While the Department of  Trade and Industry seems to charge into legislation like a bull in a china shop (see previous articles on the National Credit Act, the Consumer Protection Act and the new Companies Act), the department of Justice seems to be adopting a more measured and consultative approach.

In March 2008 we pointed out that South African Law had proposed abolition of administration orders under Section 74 of the Magistrates Court Act, in light of the introduction of debt counselling  in terms of the National Credit Act. An administration order is a legal solution in terms of Section 74 of the Magistrates Court Act whereby poorer debtors with a total debt less than R 50 000.00 can apply to go under administration and have a legal moratorium on the legal actions against them for their debts. The debtor pays a fixed monthly amount to their court appointed administrator who must distribute it pro rata amongst all of the debtor’s creditors, after taking their basic fee. The court has pointed out that this is a “modified form of insolvency”.

Various submission opposing the abolitions were made to the SA Law Commission and researcher, Mr Cronje, was appointed to prepare a proposal which was ultimately accepted by the Commission on 14 January 2011 .

The following was put forward and subsequently accepted:

• the period of notice in section 74A(5) is too short and should be increased;
• debts not yet due (in future) should not be paid until such debts become due and payable;
• administrators should be required to register and should be regulated;
• the amount of R50 000 should regularly and automatically be adjusted;
• consider whether appointments should be limited to persons who practise within the area of a particular court
• the sale of administration files should be regulated;
• measures aimed at ensuring that proper charges are levied should be improved;
• provide for access to information and proper reporting; and
• old administration orders should lapse after the expiry of a specified period.

In order to give effect to the above proposals, a document with the proposed amendments to the Magistrates’ Courts Act 32 of 1944 has been compiled. As part of the consultative process, the Commission will be holding a workshop in May 2011 providing an opportunity to interested parties to discuss the Commission’s preliminary recommendations as set out in the latter document.

An underlying problem is that you will have 2 processes for debtors seeking some form of debt moratorium. These debtors may not be willing or qualify for full insolvency and sequestration. On the one hand you have the administration orders process in terms of Section 74 of the Magistrate Court Act which deals with all debts other than credit agreements and is also hampered by the monetary cap of R 50 000 total debt (which hasn’t been increased in over 15 years). On the other hand you have the debt relief/re-arrangement process in terms of the National Credit Act dealing solely with credit agreements as defined and the NCA being hampered by poor and vague drafting (3 sections cover the debt relief provisions as opposed to the 23 sections covering the administration order). So effectively you could be in the unsatisfactory position of  having some poor debtor having to make 2 applications to court to get a debt moratorium on all their debts.

In light of the fact that the debt relief provisions of the National Credit Act are so poorly drafted, vague and terse – it is submitted that the best option would be to incorporate all forms of debt moratorium, both credit agreements and other debts under the well- established Section 74 and then give that section a full over haul and update to comply with the current needs of debtors.