A number of years back André Boraine Professor and Dean of the Faculty of Law, University of Pretoria, Corlia van Heerden Associate Professor Department of Mercantile Law, University of Pretoria and Melanie Roestoff Professor Department of Mercantile Law, University of Pretoria wrote an article weighing up the pros and cons of debt administration as opposed to debt review with the intention of sparking debate about reforming the law, if necessary. Here we want to focus on debt administration.
They noted:
“In the landscape of South African consumer protection, Section 74 of the Magistrates’ Court Act 1944 holds a pivotal position. This section provides a legal mechanism that helps over-indebted consumers manage their financial obligations more effectively, ensuring fair treatment and providing a structured pathway for debt relief. S74 of the Act is a provision that allows individuals who are unable to meet their debt obligations to apply for debt relief through a court-sanctioned administration order. This process is designed to offer consumers protection from creditor harassment while they repay their debts in a manageable way. An administration order is essentially a court order that consolidates an individual’s debts and arranges for a single monthly payment to be made to an administrator, who then distributes the funds to the various creditors. This method of debt repayment ensures that consumers can meet their financial obligations without being overwhelmed by multiple payments to different creditors.
Benefits for Consumers’
The administration order offers several significant benefits to over-indebted consumers:
- Debt Consolidation: All debts are consolidated into a single monthly payment, simplifying the repayment process.
- Creditor Protection: Once the administration order is granted, creditors are prohibited from taking legal action against the consumer to recover their debts, providing a form of legal protection and relief from harassment.
- Interest Suspension: Interest on the debts may be suspended or reduced, preventing the debt from growing uncontrollably.
- Manageable Payments: The court considers the consumer’s financial situation to determine a fair and manageable monthly payment amount.
The authors of the report noted the following challenges and criticisms;
While Section 74 provides essential relief for over-indebted consumers, it is not without its challenges and criticisms:
- Low Debt Threshold: The R50,000 debt threshold may be too low for many consumers, particularly in an economy where debt levels can easily exceed this amount.
- Long Repayment Periods: The administration order process can result in long repayment periods, which may not always be in the best interest of the consumer.
- Administrative Costs: The costs associated with the administration order, including administrator fees, can add to the consumer’s financial burden.
Whilst in no way do we wish to criticize the authors of this report we do note that there is a problem here – and it is a whopper. In terms of the MCA the administrator is entitled to an administration fee of 12.5% plus VAT of the amounts paid by the debtor. It is within the personal experience of the author of this article that administration fees of up to 70% are not uncommon. Yes, this is not a typo. 70%. How can the debtor ever get out of debt under these circumstances. The simple answer is that they can’t. If you know someone who is in debt administration and paying these administration fees they need to get out.
Court Jurisdiction
We have spoken very briefly in a previous article about the jurisdiction of the courts. Let’s now have a closer look at this concentrating on the Magistrates Court.
We will look at financial aspects later but first what about you as a person. What Magistrates Courts have jurisdiction over you the person.
[28(1)] notes that the following courts have jurisdiction and no other—
(a) any person who resides, carries on business or is employed within the district or regional division;
(b) any partnership which has business premises situated or any member whereof resides within the district or regional division;
(c) any person whatever, in respect of any proceedings incidental to any action or proceeding instituted in the court by such person himself or herself;
(d) any person, whether or not he or she resides, carries on business or is employed within the district or regional division, if the cause of action arose wholly within the district or regional division;
(f) any defendant (whether in convention or reconvention) who appears and takes no objection to the jurisdiction of the court;
So breaking it down, if you reside, work or do business in an area that court has jurisdiction. Also if the “cause of action” arose wholly in that area, the court has jurisdiction. As an example, you are employed in Cape Town CBD, live in Belville and entered into an agreement in Beaufort West. Someone takes action against you for the agreement that you have reneged on in Beaufort West. They can take action against you in Cape Town (where you work) or Belville (where you live) or Beaufort West (where the whole action arose). No where else, except! What happens if they take action against you at Paarl Magistrates Court. If you appear in court and do not objection, then the jurisdiction is valid in terms of Subclause (f) above. You did not raise any objection.
But there is another catch [S45] deals with Jurisdiction by consent of parties ….. “the parties may consent in writing to the jurisdiction of either the court for the district or the court for the regional division to determine any action or proceedings otherwise beyond its jurisdiction in terms of section 29(1). The question arises as to why would you ever want to agree to that – never do it. [29(2)] Notes that any provision in a contract entered into, whereby a person undertakes that, when proceedings have been or are about to be instituted, he will give such consent to jurisdiction as is contemplated in the proviso to subsection (1), shall be null and void. In other words you do not know where that jurisdiction may be.
In terms of financial jurisdiction the limit is generally R300,000.00.
Please note that here that this article covers the most common issues of jurisdiction. If you are going to be involved in court action please check the act from S26 onwards.
