The impact of the National Credit Act 34 of 2005 on insolvency law

Abstract

The National Credit Act 34 of 2005 introduced measures in an attempt to prevent overspending by consumers and, more importantly measures to prevent credit providers from lending money to consumers who cannot afford either to pay the loan amount or the interest on the loan amount. A debtor who becomes over-indebted may apply for debt review. The NCA also provide for the reorganisation of debt of a person who is overindebted, to afford such person the opportunity to survive the immediate consequences of his financial distress. Its purpose is to inter alia, prevent reckless credit granting and address the problem of over-indebted and in particular to protect the consumer. The sequestration process in terms of the Insolvency Act 24 of 1936 may provide debt relief to individual debtors because following the sequestration order the debtor may be rehabilitated. Rehabilitation has the effect of discharging all pre-sequestration debt and further relieving the debtor of every disability resulting from sequestration. The debtor can apply sequestration by way of voluntary surrender while it is possible for a creditor to sequestrate a debtor's estate by way of compulsory sequestration. The process of compulsory sequestration is often used as a debt relief measure in form of a so-called friendly sequestration. In a friendly sequestration the debtor will arrange with a friend or a family member to whom he owes a debt that he will commit an act of insolvency in terms of section 8(g), that is, where the debtor gives written notice to a creditor that he is unable to pay all or any of his debts. When enacting the NCA, the legislature did not specifically make any mention of the Insolvency Act. The question is whether the NCA impact on the Insolvency Act. However the court in Ex Parte Ford And Two Similar Cases 2009 3 SA 376 (WCC) held that section 85 of the NCA was applicable to proceedings under voluntary surrender. The court further held that an application for voluntary surrender should not be granted where the machinery of the NCA was the appropriate mechanism to be used. In Investec Bank. v Mutemeri 2010 1 SA 265 (GSJ) the court held that section 130(1) do not apply to sequestration because an application for sequestration is not application for enforcement of the sequestrating creditor‟s claim. It is therefore not subject to the requirement of section 130(1) of the NCA. The court also held that an application by a credit provider for the sequestration of a consumer does not constitute litigation or a judicial process in terms of section 88(3). On Appeal in the case of Naidoo v Absa (391/2009)[2010] ZASCA 72 (27 May 2010) the Supreme Court of Appeal confirmed the decision of Mutemeri. The appeal court held that a credit provider need not to comply with section 129(1)(a) before instituting sequestration proceedings against a debtor. The research will be conducted as to whether the NCA impact on the Insolvency Act.