Comprehensive Debt Compromise
Providing for a process very similar to that of the court rules
Summary of the Comprehensive Debt Compromise Processs
The purpose of these rules is twofold, i.e.
- To provide a model whereby debt-ridden persons are provided the opportunity to take the initiative to rehabilitate and empower themselves, and
- To enable creditors to collect from the debtor their fair and equitable share of the maximum amount allowed by law that might be collected from debtors in terms of the Magistrates ‘Court Act, 1944 as amended.
Only people that are really devastated by debt know and understand that none of the existing legal remedies can save them. They are generally too poor to voluntary surrender their estates in insolvency.
Administration orders (section 74 of the Magistrates’ Court Act) falls well short as it is limited to a maximum debt amount of R50 000. Debt review in terms of the National Credit Act, 2005 best serves secured credit and does not address the majority of accounts in regard to which legal steps have already been instituted.
By using the Comprehensive model, the debtor principally tells his creditors “I’m voluntary going to ask my employer to deduct the maximum amount that may be collected from me and pay it into a Creditors’ Fund which I have established for this purpose. Here a professional will manage the fund and ensure that every one of my creditors receive their pro rata share. Now, please stop escalating costs and interest and grant me the opportunity to rehabilitate and lead a normal life!”
The model therefore provides for:
- the establishment of a Creditors’ Fund,
- a settlement proposal to creditors and
- the appointment of a conciliator/arbitrator that can help to resolve the present deadlock and convert the resolution into an award that can be used by the applicant’s employer to remit the agreed payment directly into the fund.
- Whether creditors participate or not, the instruction will be executed in an effort to fix a fair and equitable offer as provided for in section 65K of the Magistrates’ Court Act, as amended.
Although not being binding on recalcitrant creditors, the offer will be implemented with the support of the employer of the applicant. The distribution in regard to creditors who fail to provide their banking details, will however be retained in trust for future decision.
the appointment of an Administrator to receive and manage the Fund for the benefit of creditors,
With the settlement proposal the debtor acknowledges his indebtedness and invites creditors to accept the benefit offered subject to the terms and conditions set in the Creditors’ Fund. All that further remains for creditors is to confirm the correct final balances, costs, interest rate payable and to accept the scheduled payment regime.
To finalise any outstanding issues and to render an award which can be delivered to the employer of the debtor to institute the payments to the Fund, an arbitrator will be appointed in accordance with the settlement proposal.
For as long as the payments are made into the Fund, the debtor will have the opportunity to stay out of the picture and continue with his life whilst the management of the Fund and the administration of claims will be a matter between the Administrator and creditors.
Comprehensive Debt Compromise
1. Applicants applies to the secretariat of the Consumer Claims Tribunal (“CCT”) to facilitate the conciliation and arbitration of a just and equitable debt restructuring settlement/award between the applicant and his/her creditors. The applicant further request CCT to appoint an arbitrator from its panel who will oversee the conciliation and adjudicate over any arbitration proceedings.
2. No creditor shall however be a party to any arbitration without agreeing to arbitration as set out in the settlement proposal. Should the dispute be resolved and a final settlement reached, for purposes of executing such settlement, it shall be referred to the arbitrator to covert same into a consent arbitration order.
3. In performing this function CCT will be take guidance from the provisions introduced by the Courts of Law Amendment Act, 2017 with specific reference to section 65J(1A) (a) and (b) which stipulates the maximum amount that may be recovered by emolument attachment from the salary of a judgment debtor. Cognisance will also be afforded to section 15(1) of the Courts of Law Amendment Act, provisions for secured credit and preferential claims in terms of the law and the principle that the only fair and equitable distribution of available income would be a pro rata distribution thereof.
4. Should CCT accept the instruction from the applicant, the secretariat will immediately appoint an arbitrator to oversee the conciliation process and to be available in regard to any arbitration proceedings.
5. The complete process as set out in these rules will be conducted by email. Alternative methods of communication with the debtor may however be arranged.
6. Although it is in the best interest of all the parties that all creditors participate in the process and eventually agree to a settlement, no creditor is under any obligation to participate or agree to any settlement. It is however important to note that whatever fair and equitable settlement is reached but refused by a creditor, shall have serious legal implications. See section 65K of the Magistrates’ Court Act in this regard.
7. On application and as stated in paragraph 1 above, the secretariat of the Consumer Claims Tribunal will nominate and appoint an arbitrator to oversee the conciliation process and to adjudicate over the final resolution and implementation of the proposal of the applicant. Arbitration and the appointment of the arbitrator shall only be binding on those creditors who accept the arbitration proposal containing the arbitration clause.
8. In his or her application to the secretariat, the applicant undertakes
8.1 To furnish all the required and credible documentation and truthful information requested to enable the secretariat to make an evaluation of the applicant’s financial position, to plan a restructuring and draft a settlement proposal to be put forward to all creditors and the employer of the applicant.
8.2 Assist the secretariat, as may be requested, to obtain copies of any emolument attachment orders, copies of judgments or other documents that my have been filed at any court, documents, obtaining addresses and contact particulars of creditors and
8.3 be available when required for the consideration of issues that may arise;
9. As soon as the secretariat has received all the necessary information and documentation from the applicant, creditors will be approached with a proposal and requested to confirm the outstanding balances of accounts and, when needed, requested to provide copies of the source documents in relation to those claims. Creditors also need to provide banking particulars for payments to be made. This also applies to the paymaster/human resources of the employer of the applicant. Should any creditor not respond to communications from the secretariat within 10 working days, the secretariat may proceed.
10. Once the secretariat is in possession of all the available information the secretariat will prepare a revised List of Creditors.
11. Creditors will then have the opportunity to respond to the proposal and indicated balances and interest rates reflected in the List of Creditors and the proposal in general and to make counter offers for consideration. The condition will however apply that no counter offer will be accommodated which may be in contravention of the Act or the principles of being fair and equitable as set out in section 55A of the Magistrates’ Court Act, 1944 as amended.
12. Should the initial proposal be amended to accommodate the acceptance of a final and amended proposal, it will be delivered to the employer and all creditors.
13. Should the secretariat be satisfied that the proposal is fair and equitable and complies with the provisions of the Act, whether all creditors accept the settlement proposal or not, the secretariat may inform the applicant accordingly and assist on implementing the settlement as if it had been accepted by all.
14. Payments allocated and paid to creditors who do not accept the settlement shall be remitted on the condition that their acceptance of such payment shall imply their acceptance of the settlement offer.
15. Payments allocated to creditors who do not accept the settlement and who has not provided the necessary banking details, will not be remitted but kept in trust for the credit of the debtor.
Legality of Claims
17. The only mandate given to the secretariat of the CCT (excluding the mandate for the appointment of an arbitrator) is to resolve a payment plan for the debts included on the basis of what would be fair and equitable as contemplated in the Magistrates’ Court Act as amended towards all the parties involved. Other than pointing out possible discrepancies to the applicant and creditors in general during arbitration proceedings, it has no mandate to dispute the legality of any claim or the debt collection process involved.
Although not being binding on them, the claims of creditors, as provided by the Debtor and who do not agree to the settlement proposal will be treated as if they have agreed in order to ensure that the final payment schedule reflects a fair and equitable distribution of available funds amongst all creditors.
Should any claims exist in regard to which the transitional arrangements (section 15 of the Courts Amendment Act) apply, the award shall provide for the incorporation within the settlement plan of whatever balance might remain after transition.
Involvement of the Employer
As the support of the employer is not only required to deduct and remit the required payments but to ensure that no other deductions be added to the debtor’s salary that would contravene the statutory limit, the employer will be kept well informed and involved.
Harassment of the Applicant
Harassment of the applicant shall not be tolerated by any creditor who has received notice of this proposal, whether they accept it or not. In terms of the proposal the applicant will pay the maximum amount towards the reduction of his/her debt that can legally be collected from him/her. From the proposal it shall be clear that the Administrator bears the responsibility to distribute these amount s amongst creditors. The Administrator is the only party that can provide any further information in regard to distributions, balances, etc. ANY information required must therefore be obtained from the Administrator.
Creditors will therefore ensure that their personnel, legal representatives and debt collectors are informed of the settlement proposal and the acceptance thereof and instruct them to seize all further debt collection process and communication with the applicant.
A prescribed penalty fee may be charged against the dividend of a creditor who, directly or indirectly necessitates a response by the Administrator to communications with the applicant.
Should any legal proceedings be undertaken notwithstanding or such contact or communication persist, it shall be deemed to constitute harassment/intimidation and be dealt with accordingly.
No prescribed debts will be included into a settlement proposal. Should it not be clear whether a debt has prescribed or not, the creditor will be requested to proof that the debt has not prescribed.
Courts of Law Amendment Act, 2017
16. In the settlement proposal to creditors provision will be made for the transitional arrangements contained in section 15 of the Act:
16.1 The relevant court processes instituted but not finalized before the commencement of the Act, will be left as is for a maximum period of three years after the commencement of the Act. However, the orders will be scrutinized for legality and should it, from information and documentation available, possibly not comply with the law, the available particulars will be brought to the attention of all creditors potentially being affected by it for possible applications for review as contemplated in section 15(2) of the Act. For this purpose, the support of the applicant (if need be as co-applicant) will be requested to render the necessary support.
16.2 Should the outcome of any review be to set aside the preferential treatment of debts the settlement proposal will be amended accordingly.
Failure of Conciliation
18. Should the secretariat not succeed in negotiating the acceptance of the settlement proposal put forward or the implementation of thereof through the assistance of the employer of the applicant, it will refer the matter back to the applicant for an alternative mandate. This mandate may include that payments by the applicant be made by alternative means (if necessary) and that payments be kept in trust by the Administrator, pending future orders by court or requests by creditors.
19. However, and as soon as the first acceptance by a Listed Creditor has been received, the secretariat shall proceed to obtain an award and secure a salary deduction through the employer of the applicant. Thereafter the matter will be transferred to the Administrator.
It would be inhuman to condemn a debtor to perpetual indebtedness and for this reason CCT will propose that creditors abandon or reduce the interest and costs payable on the relevant accounts.
For purposes of these rules Perpetual Indebtedness is defined as a financial position within which a debtor finds himself, whilst paying 25% of his gross income or such lesser amount required to ensure that he and his dependents are reasonably maintained and supported, his liabilities, due to the addition of interest and costs added the unsecured debt escalates or increases and does not become settled within a period equal to one third of his remaining economic active lifetime.
Updating of Claims
The amounts indicated on the proposal plus interest agreed to are the amounts that will be paid. No further costs will be allowed or added to outstanding balances. Should any creditor which to add calculated interest to an account, that shall only be considered (subject to the provision in regard to perpetual indebtedness) once all listed claims have been settled in full.
CCT is not qualified and will not become involved in issues regarding reckless credit. In serious instances the right is however reserved to inform parties that reckless credit may be involved and that the inclusion of these claims affects the payment available for distribution. The onus however rests on those affected parties to pursue the issue further.
The Administrator of the Fund
Once an award is made the conciliation mandate of the secretariat will be fulfilled and the file will be transferred to the appointed Administrator of the Creditors’ Fund.
The Administrator will have all the duties and responsibilities conferred onto him/her by the Creditors’ Fund Deed and the settlement agreement.
The disputes existing between the Debtor and Creditors in regard to the Debtor’s default to settle claims or arising from the administration of the Creditors’ Fund, shall be dealt with as follow:
1. Whereas the proposal provides for the payment of the maximum amount that can be collected legally by Creditors collectively from the Debtor monthly in terms of the Magistrates’ Court Act and for the pro rata distribution of this maximum amount amongst creditors, subject to reasonable terms and conditions contained in the proposal and Creditors’ Fund Deed, it represents a bench mark for the comprehensive resolution of the disputes between the parties;
2. Therefore, the acceptance of the proposal by one or more creditors shall be deemed to establish a sound basis for the issue of a provisional resolution and consent award, (though not binding on all creditors), which will be implemented by the Administrator in regard to all Listed Creditors.
3. This would leave the Debtor free in future and should his/her personal circumstances change, to apply for the reduction of payment of 25% within the context of section 55A of the Magistrates’ Court Act. Listed Creditors will however have the opportunity to dispute the legality and fairness of the treatment and admittance of their claims within the context of the proposal and the Creditors’ Fund. Such dispute shall be handled subject to the arbitration agreement contained in the settlement proposal and/or Creditors’ Fund Deed.
4. Now therefore the following procedure will be applicable:
Provisional Consent Award
5.1 As soon as the period within which creditors could respond to the proposal and acceptances of the proposal have been received, the secretariat will notify creditors thereof and confirm that the proposal and its acceptance are referred to the arbitrator for a provisional consent award.
5.2 In compliance with the Arbitration Act a date, time and location will be provided should any party wish to attend in person for final arguments. Such argument may also be delivered by email.
5.3 This award will be binding on the Debtor and the accepting creditor/s only but shall result in the proposal being implemented in regard to the Applicant and all the Creditors.
5.4 The provisional award will be delivered to the Debtor and Creditors by email.
5.5 A copy shall be served by the sheriff on the employer of the Debtor in order to institute a deduction in accordance with section 34 of the Basic Conditions of Employment Act, 1997.
Amendment of Rules
These rules can be amended at any time. The rules in force on the date on which an application has been received will apply to that matter.
Tariff of Fees
- A fee for the award and implementation thereof payable by the Creditors’ Fund, equal to one month’s payment by the Debtor to be collected from the first available funds and remitted to CCT by the Administrator.
- Sheriff’s fees for service of award on employer as per Magistrates’ Court Tariff.
- Disputes in course of the administration: R475-00 per dispute to be deposited by the plaintiff before an arbitrator will be appointed in accordance with paragraph 6.1.2.
All quoted fees exclude VAT.
NOTE: These rules may not deny any party the right to make use of legal representation. It is however pointed out that the rules have been devised to ensure the inexpensive and speedy resolution of disputes. For this reason the inquisitorial procedure is adopted which will ensure that the arbitrator will assist parties without representation, to represent their cases.
Disputes Arising in the Course
The procedure to be followed in regard to all disputes that arise in the course of the execution of the settlement proposal and the provisional award, is as follows:
6.1 INITIATION OF PROCEEDINGS
6.1.1 The plaintiff shall notify the secretariat of CCT and the defendant by email that a dispute is declared and referred for arbitration. The notice shall include a concise statement clearly setting out the claim. All related documents in possession of the plaintiff shall be attached. This and all other notices from the plaintiff shall be addressed to email@example.com.
6.1.2 Within 7 (SEVEN) days of receipt of payment of the prescribed fee CCT will nominate and appoint an arbitrator from its panel and inform both parties of the appointment.
6.1.3 The defendant shall file an answering statement by email, dealing in detail with the claim of the plaintiff, within 10 (TEN) working days from the date on which he/she has been informed of the appointment of the arbitrator. All documents in possession of the defendant that relate to the issue shall be attached. This and all other notices by the defendant shall be addressed to firstname.lastname@example.org.
6.2.1 All proceedings shall take place “on paper” and by email.
6.2.2 The arbitrator will then consider the issue and request either of the parties for such further documents or information as may be required. The relevant party shall respond to such request within 5 (FIVE) working days.
6.2.3 Finally, the arbitrator will grant the parties a final opportunity to provide final submissions and argument which need to be lodged within 7 (SEVEN) days from being requested for same.
6.3.1 The arbitrator will provide by fair notice to all the parties involved, notice of the date, time and place where the award will be made.
6.3.2 The award of the arbitrator will be in writing and delivered by email to the Administrator, the Debtor and all Creditors who have agreed to the Settlement.
To the extent necessary the Desktop Rules shall apply in regard to any issue of procedure that may arise that is not clearly provided for in these rules.