Each of the four Applicants, respectively, had entered into various credit agreements in terms of the National Credit Act (“NCA”). Subsequent thereto, the Applicants were unable to make payment of their respective liabilities and the Applicants’ only realisable assets consisted of moveable assets with minimal value. As such, they applied for the voluntary surrender of their estates. The matter was heard before Van Niekerk AJ in the Pretoria High Court. Van Niekerk AJ confirmed that one of the requirements for voluntary surrender is that a debtor must show that it will be to the advantage of creditors if the debtor’s estate is sequestrated. The court had to decide whether this requirement had been satisfied.
Van Niekerk AJ stated that the debt review procedures of section 85 – 86 of the NCA are to be preferred over the remedy of voluntary surrender in terms of section 3 of the Insolvency Act. This is owing to the fact that creditors can expect to receive all or a substantial part of what they are owed from the debtor, even if it is over an extended period.
In terms of the aforementioned sections, namely 85 – 86 of the NCA, in the instance that a consumer is found to be over-indebted, a rearrangement of the debtor’s obligations may be effected. This remedy includes, inter alia, a postponement of the debtor’s obligations in terms of a credit agreement, a restructuring of payments, or an order that a credit agreement is reckless, thereby exonerating the consumer’s liability in terms of such credit agreement.
An applicant for voluntary sequestration, thus, has to disclose whether or not he/she applied for debt review, prior to applying for voluntary surrender, and provide reasons if this was not done. If there was an application for debt review, a comprehensive report of the debt counsellor must be disclosed, setting out what procedures were followed and whether or not the Applicant complied with debt restructuring arrangements.
Should the Applicant fail to disclose same, their application for voluntary surrender would not satisfy a court that the interests of the creditors are better served by voluntary surrender than by the proper application and adherence to the arrangements in terms of section 86 – 88 of the NCA. The court emphasised that it will not accept the voluntary surrender of the estate of a debtor with debts arising from credit agreements, unless the debtor explains why a proper application of debt relief measures under the NCA would not yield a better result for creditors. In this instance, an application for voluntary surrender would be dismissed.
In this matter, Van Niekerk AJ highlighted that each of the Applicants listed their respective creditors, with which they had prima facie entered into credit agreements. Thus, the Applicants would stand to benefit from the remedies contained in sections 86 – 88 of the NCA. However, neither of the Applicants had made any allegations to convince the court that, in the circumstances, section 3 of the Insolvency Act is to be preferred in order to the benefit the creditors, rather than the provisions of the NCA. The Applications for voluntary surrender of the Applicant’s estates were accordingly dismissed by the Court.
This case provides a clear interpretation of the requirements for voluntary surrender in terms of section 3 of the Insolvency Act.
Written by Lyndsey Strachan and supervised by Anja Van Wijk, 12 November 2018