FirstRand Bank Limited applied for the provisional sequestration order of Mr and Mrs Janse van Rensburg on the basis that they had committed an act of insolvency in terms of s8 (g) of the Insolvency Act. FirstRand Bank relied on the fact that the Janse van Rensburgs had made applications for an order in terms of s86(7)(c) of the National Credit Act, No 34 of 2005 (NCA) for a declaration of over-indebtedness. In support of the application, FirstRand Bank relied on a consumer profile report issued by a credit bureau, reporting that the Janse van Rensburgs had applied for debt review.
In terms of s8 (g) of the Insolvency Act, a debtor commits an act of insolvency if he gives notice in writing to any one of his creditors that he is unable to pay any of his debts. In order to meet the requirements of s8(g) of the Insolvency Act, there must be a notice in writing to a creditor in which the debtor states that he is unable to comply with his financial obligations. The court found that FirstRand Bank's application did not meet the requirements of s8(g) of the Insolvency Act.
The court scrutinised the procedure of applying for debt review and found that the application for debt review does not involve notice given by the debtor to a creditor in which the debtor declares an inability to pay one or more of its creditors. It is important to note that the application for debt review in terms of s86 of the NCA read with the NCA regulations is by the debtor to a debt counsellor and not by a debtor to his creditor.
It does not constitute a notice if given by the debtor to the creditor in which the debtor declares an inability to pay one or more of his creditors.
The notice of inability to pay in terms of s8(g) of the Insolvency Act must be given deliberately and with the intention of giving such notice. The notice must be such that on receiving it, a creditor can reasonably conclude that the debtor is unable to pay his debts.
FirstRand Bank did not rely on a written communication addressed to it by the Janse van Rensburgs, but on a profile report issued by the credit bureau reflecting that they made application for debt review in terms of the NCA. The court held that the profile report provided no details of the application for debt review, contained no reference to statements and declarations made by the Janse van Rensburgs, and contained no information on which a creditor may determine that the debtor is unequivocally stating an inability to pay. As a result, the court held that the profile report did not constitute a written notice envisaged by s8(g) of the Insolvency Act and dismissed the applications.
This decision brings relief and clarifies confusion that might have been created by earlier cases regarding the impact of debt review applications constituting an act of insolvency.
