First, the fact that a debtor has applied for
debt review in terms of the NCA does not per se constitute the commission of an act
of insolvency as envisaged by section 8(g) of the Insolvency Act. It is submitted, as
indicated by Steyn, that this is the appropriate view because in the case of Collett v
FirstRand Bank that when the debtor applies for debt review it does not necessarily
mean that the debtor is unable to pay his debts. The NCA introduces ‘novel concepts’
116
Otto & Otto The National Credit Act Explained 2 ed (2007) 133-134.
117
Steyn ‘Sink or Swim? Debt review’s ambivalent ‘lifeline’…a second sequel to ‘… A tale of two
judgments’ Nedbank v Andrews and another (240/2011) [2011] ZAECPEHC 29 (10 May 2011);
FirstRand Bank Ltd v Evans 2011 (4) 597 (KZD) and FirstRand Bank Ltd v Janse van Rensburg and a
related matter [2012] 2 All SA 186 (ECP)’ 2012 PELJ (15)4 189-231. The second point made by
Steyn is that there are substantial differences between an application for an administration order in
terms of section 74 of the Magistrates’ Courts Act and an application for debt review in terms of s 86
of the NCA. These differences exist not only in the procedure required for each type of application but
also in the policies reflected in the NCA and the Insolvency Act respectively. Therefore, precedent
relevant to applications for administration orders in terms of s74 of the Magistrates’ Courts Act should
not be applied automatically, in cases concerning the NCA and its interface with the Insolvency Act, to
hold that an application for debt review amounts to an act of insolvency in terms of s 8(g) of the
Insolvency Act. Steyn submits that this was correctly pointed out by Goosen J in FirstRand Bank v
Janse van Rensburg pars 25 and 26.
35
with the aim of assisting debtors. It was also stated in this case that is possible that the
debtor finds himself in a position where he is financially ‘strained’ and as a result
needs to undergo debt review for the purpose of rearrangement of his debts in order to
meet his obligations under the credit agreement.118
In FirstRand Bank v Janse van Rensburg the applicant failed to establish that written
notice had been given by the debtors to any of their creditors indicating that they were
unable to pay any of their debts. The reason for this was because the court did not
regard a report issued by a credit bureau, reflecting that they had ‘applied for a debt
rehabilitation or to be placed under debt review with a registered debt counsellor’, as
being sufficient evidence of the commission of an act of insolvency as envisaged by
section 8(g) of the Insolvency Act. In addition, no other evidence was advanced to
establish that the respondents had been declared over-indebted nor whether their debts
had been re-arranged by the court in consequence of the debt review process. Further,
as Goosen J pointed out, for any notification by a debt counsellor to the creditors to
constitute an act of insolvency in terms of section 8(g) of the Insolvency Act, it would
have to be authorised by the debtor in order to be regarded as binding on the latter.119
It is submitted that insufficient attention has been given to the need for debt relief
measures that operate in the interests of debtors. There is a need for a system to be put
into place to regulate application for debt review by a debtor and the application for
the sequestration of the debtor’s estate by the creditor. Due to the fact that there are
glaring inconsistencies between the NCA and the Insolvency Act, there is a need for
law reform, which would be effective in redressing the current situation.
It is further submitted that the South African insolvency law should reflect a balance
between the interests of all affected persons. Such interests include human rights,
contractual and commercial interests of the parties, the interests of dependants of the
debtor, where the debtor is the sole provider, and other interests of society generally.
There should be no bias suffered by one party due to the inconsistencies between the
Insolvency Act and the NCA.
118
Please refer to ch 4, subheading 4.3.3.
119
Steyn ‘Sink or Swim? Debt review’s ambivalent ‘lifeline’…a second sequel to ‘… A tale of two
related matter [2012] 2 All SA 186 (ECP)’ 2012 PELJ (15)4 189-231.
36
The following chapter involves comparative comments between South Africa and the
United States of America (USA) and England and Wales and recommendations for
the improvement of the current position in South Africa with regard to insolvency
legislation and consumer debt legislation.
37
CHAPTER 5
COMPARATIVE COMMENTS AND RECCOMENDATIONS FOR SOUTH
AFRICAN LAW REFORM
5.1 Background
South African insolvency law is creditor orientated and has been criticised by many
academics on this basis. Other jurisdictions have brought about significant reform in
their insolvency systems to assist debtors in need of debt relief. In the discussion that
follows, I will provide an overview of the insolvency law in the USA as well as in
England and Wales and I will provide a brief account of how the laws in these
jurisdictions have been reformed to assist debtors. I will thereafter make
recommendations for the reform of South African law.
5.2 Comparative comments

5.2.1 The United States of America
In the USA, the first permanent bankruptcy law was the Bankruptcy Act 1898. The
bankruptcy law in the USA has been amended on several occasions and was changed
substantially by the Bankruptcy Reform Act of 1978 (commonly referred to as ‘The
Bankruptcy Code’).120
The American insolvency system has been widely accepted as leading the way
because it accepts debt relief by means of a ‘processual discharge’ and as a result
enables a debtor to make a fresh start. The American insolvency system is not only
regarded as a collective debt-counselling instrument but it is also accepted that it has
an important social support role to fulfil.121 The American bankruptcy system is
termed pro-debtor or debtor orientated.122 It is submitted that this approach is the total
opposite to the approach followed in the South African insolvency law. It is submitted
that South African insolvency law is very creditor orientated. The opportunity for a
debtor to obtain relief from indebtedness and begin anew as a productive member of
120
Ferriel & Janger Understanding Bankruptcy 2 ed (2007) Lexis Nexis ch 3.
121
Bertelsmann et al Mars The Law of Insolvency 9 ed (2008) 4.
122
Boraine and Roestoff ‘Developments in American consumer Bankruptcy Law: Lessons for South
Africa’ (part 1) 2000 Obiter (vol 1) 33.
38
society and the concept of ‘fresh start’ have been central to American insolvency
law.123
A ‘fresh start’ is available for an honest but unfortunate debtor. In terms of the
concept, the debtor surrenders his non-exempt assets to the trustee and receives a
second chance. Once the debtor’s estate is administered and debts are discharged the
debtor is given, and begins, a new financial life, unencumbered by his previous debts.
The ability to obtain a discharge and to retain exempt property has been the essence of
debtor protection in the USA.124
The term ‘fresh start’ is derived from the case of Local Loan Co v Hunt125 where the
court held that ‘bankruptcy gives the honest but unfortunate debtor who surrenders for
distribution the property which he owns at the time of bankruptcy, a new opportunity
in life and a clear field for future effort, unhampered by the pressure and
discouragement of pre-existing debt’. This fresh start is provided by the discharge
from debts and the ability to retain limited ‘exempt’ property.126 According to
Calitz127 it is stated that ‘the underlying philosophy of this approach is that the debtor
is a victim of unforeseen circumstances and should promptly be allowed back into
society without the millstone of perpetual indebtedness’.
Boraine and Roestoff128 point out that it is not the prime object of South African
insolvency law to grant the debtor a discharge of debts. They further state that a
discharge is only available as a consequence of sequestration, once the debtor is
rehabilitated. As a result, debtors tend to make use of ‘friendly sequestration’ to force
a discharge on their creditors.
The American bankruptcy law offers two principal alternatives for treating the over-
indebtedness of natural persons. These are liquidation bankruptcy under Chapter 7 of
123
124
125
Local Loan Co v Hunt 292 U.S 234, 244 (1934).
126
127
Calitz 'Developments in the United States consumer bankruptcy law: A South African perspective'
(2007) 28 Obiter 397, 409-410.
128
39
the Bankruptcy Code or a debt-adjustment repayment plan under Chapter 13. The
requirements for opening a case under Chapter 7 or Chapter 13 are the same. If the
debtor files a voluntary petition for relief, that alone is sufficient, and the debtor need
not technically be, or indicate that he is, insolvent or over-indebted as required by
South African insolvency law.129
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)
is the amendment made to the Bankruptcy Code. BAPCPA brought about significant
changes in the role that bankruptcy plays in the lives of debtors. Most significant and
important is that it imposes a strict ‘means test’ which blocks access to Chapter 7
liquidation bankruptcy for debtors and thus prevents potential abuse of the
procedure.130
Chapter 7 of the Bankruptcy Code provides for ‘liquidation’, that is, the sale of a
debtor's non-exempt property and the division of the profits to creditors. Chapter 13
of the Bankruptcy Code provides for alteration of debts of an individual with standard
income allowing a debtor to keep property and pay debts over a specified period of
time. To qualify as a debtor under Chapter 13, he must be an individual with a stable
and regular source of income whose debt liability does not exceed $1 081 400 in
secured claims and $360 475 in unsecured claims. The purpose of the ‘means test’ is
to determine whether debtors are eligible for Chapter 7 liquidation relief or must
pursue relief via a Chapter 13 payment plan. Section 1322(b) (2) of the Bankruptcy
Code allows for the modification of the rights of both secured and unsecured
creditors. This can occur in three ways: through an extension of the time period for
the creditors’ claims to be paid, through a reduction of the amount due to creditors’
and through the reduction of interest payable to creditors’. There are certain
restrictions to this. For example, section 1322(b) (2) of the Code prevents debtors
from modifying the rights of holders of a mortgage on the debtor’s residential
property. 131
129
INSOL International Consumer Debt Report II 302.
130
131
Ferriel & Janger Understanding Bankruptcy 2 ed (2007). Lexis Nexis ch 3.
40
Chapter 13 further allows for the modification of debts whereas the NCA does not
allow this unless a credit agreement has been declared to be reckless. The scope of
Chapter 13 is much wider when compared with administration order which has a debt
limit of R50 000 and the application of the NCA is limited only to credit
agreements.132 It is submitted that in comparison to South African law it is clear that
Chapter 13 allows a discharge to the debtor after a set period of time, unlike the
administration order and the debt rearrangement under the NCA as they both do not
provide time periods after which the debtor will be discharged. It is submitted that a
comparison with the American system shows a lack of balance, in South Africa,
between the interests of creditors and debtors. Insufficient attention is being given to
the need for debt relief measures that operate in the interests of debtors. This has led
to the need for reform to assist debtors in need of debt relief. Comparative study of
the system in South Africa and the USA, shows that South African insolvency law
and consumer legislation, that is, the NCA, which comprises of debt review and debt
restructuring procedures, are not in line with internationally recognised principles.
It appears from the draft Insolvency Bill that was published in 2000 that the South
African Law Reform Commission (SALRC) had taken cognisance of international
developments in insolvency law such as the Bankruptcy Reform Act 1978 in the
USA. The SALRC recognized that a bona fide debtor should be afforded the chance
of making a new start and that a balance should be struck between the interests of
debtors and creditors.133 It is submitted that the approach taken by the SALRC is a
step in the right direction. This is because, since South African insolvency law is
creditor orientated, and in light of the difficulties faced by honest debtors in seeking
debt relief, there exists an urgent need for a balance to be struck between the rights of
the creditors and debtor.
5.2.2 England and Wales

In England and Wales, insolvency of individuals is now governed by the Insolvency
Act 1986, some parts of which have been amended by the Enterprise Act 2002. In
England and Wales over-indebted debtors are provided with ‘diverse and complex
132
Ferriel & Janger Understanding Bankruptcy 2 Ed (2007). Lexis Nexis ch 3.
133
Review of the Law of Insolvency South African Law Commission Report Project 63 (2000) vol 1:
Explanatory Memorandum 17; Bertelsmann Mars The Law of Insolvency 9 ed (2008) 4-5.
41
options for dealing with their financial and debt difficulties’. There are two optional
groups available: formal options under the Insolvency Act 1986, including
bankruptcies and individual voluntary arrangements (IVAs); and informal options
which are available outside the insolvency system, including debt management plans
and various forms of refinancing.134 IVAs were introduced by the Insolvency Act
1986 Act and deeds of arrangement y the Deeds of Arrangement Act 1914, which
enables debtors to reach an agreement with their creditors less formally.135
Walters states that IVAs in theory have many advantages for debtors in contrast to
bankruptcy. He states that an approved IVA will always provide for a stay on legal
proceedings and freeze interest on debts owing. The IVAs offer debtors debt
composition and conditional discharge. In an approved IVA, a debtor agrees to repay
what he can reasonably afford over a certain period of time in return for the creditor’s
agreement to accept less than 100 pence in the pound in full and final settlement
subject to performance of the IVA terms. He states further that debtors will thereafter
be released from all of the debts contained in their IVA, if they comply fully or
substantially with their IVA obligations. IVAs therefore offer the prospect of the debt
relief without the debtor having to petition for bankruptcy.136
In comparison, in South Africa, even though debtors are provided with the option of
rearranging their debts, they still have to pay the full amount owing, as well as
interest, and no time limit is provided. Thus payment by the debtor of his debts could
extend over a long period of time and the debtor does not receive any discharge of
debts.
Walters states that under part IX of the Insolvency Act 1986 a ‘bankruptcy amounts to
a statutory bargain that seeks to balance the interests of debtors and creditors’. He
states further that ‘the bankruptcy order stays individual enforcement by creditors
against the debtor and as a result prevents and stops creditor harassment’. It is
134
Walters ‘Individual Voluntary Arrangements: A “Fresh Start” for Salaried Consumers Debtors in
England and Wales’ 2009 International Insolvency Review 14.
135
Individual insolvency in England and Wales available at
http://webarchive.nationalarchives.gov.uk/+/http://www.insolvency.gov.uk/otherinformation/statistics/
historicdata/HDmenu.htm, accessed on 12 July 2012.
136
England and Wales’ 2009 International Insolvency Review 19-21.
42
submitted that this is similar to South Africa as the start of proceedings or the order
itself stays legal proceedings against the debtor. Walters states that ‘a bankruptcy
order is made by the petition of the debtor or his creditor(s) when the court is satisfied
that there is no prospect of the debt being paid’. No later than a year from the date of
the bankruptcy order, the debtor becomes discharged automatically. The effect of the
discharge is to release the bankrupt debtor from his debts. The debtor is released from
the debts which existed at the commencement of bankruptcy. 137
The insolvency law in England and Wales includes many ‘beneficent purposes’.
These are based on the proposal that the debtor’s interest and as well as the interest of
society are protected by the legal procedure which aims to alleviate the debtor from
the increasing burden of debts to which he has no practical prospect of repaying. As a
result of this rehabilitation is offered to the debtor.138
A second form of formal relief is available through ‘debt relief orders’ (DRO). 139 A
DRO serves as an alternative to bankruptcy for those of low income, with little or no
assets and unsecured debts owed amounting to no more than £15 000 and for those
who have assets totalling less than £300 and a disposable income of no more than £50
per month. If these requirements are satisfied, the debt relief order will be granted and
the debts will be discharged after a period of twelve months. According to Fletcher,
‘the object of the debt relief order is to provide debt relief for people who owe
relatively little, have no assets and no income to repay what they owe and cannot
afford the cost of petitioning for their own bankruptcy adjudication’. An individual
who is unable to pay his debts is allowed to use the procedure provided for in Part 7A,
read together with schedules 4ZA and 4ZB of the Insolvency Act 1986 to apply for a
DRO.140
According to Fletcher, the debt relief procedure is therefore ‘designed to operate

without the involvement of the court unless an interested party invokes its
intervention on one of the grounds which are specified’ in the Insolvency Act 1986.
137
England and Wales’ 2009 International Insolvency Review 14-15.
138
Fletcher The Law of Insolvency 4 ed (2009) ch 3.
139
Fletcher The Law of Insolvency 4 ed (2009) ch 3.
140
Fletcher The Law of Insolvency 4 ed (2009) ch 3, 12.
43
The aim of this approach is to decrease court involvement.141 Roestoff and Renke
submit that the ‘no income-no assets’ (NINA) proposal could offer guidance to South
African law reform regarding debt relief for debtors. Further it would not require any
court intervention, making ‘NINA’ more efficient and cost-effective.142
5.3 Recommendations for South African law reform

In 1987 the SALRC embarked on an investigation into the insolvency law leading to a
variety of reports and eventually concluding in the publication of the draft Bill in
2000.143 From the Bill it appears that the SALRC took cognisance of international
developments in insolvency law such as the Bankruptcy Reform Act 1978 in the
United States of America. The SALRC recognized that bona fide debtors should be
afforded the chance of making a new start and that a balance should be struck
between the interests of debtors and creditors. This is aligned with the foreign policy
of ‘fresh start’ as established in the Bankruptcy Reform Act 1978 in the USA.144
It should be noted, however, that foreign legislation should not be imported into the
South African system.145 It is submitted that South Africa would be best advised to
reconsider its own insolvency laws and consumer debt legislation and improve on
them by, inter alia, removing existing inconsistencies between the Insolvency Act and
the NCA.
It is submitted that in order for reform of the South African insolvency law to be
effective, serious consideration should be given to amending certain sections of the
NCA in order to clarify the relationship between the NCA and the Insolvency Act and
to preclude an application being brought for the sequestration of the debtor’s estate
once he has applied for debt review and after a debt restructuring order has been
issued. It is submitted further that by making the required amendments, both Acts will
be more aligned with each other.
141
Fletcher The Law of Insolvency 4 ed (2009) ch 3, 12.
142
Roestoff and Renke ‘Debt relief for consumers – The interaction between insolvency and consumer
protection legislation’ (Part 2) Obiter 2006 107-110.
143
Draft Bill.
144
Explanatory Memorandum 17; E Bertelsmann Mars The Law of Insolvency 9 ed (2008) 4-5.
145
Calitz ‘Developments in the United States consumer bankruptcy law: A South African perspective’
(2007) 28 Obiter 416-417.
44
Steyn submits that the consumer debt relief system that is provided by the NCA,
comprising debt review and a debt restructuring procedure, is not in line with
internationally recognised principles and recommendations for rehabilitation
procedures as alternatives to liquidation procedures.146 For example, according to the
‘first principle’ established in the INSOL International Consumer Debt Report II, it is
suggested that a debtor should be free to choose between a liquidation procedure and
a rehabilitation procedure which include debt restructuring procedure. In addition,
once the debtor has been completely rehabilitated, the debtor should receive a
measure of discharge from liability that has been approved by a majority of
creditors.147
Steyn submits that consideration should be given to modifying section 118 of the
unofficial working draft of a proposed Insolvency and Business Recovery Bill,
compiled in 2010.148 Section 118 of the unofficial working draft of a proposed
Insolvency and Business Recovery Bill provides for pre-liquidation composition with
creditors. Section 118(1) states that ‘any debtor other than a company who cannot pay
his debts and who wants to offer his creditors a composition, may lodge a signed copy
of the composition and a complete sworn statement in the form prescribed in the
Annexure with the magistrate's court in the district where he normally resides or
carries on business’.149
According to Steyn this must be done in order to create a more efficient system of
debt relief which will be accessible by means of a single insolvency statute which
must include liquidation and debt restructuring processes. Steyn submits that by
having a single insolvency statue a more effective balance may be achieved between
146
Steyn ‘Sink or Swim? Debt review’s ambivalent ‘Lifeline’…a second sequel to ‘… A tale of two
related matter [2012] 2 All SA 186 (ECP)’ 2012 PELJ (15)4 217.
147
INSOL International Consumer Debt Report II.
148
A copy of the latest version of the Bill is on file with the author and is available upon request from
Mr MB Cronje, of the Department of Justice and Constitutional Development, who was the researcher
responsible for the South African Law Reform Commission’s review into the law of insolvency,
completed in 2000.
149
S 118 of the draft of a proposed Insolvency and Business Recovery Bill, compiled in 2010.
45
the interests of debtors and creditors in the consumer debt relief systems and
processes available in South African Insolvency Law. 150
There are also academics, such as Maghembe,151 who suggest that amendments
should be made to sections in the NCA at this point in time until the proposed
Insolvency and Business Recovery Bill is given the force of law when enacted. It is
submitted that such recommendations appears to be the only viable temporary option
until the proposed Insolvency and Business Recovery Bill is passed into legislation.
Maghembe submitted further that, ‘once debt restructuring has been granted, credit
providers should not be allowed to proceed with sequestration proceedings against the
debtor. Allowing sequestration applications against a consumer under debt review is
not consistent with the principle of encouraging consumers to pay off their debts’.
Maghembe152 submits amendments which should be made by the legislator to

overcome the problems. These include:
• Section 129 should be amended by the words in italics as follows:
(1) If the consumer is in default under a credit agreement, the credit provider-
(a) may draw the default to the notice of the consumer in writing and propose that the
consumer refer the credit agreement to a debt counsellor, alternative dispute
resolution agent, consumer court or ombud with jurisdiction, with the intent that the
parties resolve any dispute under the agreement or develop and agree on a plan to
bring the payments under the agreement up to date.
(b) may not commence an application for sequestration or legal proceedings to
enforce the agreement before
(i) first providing notice to the consumer, as contemplated in paragraph (a)...
150
Steyn ‘Sink or Swim? Debt review’s ambivalent ‘Lifeline’…a second sequel to ‘… A tale of two
related matter [2012] 2 All SA 186 (ECP)’ 2012 PELJ (15)4 221.
151
PELJ p 178.
152
PELJ p 178-179.
46
• Section 88(3) should be amended by the words in italics as follows:
Subject to section 86(9) and (10), a credit provider who receives notice of court
proceedings contemplated in section 83 or 85, or notice in terms of section 86(4) (b)
(i), may not exercise or enforce by litigation or other judicial process any right or
security under that credit agreement or apply for the compulsory sequestration of the
relevant consumer’s estate until....
47
CHAPTER 6
CONCLUSION
South African insolvency law is clearly creditor orientated as the Insolvency Act was
enacted for the sole benefit of creditors. As a consequence, debtors are in a
disadvantageous position. Although debtors tend to make use of the sequestration
procedures which the Insolvency Act provides as a method of debt relief, a debtor is
challenged with having to satisfy the court that the sequestration of his estate will be
to the advantage of creditors. This prevents honest and poor debtors from having their
estate sequestrated and thus being rehabilitated.153
It is submitted that, when the NCA was enacted, one of the main aims was to provide
debtors with the option of undergoing debt review in order to be declared over-
indebted and to have their debts rearranged in order to meet their financial
obligations. However, the NCA did not exclude the application of the Insolvency Act.
This has led to a variety of problems. One of these is that, even though a debtor
applies for debt review, the creditor is allowed within a certain period to terminate the
debt review. This leaves the debtor in a very difficult position as the relief provided to
him by the NCA is taken away by the creditor through the application of the
Insolvency Act when the creditor applies for compulsory sequestration of the debtor’s
estate. This is possible since sequestration proceedings are not regarded as legal
proceedings to enforce debts in terms of the NCA, as stated above, and consequently
such conduct is not prohibited by the NCA. These issues have thus given rise to the
need for South African insolvency law to be reformed.154
There is a need for a system to be put into place to regulate application for debt
review by a debtor and the application for the sequestration of a debtor’s estate by the
creditor. Due to the fact that there are glaring inconsistencies between the NCA and
the Insolvency Act, there exists a need for alternative means of which debtors may
avail themselves when they find themselves in a financially stressed situation. In
addition there is a need for the introduction of new legislation, or the amendment of
the NCA, in order to redress the current situation.
153
Please refer to ch 1- 2.
154
Please refer to ch 3.
48
It is submitted that, as proposed by Steyn and others, a unified piece of legislation,
providing for liquidation as well as debt relief including debt restructuring for debtors
will bring more certainty and clarity to South African insolvency law. Current issues
relating to the discrepancies between the NCA and the Insolvency Act might be
resolved. It is submitted that this could be a positive step in the reform of South
African insolvency law.155
It is submitted that comparison with foreign systems shows a lack of balance, in South
Africa, between the interests of creditors and debtors. Insufficient attention is being
given to providing debt relief measures that operate in the interests of debtors. It is
further submitted that the South African insolvency law should reflect a balance
between the interests of all affected persons. There should be no bias suffered by one
party due to the inconsistencies between the Insolvency Act and the NCA.156
It is submitted that in order for reform in South African insolvency law to be

effective, it needs to become more ‘debtor’ friendly and to provide ‘honest’ debtors
with effective relief as provided in the USA and England and Wales. These measures
include a fresh start to honest debtors, individual voluntary agreements entered into
between the debtor and creditor prior to liquidation and debt relief orders, as
explained above. It should be noted, however, that foreign legislation should not be
imported into the South African system.157 It is submitted that South Africa would be
best advised to reconsider its own insolvency laws and consumer debt legislation and
improve on them by, inter alia removing existing inconsistencies between the
Insolvency Act and the NCA. It is submitted that at the moment the only viable
reform will be the amendment suggested by Maghembe158 until the proposed
Insolvency and Business Recovery Bill comes into effect.
155
Please refer to ch 5, par 5.3.
156
Please refer to ch 5.
157
Calitz ‘Developments in the United States consumer bankruptcy law: A South African perspective’
(2007) 28 Obiter 416-417.
158
Please refer to ch 5, par 5.3.
49
BIBLIOGRAPHY
List of abbreviations
BAPCPA Bankruptcy Abuse Prevention and Consumer Protection Act

ch chapter
DRO debt relief order
Ed Edition
IVAs individual voluntary arrangements
NCA National Credit Act
par paragraph
pars paragraphs
p page
PELJ Potchefstroom Electronic Law Journal
s section
SA Merc LJ South African Mercantile Law Journal
subsec subsection
SALRC South African Law Reform Commission
USA United States of America
vol volume
Primary Sources
Statutes
South Africa
Insolvency Act 24 of 1936
Magistrates’ Courts Act 32 of 1944
National Credit Act 34 of 2005
United States of America

The Bankruptcy Act 1898
The Bankruptcy Reform Act of 1978 (commonly referred to as ‘The Bankruptcy
Code’)
50
Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
Wales and England

The Deeds of Arrangement Act 1914
The Insolvency Act 1986
The Enterprise Act 2002.
Cases
South Africa
Amod v Khan 1947 (2) SA 432 N 438.
Barlow’s (Eastern Province) Ltd v Bouwer1950 (4) SA 285 (E).
Collett v FirstRand Bank Ltd and Another 2011 (4) SA 508 (SCA).
Court v Standard Bank of SA Ltd; Court v Bester No & others 1995 (3) SA 123 (A).
Craggs v Dedekind 1996 1 SA 935 (C).
De Villiers v Maursen Properties (Pty) Ltd 1983 (4) SA 670 (T) 676.
DP du Plessis Prokureurs v Van Aarde 1999 (4) SA 1333 (T) 1335.
Ex Parte Bergh 1938 CPD 131.
Ex parte Steenkamp and related cases 1996 (3) SA 822 (W).
FirstRand Bank v Evans 2011 (4) SA 597 (KZD).
FirstRand Bank v Janse van Rensburg 2012 (2) All SA 186 (ECP).
FirstRand Bank Ltd v Olivier 2009 (3) SA 353 (SECLD).
Goldblatt’s Wholesalers (Pty) Ltd v Damalis 1953 (3) SA 730 (O).
Investec Bank v Mutemeri 2010 (1) SA 265 (GSJ).
Ltozof v Raubenheimer 1959 (1) SA 90 (0) 94.
Meskin & Co v Friedman 1948 (2) SA 555 (W) 558.
Mthimkhulu v Rampersad (2000) 3 All SA 512 (N) 514.
Naidoo v ABSA Bank 2010 (4) SA 597.
Nedbank v Thorpe (7392/2007) [2008] ZAKZHC 72 (26 September 2008).
Optima Fertilizers (Pty) Ltd v Turner 1968 (4) SA 29 (D).
Patel v Sandy 1936 CPD 466.
R v Meer 1957 (3) SA 614 (N).
Spencer v Standard Building Society 1931 TPD 481.
Trust Wholesalers and Woollens (Pty) Ltd v Mackan 1954 (2) SA 109 (N) 111.
51
Venter v Volkskas Ltd 1973 (3) SA 175 (T) 179.
Walker v Syfret 1911 AD 141.
United States of America

Local Loan Co v Hunt 292 U.S 234, 244 (1934).
Secondary Sources
Books
Bertelsmann et al Mars The Law of Insolvency 9 ed (2008).

Ferriel & Janger Understanding Bankruptcy 2 ed (2007) Lexis Nexis.
Fletcher The Law of Insolvency 4 ed (2009).
Sharrock, Smith & Van der Linde Hockly’s Insolvency Law 8 ed (2006).
Sharrock Business Transactions Law 8 ed (2011).
Otto & Otto The National Credit Act Explained 2 ed (2010) Lexis Nexis.
Journal articles and unpublished papers
Boraine and Roestoff (1993) De Jure 229.
Boraine and Van Heerden ‘To sequestrate or not to sequestrate in view of the National
Credit Act 34 of 2005: a tale of two judgments’ 2010 13(3) Potchefstroom Electronic
Law Journal 84.
Boraine, Van Heerden and Roestoff ‘A comparison between formal debt

administration and debt review - the pros and cons of these measures and suggestions
for law reform (Part 1)’ De Jure 45 (1) 2012 p 62-80.
Calitz ‘Developments in the United States’ consumer bankruptcy law: A South

African perspective’ (2007) 28 Obiter 397.
Kupiso ‘Can Debt Enforcement Procedures Be Circumvented by Insolvent

Proceedings?’ De Rebus November 2011 26.
52
Maghembe ‘The Appellate Division has spoken – Sequestration Proceedings to
Enforce a Credit Agreement under the National Credit Act 34 of 2005: Naidoo v
ABSA Bank 2010 4 SA 597’2011 14(2) Potchefstroom Electronic Law Journal p 171-
180.
Meskin, ‘Advantage to creditors: a misconceived requirement’ Unpublished

conference paper presented at the Annual Banking Law Update, held at Rand
Afrikaans University, Johannesburg, August (1995).
Roestoff and Renke ‘Debt relief for consumers – The interaction between insolvency
and consumer protection legislation’ (Part 2) Obiter 2006.
Steyn ‘Sink or Swim? Debt review’s ambivalent ‘lifeline’…a second sequel to ‘… A

tale of two judgments’ Nedbank v Andrews and another (240/2011) [2011]
ZAECPEHC 29 (10 May 2011); FirstRand Bank Ltd v Evans 2011 (4) 597 (KZD) and
FirstRand Bank Ltd v Janse van Rensburg and a related matter [2012] 2 All SA 186
(ECP)’ 2012 Potchefstroom Electronic Law Journal (15)4 189-231.
Van Heerden and Boraine ‘The interaction between the debt relief measures in the
National Credit Act 34 of 2005 and aspects of Insolvency Law’ 2009 12(3)
Potchefstroom Electronic Law Journal 22.
Van Heerden and Boraine ‘The Conundrum of the Non-compulsory Compulsory

Notice in terms of Section 129(1) (a) of the National Credit Act’ (2011) 23 SA Merc
LJ.
Walters ‘Individual Voluntary Arrangements: A “Fresh Start” for Salaried Consumers

Debtors in England and Wales’ 2009 International Insolvency Review 14.
Thesis
Steyn Statutory regulation of forced sale of the home in South Africa (Doctor of Laws
thesis, University of Pretoria, 2012).
53
Reports and draft Bills
INSOL International Consumer Debt Report II, Report of Findings and

Recommendations, 2011.
South African Law Reform Commission Report on the Review of the Law of
Insolvency: Draft Insolvency Bill and Explanatory Memorandum (Project 63) 2000.
Available at http://www.justice.gov.za/salrc/reports/r_prj63_insolv_2000apr.pdf
Unofficial working draft of a proposed Insolvency and Business Recovery Bill

(compiled in 2010); available from Mr MB (Tienie) Cronje (mcronje@justice.gov.za)
at the Department of Justice and Constitutional Development , Pretoria, South Africa.
Internet sources
http://www.saflii.org/za/cases/ZAKZHC/2008/72.html
http://www.sabinet.co.za/
Jordaan ‘The NCA v the Insolvency Act: a need for reconciliation in a consumer
friendly society’ available at http://www.polity.org.za, accessed on 10 July 2012.
Individual insolvency in England and Wales available at:

http://webarchive.nationalarchives.gov.uk/+/http://www.insolvency.gov.uk/otherinfor
mation/statistics/historicdata/HDmenu.htm, accessed on 12 July 2012
54

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The interface between the Insolvency Act 24 of 1936 and the National

Credit Act 34 of 2005

Submitted in partial fulfilment of the requirements for the degree

Masters in Business Law

Supervisor: Professor Lienne Steyn

I am thankful to my parents for supporting and encouraging me throughout the year. I

I thank my best friend, my fiancé, Sherwin Munsamy for always believing in my

CHAPTER 2 THE INSOLVENCY ACT 24 OF 1936 6

CHAPTER 3 THE NATIONAL CREDIT ACT 34 OF 2005 19

CHAPTER 5 COMPARATIVE COMMENTS

South African insolvency law requires the satisfaction of ‘advantage of creditors’ as a

Sequestration is viewed as a drastic measure. South African law provides for

1.2 Statement of Purpose

• Further, the purpose of the research is also to provide comparative comments

1.3 Research methodology

In Walker v Syfret,21 the court explained the legal position as follows:

2.2.1 Procedure and requirements

2.2.1.1 Voluntary surrender

Notice of intention to surrender:

Notice to creditors and other parties:

2.2.1.2 Compulsory sequestration

In a case of compulsory sequestration, the sequestrating creditor will have to appear

2.2.2 Effects of sequestration

Some of the consequences of sequestration on the debtor are as follows:

Once the insolvent debtor is rehabilitated, whether it is automatic (after 10 years) or

2.3 Topical issues in the law of insolvency

2.3.1 Advantage of creditors

The expression ‘advantage of creditors’ is regarded as a ‘misconceived’ requirement

2.3.2 Acts of insolvency

It is submitted further that the requirement of ‘advantage of creditors’ creates a

It is submitted that because of the requirement of ‘advantage of creditors’ being a pre-

3.3 Debt relief for over-indebtedness

3.4 Debt review

3.5 Debt restructuring

3.6 Debt enforcement

4.2 Does an application for compulsory sequestration amount to an enforcement

4.2.1 Investec Bank v Mutemeri

Trengove AJ stated in Investec Bank v Mutemeri:85

4.2.2 Naidoo v ABSA Bank

4.3.2 FirstRand Bank v Evans

According to Wallis J, the approach that must be taken in determining’ whether a

4.3.3 Collett v FirstRand Bank

It is submitted that it is correct that sequestration proceedings do not qualify as

According to Steyn,117 following the decision in FirstRand Bank v Janse van

5.2 Comparative comments

5.2.2 England and Wales

According to Fletcher, the debt relief procedure is therefore ‘designed to operate

5.3 Recommendations for South African law reform

Maghembe152 submits amendments which should be made by the legislator to

It is submitted that in order for reform in South African insolvency law to be

BAPCPA Bankruptcy Abuse Prevention and Consumer Protection Act

United States of America

Wales and England

United States of America

Bertelsmann et al Mars The Law of Insolvency 9 ed (2008).

Journal articles and unpublished papers

Boraine and Roestoff (1993) De Jure 229.

Boraine, Van Heerden and Roestoff ‘A comparison between formal debt

Calitz ‘Developments in the United States’ consumer bankruptcy law: A South