Study Theme 11: General over-indebtedness

Question 1

❖ Over-indebtedness definition:

Answer 1

❖ Preponderance available information that consumer
is/will be unable to satisfy all obligations under all credit
agreements.
❖ Inter alia, having regard to - financial means, prospects,
obligations; and the probable propensity to satisfy all
obligations under all credit agreements in a timely
manner indicated by debt re-payment history.
❖ Over-indebtedness relates to existing and future inability
to satisfy obligations

Question 2

❖ NCA objectives:

Answer 2

Section 3(g) of the NCA
Purpose: To provide mechanisms for resolving over-indebtedness.

Based on the principle of satisfaction by the consumer of all responsible finacial obligations

Section 3(h) of the NCA
Purpose: To provide a consistent and harmonized system of debt restructuring.

Goal: Establishes a systematic approach to reorganize and reduce consumer debt, making it more manageable and promoting financial stability.

Question 3

❖ Application of Chapter 4 Part D

Answer 3

❖ S78(1) of NCA
❖ This part is not applicable if consumer juristic person.
❖ S78(2) of NCA
❖ The provisions regarding reckless credit are not
applicable to:
➢ Pawn transaction;
➢ Incidental credit agreement;
➢ Temporary increase credit limit under credit facility

Question 4

❖ Distinction between over-indebtedness:

Answer 4

❖ General over-indebtedness- consumer may become
over-indebted although credit agreement is not reckless.
❖ Reckless over-indebtedness- if outcome of the
assessment indicates that entering into agreement will
cause over-indebtedness but agreement was entered into
regardless.

Question 5

❖ Determination of over-indebtedness:

Answer 5

❖ S79(2) of NCA
❖ The person making the determination must consider the
factors in the definition of over-indebtedness as they exist
at the time the determination is made.

Question 6

❖ Driskel v Maseko

Answer 6

Timing: The assessment of over-indebtedness is done at the point when the issue is raised.

Not Retrospective: This means it is not based on the consumer’s financial situation at the time they entered into the credit agreement.

Question 7

Reckless over-indebtedness

Answer 7

In contrast, the determination of reckless over-indebtedness
is made with reference to the moment when the credit
agreement was entered into.
This means that to assess whether a credit agreement
was reckless, one must consider the consumer’s
financial situation and the lender’s conduct at the time
the agreement was made.

Question 8

Debt review
❖ Purpose and scope

Answer 8

❖ Debt review is accessed via Ss85/86 and is a determination whether a consumer is over-indebted.

Standard Bank v Newman
❖ The court remarked that the object of a debt review is
directed at a restructuring of a monetary debt with the
object of the ultimate settlement of the debt

Question 9

How is it brought before court?

Answer 9

❖ S85 of NCA
❖ S87 of NCA
❖ Standard Bank v Panayiotts
❖ NCA Amendment Act 7 of 2019

Question 10

❖ S85 of NCA

Answer 10

Referral to Debt Counsellor:

The court may refer the matter to a debt counsellor.

Debt Review and Recommendations: The debt counsellor will conduct a review and make recommendations according to Section 86(7) of the NCA.

Court’s Decision: The court will then consider these recommendations and deal with the matter accordingly.

Immediate Declaration of Over-Indebtedness:

The court may immediately declare the consumer to be over-indebted.

Rearranging Obligations: The court can issue an order to rearrange the consumer’s obligations to make debt repayment more manageable.

Question 11

❖ S87 of NCA

Answer 11

❖ If applicable, the court may also make an order declaring
any credit agreement to be reckless and thereupon make
the appropriate reckless orders (depending on the form of
recklessness).

Question 12

❖ Standard Bank v Panayiotts:

Answer 12

❖ A mere allegation that the consumer is over-indebted, is
not sufficient.
❖ Evidence to that effect must be placed before the court.

Question 13

❖ NCA Amendment Act 7 of 2019

Answer 13

❖ Which was signed into law by the President but not put in
operation yet:
❖ Order may be made if it appears to the court that
consumer is over-indebted.

Question 14

❖ Procedure to be followed:

Answer 14

S86(1) (2) (6b) (6a) (7a) (7b)(7c)(8)(9)

Question 15

❖ S86(1) read with Regulation 24:

Answer 15

❖ Consumer may apply to debt counsellor by means of an
application for debt review to have consumer declared
over-indebted.

Question 16

❖ S86(2) of NCA:

Answer 16

❖ Procedure is important in respect of the interplay
between debt review and debt enforcement.

Question 17

❖ S86(6)(b) of NCA:

Answer 17

❖ Consumer may also seek declaration of reckless credit.
❖ (in terms of the 2019 Amendment Act, debt counsellors
in future will have to investigate the possibility of reckless
credit without being requested by the consumer to do
that)
❖ An application for debt review may not be done if the
credit provider has already taken steps to enforce the
credit agreement in court.

Question 18

❖ S86(6)(a) and (b) of NCA:

Answer 18

❖ Debt counsellor must assess the matter and determine
whether the consumer appears to be over-indebted (and
whether any credit agreement appears to be reckless).
❖ S86(7)(a) of NCA:
❖ If after the debt counsellor’s assessment, he/she
reasonably concludes consumer is not over-indebted:
➢ The debt counsellor must reject consumer’s
application.

Question 19

❖ S 86(7)(b) of NCA

Answer 19

❖ If after the debt counsellor’s assessment, he/she
reasonably concludes:
➢ Consumer is not over-indebted but is experiencing or
is likely to have trouble satisfying all obligations under
credit agreements in a timely manner:
➢ Debt counsellor may recommend that consumer and
credit provider may voluntarily consider and agree on
a plan of debt rearrangement.

Question 20

❖ S86(7)(c) of NCA

Answer 20

❖ If after the debt counsellor’s assessment, he/she
reasonably concludes consumer is over-indebted,
❖ The debt counsellor may issue a proposal recommending
that the Magistrate’s Court make either or both of the
following orders:
➢ Credit agreements/ credit agreements declared to
be reckless, or
➢ Consumer’s obligation/s re-arrange.

Question 21

❖ S86(8) of NCA:

Answer 21

❖ If successful and all the parties accept the proposal,
❖ Debt counsellor must record proposal in form of an order
which will be filed as a consent order and
❖ May be confirmed by Tribunal or a court without hearing
evidence.

Question 22

❖ S86(9) of NCA:

Answer 22

❖ Consumer with leave of Magistrate’s Court, may apply
directly to Magistrate’s Court for relief.

Question 23

❖ Powers of Magistrate’s Courts:

Answer 23

❖ If debt counsellor makes a proposal to the Magistrate’s
Courts (or the consumer applies to the MC in terms of
S86(9)).
❖ The MC must conduct a hearing, have regard to the:
❖ Debt counsellor’s proposal,
❖ Information before the court and
❖ The consumer’s financial means, prospects and
obligations and may:
➢ Reject recommendation of debt counsellor /
application of consumer; or
➢ Order agreement reckless (and orders with regard
to reckless credit); and/or
➢ Order that consumer’s obligations be re- arranged
in terms of S86(7)(c)(ii).

Question 24

❖ Re-arrangement of obligations:

Answer 24

❖ S 86(7)(c)(ii) of NCA:
❖ Re-arrangement of obligations can be:
➢ Extending period of agreement reducing instalments.
➢ Postponing payment dates during specified period; or
➢ Both
❖ May the Magistrates Court’s, when exercising its rearrangement powers, tamper with the interest rate in
terms of the particular credit agreement?

Question 25

❖ Norris and McLachlan:

Answer 25

❖ No, the NCA does not confer the power to reduce
interest.
❖ If a debt is rescheduled, the consumer must still meet
her obligations to the credit provider.

Question 26

❖ 2019 Amendment Act

Answer 26

❖ Authorises Magistrates Court’s, in addition to other rearrangement powers,
❖ To determine, as prescribed:
➢ The maximum rate of interest, fees or other charges
(excluding the cost of credit insurance) for a period
the Magistrates Court’s deems fair and reasonable.
❖ But the period cannot be longer than 5 years.
❖ NB: Only a court can declare a consumer overindebted.
❖ Debt counsellors are merely empowered to conduct a
debt review to determine whether a consumer is overindebted.

Question 27

Debt review:
Miscellaneous
❖ Case law:

Answer 27

❖ Panayiotts:
❖ Seyffert cases:
❖ NCR v Nedbank cases:

Question 28

❖ Panayiotts

Answer 28

❖ Mere fact that consumer is over-indebted, does not mean
that court will declare him/her over-indebted and will rearrange obligations.
❖ Court would want information as to reasons for overindebtedness and what consumer did to alleviate
situation.
❖ Consumer cannot merely remain in possession of goods,
such as house or motor vehicle.
❖ They may be compelled to sell it to reduce debt/end overindebtedness.

Question 29

❖ Seyffert cases

Answer 29

❖ Debt counsellors should ensure that debt rescheduling
proposals made on behalf of consumers are
economically justifiable.
❖ Court will re-arrange debt only if it makes economic
sense and will enable consumer to pay off his/her debts
over a period.
❖ Otherwise, the court will reject the application for debt
review and allow the credit provider to attach the
consumer’s property and have it sold in execution in
order to satisfy credit provider’s claim.

Question 30

❖ NCR v Nedbank cases

Answer 30

❖ In discharging its duties under S87, the magistrate fulfils
a judicial role.
❖ The NCA empowers the Magistrate’s Court to conduct a
hearing in terms of S87 and to make appropriate orders.
❖ The Magistrates’ Courts Act and Magistrates’ Courts
Rules govern the procedure (also pertaining to service of
process, any recommendation or other documents).
❖ However, with the agreement of the affected parties,
service may take place by means of fax or email with the agreement of the affected parties, service may take place
by means of fax or email).
❖ A referral by a debt counsellor to a MC is an application in
terms of the Magistrates’ Courts Rules.
❖ The debt counsellor is the applicant and the consumer
and his/her credit providers the respondents.
❖ The appropriate Magistrate’s Court to approach is the
Magistrate’s Court having jurisdiction in relation to the
person of the consumer.
❖ There is no monetary limit on the jurisdiction of the
Magistrate’s Court to hear a referral under S87.
❖ The fact that the NCA does not create powers for a
consumer or the debt counsellor to withdraw from the
debt review process e.g. where the consumer’s financial
position has improved significantly, is a lacuna and
should be addressed

Question 31

Effect of debt review
or re-arrangement
order

Answer 31

s88(1)-s88(5)

Question 33

❖ 88(1) of NCA:

Answer 33

❖ No further charges under credit facility may be made; and
consumer may not enter into further credit agreements
(other than consolidation agreement).
.

Question 34

❖ S88(4) of NCA:

Answer 34

❖ If a credit provider enters into a new credit agreement
with the consumer while debt-rearrangement still
subsists,
❖ The credit agreement may be declared to be reckless,
whether or not the circumstances set out in S80 apply

Question 35

❖ S88(5) of CPA

Answer 35

❖ If a consumer enters into a new credit agreement with the
credit provider while debt-rearrangement still subsists,
the consumer forfeits the protection of this part of the
NCA

Question 36

❖ S88(3) of NCA:

Answer 36

❖ A credit provider who receives:
➢ notice of suspension of reckless credit agreement,
➢ declaration of over-indebtedness or
➢ application for debt review
❖ May not litigate/enforce rights by other judicial processes.
(which is important in respect of the interplay between
debt review and debt enforcement)
❖ UNTIL
❖ The consumer is in default under the credit agreement
and the court e.g. has determined that:
➢ The consumer is not over-indebted; or
➢ The consumer defaults on any re-arranged obligation,
whether by agreement or court order.

Question 37

❖ Ferris case

Answer 37

❖ If the consumer breaches a re-arrangement order, the
credit provider is entitled to enforce the agreement
without further notice.
❖ Thus, the breach automatically terminates the
rearrangement order, and the debt relief granted in terms
thereof.

Question 38

❖ Result of satisfying re-arranged obligations:

Answer 38

❖ S71 of NCA:
❖ Debt counsellor must issue a clearance certificate to
consumer within seven days of satisfaction.
❖ If not, consumer may approach Tribunal.
❖ Debt counsellor must within seven days after issuance of
clearance certificate, file copy with all registered credit
bureaux.
❖ Credit bureaux must expunge debt re-arrangement from
its records

Question 39

❖ 2019 Amendment Act: Insertion of S86A in Part D
Chapter 4

Answer 39

❖ Proposes a new debt intervention procedure.
❖ Which, although similar in some respects to debt review,
should be distinguished from debt review.

Question 40

Sui generis debt relief mechanism

Answer 40

❖ Aimed at assisting vulnerable consumers who are
excluded from the formal debt relief procedures,
❖ With unsecured credit agreement debt that does not
exceed R50 000,
❖ Who receives no income or whose gross income (for the
first six months preceding the application for debt
intervention did not exceed R7 500 per month
❖ and is over-indebted).

Question 41

❖ Main tenets of debt intervention:

Answer 41

❖ Application to the National Credit Regulator.
❖ Person qualifying for debt intervention may have debt rearranged by the Tribunal.
❖ And may even (eventually) have debt extinguished by
means of a Tribunal order.
❖ S86A does not limit the times a consumer may apply for
debt intervention.