The National Credit Act vs The Insolvency Act
Written by Rohan Lamprecht   

The most obvious benefits of the National Credit Act could be summarized as follows:

  1. The Applicant would not be divested of his or her estate in terms of the Insolvency Act. The purpose of the Insolvency Act is to enable the Trustee to realize the assets of the insolvent estate and in doing so; ownership will pass from the Applicant to the Trustee in terms of the Insolvency Act.

    1. In terms of the Insolvency Act, the estate of an insolvent shall include all property of the insolvent at the date of the sequestration, as well as all property which the insolvent may acquire or which may accrue to him during the sequestration, except as otherwise provided in Section 23 of the Insolvency Act.
    2. In terms of the National Credit Act, the assets of the Applicant would not be subject to realisation by a Trustee appointed in terms of the Insolvency Act ;
    3. The Applicant would not be classified as an unrehabilitated insolvent or carry the aforementioned status for the duration of the debt counselling period, which would be the case for the duration of the Applicant’s insolvency should the application be granted .

    Although there might be more advantages in certain other matters, it is submitted that in most cases, these advantages will not apply.

    In dealing with the advantages of the National Credit Act, it is also necessary to review the advantages offered by the Insolvency Act, due to the fact that the Insolvency Act has been amended  and reviewed several times by the Legislator, including by the National Credit Act itself. The aforementioned actions by the Legislator serve as a clear indication of the Legislator’s intent to keep the Insolvency Act applicable as an option for both creditors and over-indebted debtors . This fact is also supported by the invocation of the Cross-Border Insolvency Act, Act 42 of 2000, the purpose of which is to:

    • Provide effective mechanisms for dealing with cases of cross-border insolvency;
    • To amend the Insolvency Act, 1936, so as to further regulate the jurisdiction of the High Court’s; and
    • To provide for matters connected therewith.

    The most obvious benefits of the Insolvency Act could be summarized as follows:

    1. The Insolvency Act stays any civil proceedings instituted by or against the insolvent, save such proceedings as may be instituted by the insolvent for his own benefit in terms of Section 23 of the Insolvency Act. The effect of the aforementioned is that creditors’ stop incurring further legal fees, are ultimately recovered from the Debtor in the normal course of the collection process tended to by attorneys or debt collectors.
    2. The Trustee becomes the lawful owner of all the assets of the Insolvent’s estate and effectively deals with creditors, their attorneys or debt collectors in accordance with the provisions of the Insolvency Act, thereby effectively relieving the Debtor of the stress and creditors’ persecution that may result in undue preference to certain uncompromising creditors in lieu of more compassionate creditors.
    3. The Insolvency Act affords the Applicant a truly fresh start and clean slate from over-indebtedness, a concept that can be traced back through the centuries, different religions and cultures, e.g. in ancient Greece a timetable for debt forgiveness existed, Hebrew Scriptures refer to Moses’ Laws  and in Christianity the Bible makes it clear that although people are generally expected to pay their debts ,  the moral and legal obligation to pay debts must be balanced by the need for compassion and the ability to cancel debts .
    4. The National Credit Act offers mechanisms for debt payment restructuring. The Applicant is given the opportunity to apply for debt counselling, which would effectively extend the period of his current debt repayment timetable to accommodate the new, lower re-negotiated monthly installments payable to his creditors. However, by reducing the monthly installments payable to the individual creditors, the Applicant will eventually be penalized by the accumulative interest component over the extended time period, resulting from the aforementioned. The Insolvency Act actually curbs interest that may accrue after date of sequestration on both preferential claims and concurrent claims , in the event of sufficient available free residue, to allow the payment of interest in addition to the claimed amounts due on the date of sequestration.
    5. The Insolvency Act affords the Applicant debt absolution, provided that the prescribed requirements are met as opposed to debt payment restructuring as offered by the National Credit Act. The financial recovery period for the Applicant, who would be forfeiting his estate should the application be granted, would therefore be quick and definite as opposed to debt repayment of the capital debt amount, interest and administrative fees in terms of the National Credit Act.
    6. In the most cases, the Applicant’s debt simply cannot be serviced by the amount available for debt repayment even if the in duplum rule applies, due to the fact that the monthly interest charged at 15.5% per annum, will keep on accruing,  the monthly amount of which supersedes the amount available for debt repayment.