The constitutionality of the advantage to creditors required and a comparative investigation in Insolvency Law

Abstract

This dissertation is an investigation into the constitutionality of the requirement of advantage to creditors in South African consumer insolvency law as well as a comparative investigation into debt relief procedures available to consumer debtors in Australia and England. The dissertation identifies and discusses debt relief procedures available in South African consumer insolvency law namely sequestration, debt review and administration. The author suggests that these procedures do not provide adequate relief as it does not provide a debt discharge for "poor" debtors, that is debtors who do not have any assets or income (the so-called "No Income No Assets" (NINA) group of debtors) available for distribution amongst creditors. The author discusses the possible unconstitutionality of the advantage for creditors requirement in light of the creditor oriented approach of the South African insolvency system. In this regard the test that was applied in the famous constitutional court decision in Harken v Lane 1998 (1) SA 300 CC, will be analysed in order to determine the possible violation of the right of equality enshrined in the Constitution of the Republic of South Africa 1996. The comparative study entails an investigation of certain key issues namely the availability of alternative debt relief procedures and in particular how both countries deal with debt discharge for poor debtors. Ultimately, two sets of conclusions are drawn from the investigation in this dissertation. Firstly, it is concluded that the requirement of advantage to creditors is unconstitutional and should be removed as a provision under the consumer insolvency law. Secondly it is submitted that the South African Reform Commission should learn from developments in English and Australian consumer insolvency law and should reconsider alternative and appropriate debt discharge procedures for debtors, especially "poor" debtors who cannot reasonably repay their creditors.