Republic of South Africa

REPORTABLE

IN THE HIGH COURT OF THE WESTERN CAPE CAPE TOWN

CASE NO. 21084/08

EX PARTE:

In re: an application for the voluntary surrender of her estate

CASE NO. 1034/09

EX PARTE:

In re: an application for the voluntary surrender of her estate

CASE NO. 1035/09
EX PARTE:

In re: an application for the voluntary surrender of his estate

JUDGMENT 

BINNS-WARD, AJ

[1] Three applications in terms of the Insolvency Act, Act No. 24 of 1936, for the voluntary surrender of the respective applicats' estates came before me on the same day in the unopposed motion court.

[3] In each of the applications, the respective applicants made averments to the effect that they had 'become insolvent by misfortune and due to circumstances beyond [their] control, without fraud or dishonesty on [their] part.' One must assume therefore that in applying for the credit which came to constitute the unaffordable burden that drove the applicants to seek the acceptance of the surrender of their respective estates, the credit grantors involved were fully informed of the apparent limits of the ability of the applicants to service the debt, or could easily have ascertained the position had they made reasonable enquiries before granting the loan or credit facilities in question. This begs the question of how it was possible for the applicants each to be extended credit way beyond their ability to afford. The question is unanswered on the papers. I should mention in this respect that nothing in the evidence indicates, save for the applicant in case no. 1035/09, that any of the applicants' income was previously materially higher than it is now. In the case of the applicant in case no. 1035/09, who did previously enjoy a much higher income, the evidence is that he incurred most of his debt after his earnings had been diminished as a consequence of injuries suffered in a motor vehicle accident. Grounds for cogent suspicion of at least some degree of reckless credit extension therefore present themselves strongly on the disclosed facts in each of the applications.

'The purposes of this Act 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 consumers, by-
(a) (b)
(c)      promoting responsibility in the credit market by-

(g) addressing and preventing over-indebtedness of consumers, and providing mechanisms for resolving over-indebtedness based on the principle of satisfaction by the consumer of all responsible financial obligations;
And

(i)       providing for a consistent and harmonised system of debt restructuring, enforcement and judgment, which places priority on the eventual satisfaction
of all responsible consumer obligations under credit agreements'.

[6]    Section 80(1) of the NCA provides:

'A credit agreement is reckless if, at the time that the agreement was made,
or at the time when the amount approved in terms of the agreement is increased, other than an increase in terms of section 119(4)-
a) 	the credit provider failed to conduct an assessment as required by section 81 (2), irrespective of what the outcome of such an assessment might have 	concluded at the time; or
b) 	the credit provider, having conducted an assessment as required by section 81(2), entered into the credit agreement with the consumer despite the 	fact  that the preponderance of information available to the credit provider indicated that-

Sub-sections 81 (2) and (3) of the NCA provide:

'(2)     A credit provider must not enter into a credit agreement without first taking reasonable steps to assess-

(3)      A credit provider must not enter into a reckless credit agreement with a prospective consumer.'
[8]    Section 85 of the NCA provides:

'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 section 86(7); or
b)	declare that the consumer is over-indebted, as determined in accordance with this Part, and make any order contemplated in
section 87 to relieve the consumer's over-indebtedness.'

[9] A consideration of the relevant provisions of ss 86 and 87 of the NCA makes it apparent that an evaluation by a debt counsellor pursuant to a request by the court in terms of s 85 of the Act can lead to the production of a recommendation by the debt counsellor to the magistrates' court, which is empowered on a consideration thereof to declare one or more of the consumer's credit agreements to be reckless credit. Attendant orders can be made setting aside all or part of the consumer's rights and obligations under those agreements, as the court determines just and reasonable in the circumstances; or suspending the force and effect of the credit agreements.

[14] The fact that the NCA leaves the provisions of ss 4 - 6 of the Insolvency Act generally unaffected acknowledges that insolvency can arise in a great variety of circumstances, many of them quite unrelated to over-indebtedness arising out of credit agreements as defined in the NCA. Insolvents whose misfortune arises out of credit agreement transactions would be well advised, for the reasons that follow, to take into account the policy and objects of the NCA, and also the special remedies under that Act, before opting to apply for the surrender of their estates under the Insolvency Act rather than availing of the provisions under the NCA.

[15] In all three applications the applicants filed supplementary affidavits in which they confirmed having been made aware by their attorney of record of the court's desire to hear argument on the application of s 85 of the NCA in the context of the apparent character of their over-indebtedness. Each of them testified that they had indeed considered debt counselling, but set out in detail how financially impracticable an arrangement of debt repayment would be. In this regard they each set out in tabulated form how the application of their disposable income over the next seven years to service their current debt would leave them still heavily indebted at the end of the period. For the purpose of their calculations they assumed that all their outstanding debt bore interest at 15.5% per annum and that all of it was exigible at the instance of their creditors. I found these illustrations of little assistance in the circumstances.

[16] The NCA provides a wide range of remedial relief which can be tailored to the justice of the peculiar case; the possibilities extend from disallowance of the recovery of the debt if it is arises from reckless credit, to staying the accrual of interest thereon and ranking liability. There is no indication on the evidence in any of the three applications that proper consideration was given in the context of debt counselling to anything beyond an administered debt collection. In particular there is no indication that the debt counsellors who were engaged by the applicants gave any consideration to obtaining declarations of reckless credit in respect of any of the debts, as contemplated in terms of s 86(7) of the NCA.

[17] In view of the resistance by the applicants to assistance in terms of s 85 of the NCA in the context of these proceedings I have determined not to refer their credit agreement debt for investigation and report by a debt counsellor. It is nevertheless open to them to take the necessary steps that appear to be indicated under the NCA on their own initiative. I am, however, not disposed to exercise the court's discretion in favour of granting their applications for voluntary surrender in the context of their failure to properly explain why their credit agreement related debt is not amenable to administration under the NCA to their own benefit as well as that of those of their credit granting creditors who acted responsibly, as distinct from recklessly, in extending credit.

[18] In the exercise of my judicial discretion it has weighed with me that the circumstances in which the applicants were able to obtain credit from financial and money-lending institutions to the extent demonstrated on the papers and their failure to avail of current more sophisticated remedies under the NCA legislation have been inadequately explained. It has also weighed with me that the demonstrated monetary advantage to creditors in a voluntary surrender in each case is marginal. The applicants' assets comprise little more than an assortment of second hand goods in respect of which the ability to realise the appraised value in a liquidation sale is quite uncertain.

[20] To the contrary, it is the duty of the court, in the exercise of its discretion in cases like the current, to have proper regard to giving due effect to the public policy reflected in the NCA. That public policy gives preference to rights of responsible credit grantors over reckless credit grantors and enjoins full satisfaction, as far as it might be possible, by the consumer of all 'responsible financial obligations'.

[22] For the reasons given I do not consider that it would be consistent with the identified public policy considerations - most particularly the purposes of the NCA expressed in s 3 thereof, and quoted in paragraph [4], above - to grant the applications for voluntary surrender.

[23]  In the circumstances the applications under case numbers 21084/08, 1034/09 and 1035/09