DEBT, FINANCIAL PROBLEMS and ADMINISTRATION ORDERS

It is important to manage and limit the debt that you incur to ensure that you are able to pay it off in time. This is usually the best solution to the debt trap. If you cannot, you should make arrangements. Most creditors are lenient when they realize that a debtor is making the best possible effort to pay instalments on time. An attorney can assist in negotiating such arrangements. It is important to keep to arrangements by paying on time.

WARNING OF THE CONSEQUENCES OF NOT PAYING ONES DEBTS

It is a serious situation to not attend to debt . Depending on the circumstances, it can lead to the debtor being "black listed" at credit bureaus. Assets of the debtor might be attached and sold in execution. A non-paying debtor could be sequestrated or liquidated or repeatedly called to appear at court held financial enquiries. It is a criminal offence if one fails to attend at such financial enquiries, when one has been summoned to appear.

DEBT COLLECTION

Unpaid debts are usually handed over to attorneys or debt collectors to institute court action for recovery. Such an action for recovery is initiated by letter of demand or a summons. Do not ignore such documents. Rather contact an attorney to assist. Another way to deal with this is to contact the creditor directly or to contact the creditor’s attorney or debt collector. Should a debtor ignore the initial documents, it could lead to judgements and other drastic steps being taken (see Warning of the consequences of not paying ones debts above.)

If you do not owe the money that the creditor, attorney or debt collector demands, you should say so and defend the action. An attorney can advise you on the process and steps to defend the action.

FINANCIAL ENQUIRIES

Procedure

Unpaid creditors have the right to hold financial enquiries into the affairs of a debtor against who judgment has been granted. This is done by the issue of a notice to appear and show cause why the judgment debt has not been paid. Once the debtor appears, the creditor’s attorney may interrogate the debtor. The enquiry should take place in camera (that is where only the magistrate, the debtor, the creditor and legal representatives are present but without other members of the public being present.) A debtor is entitled to be represented by an attorney at such an enquiry.

Take documents with

At the enquiry, the question is why you are not able to pay. The creditor may insist that the debtor brings certain documents to court. A list of the required documents is usually set out on the notice that calls the debtor to appear at the enquiry. If you are called to appear, pay careful attention to the list and take the requested documents with. Also take with proof of your income and expenditure. If you are unemployed, take with proof of your attempts to get a job.

Consequences of not appearing in court

A non-paying debtor could be called to appear at court held financial enquiries. It is a criminal offence if one fails to attend at such financial enquiries, when summoned to appear.

FULL DISCLOSURE IS IMPORTANT

No matter what financial challenges you face, it could be very beneficial to consult a professional such as an attorney. Should you do so, it is crucial that you make full disclosure of all the relevant facts, outstanding balances and creditors. This will enable the attorney to approach your problem from the right perspective and holistically review all options.

If you pursue either of the Insolvency remedies, you have the duty of full disclosure in utmost good faith to the Court. The facts you allege, may be challenged by creditors and if the debt relief option you seek involves a court application, the court has a discretion whether or not to assist you. Should you not disclose fully, or should any facts you allege not be true, this could have serious consequences. In an application for an administration order or other relief, the court may refuse to grant the order sought.

If an insolvent acted reprehensibly, the court may order that the automatic rehabilitation of the insolvent be delayed for longer than ten years. Under certain circumstances, the insolvent may apply for rehabilitation much sooner than the ten year period. The court may take any facts into consideration in deciding whether to assist the debtor. Should it be apparent that the debtor omitted or incorrectly stated certain facts, the court will be very reluctant to assist.

FINANCIAL CHALLENGING CIRCUMSTANCES

Although paying your debt when it is due, is the best way to deal with it for different reasons, a debtor in financial challenging circumstances has various options available. In principle you should consult an attorney to help you decide whether you would prefer the Insolvency related remedies or whether you would prefer to pursue certain "pre-insolvency" options. No matter which options you prefer, your decision will have important (and for the most drastic) implications. Yet with the help of a trained professional such as an attorney, you could be guided through very troubled waters.

"PRE-INSOLVENCY" POSSIBILITIES

CONSOLIDATING DEBT Sometimes debtors feel that their interests are best served to borrow money from someone else in order to pay off all their current creditors. The intention is that they will then only have to deal with one creditor and the other debts (of which many may be in arrears) will disappear. The best loan to pay off current creditors, is an interest free loan. Usually it is only ones family, friends or a very close charity that will advance money and not expect interest. If this is not available, the debtor should be cautious about entering a loan agreement. The consolidation must have some sort of advantage otherwise it may become a case of "borrowing from Peter to pay Paul" or of replacing an unsecured debt (eg. on your credit card) with a secured one (eg. with your home as security by way of a mortgage loan.)  A consolidation of debt is useful when the consolidated debt, if paid back over the same time as the original debts, will save interest. If such a consolidated debt would require too high an instalment, the debtor might attempt spreading the time within which to pay back the debt over a longer period. While this would improve short term cash flow, it would be much more expensive over the long term. However, if such an arrangement will assist one to cover all debt and earn sufficient income to support oneself and one’s family, it might be worthwhile. Consult an attorney to help you evaluate your position and available options.

MORATORIUM In as much as it is possible to convince all the creditors, one could attempt to conduct a moratorium of creditors requesting them to hold over until some event occurs which you expect will bring in a large amount of finances. (eg. You might want to use an expected inheritance or payment from someone who owes you money to settle debts.) The success of this approach is entirely dependant on the consent and co-operation of the creditors and they might insist on some form of undertaking from the source of the Funds. If accepted, it could be a solution to the debt problems without the need to approach the courts for relief.

VOLUNTARY DISTRIBUTION Sometimes debtors feel that their interests are best served to borrow money from someone else in order to pay off all their current creditors. The intention is that they will then only have to deal with one creditor and the other debts (of which many may be in arrears) will disappear. The best loan to pay off current creditors, is an interest free loan. Usually it is only ones family, friends or a very close charity that will advance money and not expect interest. If this is not available, the debtor should be cautious about entering a loan agreement. The consolidation must have some sort of advantage otherwise it may become a case of "borrowing from Peter to pay Paul." A consolidation of debt is useful when the consolidated debt, if paid back over the same time as the original debts, will save interest. If such a consolidated debt would require too high an instalment, the debtor might attempt spreading the time within which to pay back the debt over a longer period. While this would improve short term cash flow, it would be much more expensive over the long term. However, if such an arrangement will assist one to cover all debt and earn sufficient income to support oneself and one’s family, it might be worthwhile. Consult an attorney to help you evaluate your position and available options.

AN ADMINISTRATION ORDER The court must grant such an order. It is also a method of distributing monthly payments amongst your creditors as in the case of a Voluntary Distribution. An important difference is, however, that its success is not entirely dependent on the consent of creditors. Once the order has been made by court, most creditors are compelled to take part. To be successful, your due debts must not exceed the maximum limit for an Administration Order. Should the total of your debts exceed the prescribed limit, the Magistrates’ Court will no longer have jurisdiction to grant the order. When application is made for an administration order, creditors may oppose the application and it is therefor important to make full disclosure to your attorney so that he or she may be well prepared for the application.

NATIONAL CREDIT ACT The act has been brought about to assist debtors in credit agreements.  The direct and indirect debt relief measures can be very helpful and range from certain requirements of agreement content to extra time granted to the debtor and debt counselling.  To read more on the act and the National Credit Regulator, click here.

VOLUNTARY SURRENDER OF YOUR ESTATE

This is done by way of a High Court Application and has the advantage that no security for the sequestration costs need be given to the Master of the High Court. Further the sales of your property in execution will be stayed in law once the adverts have appeared in the Government Gazette and the local newspapers. (As a precautionary measure, all the relevant sheriffs might have to be advised in writing by forwarding a copy of the notice as published.)

COMPULSORY SEQUESTRATION

A "friendly" Compulsory Sequestration is a possibility if you have a creditor who is willing to apply for your sequestration and your liabilities exceed your assets or you have committed an act of insolvency. The fact that it is a "friendly" application will have to be disclosed to the Court in good faith. Sufficient security in the amount of R10 000 (ten thousand rand)will have to be given to the Master of the High Court.

Other creditors may also apply for your sequestration on the same grounds.

LIQUIDATION

If you are involved in a company or other corporate entity, the Companies Act or Close Corporations Act could apply. These acts provide for liquidation and incorporate certain terms of the Insolvency Act. The companies act however also has other options such as Compromises and Judicial Management. Your company might need the advice of an attorney to consider which option is best suited to help you through the difficult times.

COMBINATION OF METHODS

No matter how big your problem or challenge, it is important to start somewhere. At least by consulting your attorney, you will take a step towards solving the problem.

As explained during our initial consultation, all of these avenues have important consequences and obligations and therefor your final instruction requires careful consideration. The effect of the sequestration options will however seriously affect your status and estate and should not be followed without thoroughly thinking things through.

It might be possible to have alternative approaches lined up. A combination of some of the above remedies might be the best solution. Your attorney can help you evaluate your position objectively.

ATTORNEYS COSTS

Before consulting an attorney, ask what the cost structure is, how you will be billed and by when payment of the account is expected.

OPPOSING ACTION, SEQUESTRATION OR LIQUIDATION PROCEEDINGS

If you do not owe the money that the creditor, attorney or debt collector demands, you should say so and defend the action or other court proceeding. An attorney can advise you on the process and steps to defend the action.

If application has been made to sequestrate your estate or liquidate your company, there will usually first be a provisional (temporary) order. Such an order will have a return date where the court will decide whether or not to make the order final. If you were unable to oppose such an application initially, you may oppose it on the return date. Try to instruct your attorney as soon as possible so that the best strategy for opposing the application can be employed.

POST INSOLVENCY OPTIONS (REHABILITATION)

It is also important that we cannot guarantee any of the remedies as those listed in paragraph 1 above are dependant on the attitudes of creditors while the court has a discretion regarding those listed in paragraph 2 above. The courts will only consider exercising their discretion regarding the latter remedies after the ADVANTAGE TO CREDITORS hurdle has been crossed.

ESTATE PLANNING

Even if one is not in financial challenging circumstances, it is important to evaluate ones estate and to identify any risks to which one is exposed. This must however be done as early as possible in ones life or career to avoid such planning being attacked as impeachable actions. An attorney could be of assistance in introducing an estate plan directed to protecting ones assets and maximising the benefit you or your family derive from them. There are various stages in ones life or career (eg. before marrying, starting or buying a business or buying property) that provide estate planning opportunities. Attorneys are qualified and experienced to provide professional guidance to assist in these aspects but it is important to get the legal advice before entering the engagement or transaction. click here