Debt review and the National Credit Act

26 Mar 2014

A credit provider is entitled to enforce a loan that is subject to a debt-restructuring order without notice to the debtor once that order has been breached.

This was confirmed by the Constitutional Court in Ferris v FirstRand Bank Limited. Mr and Mrs Ferris were unable to repay their home loan to FirstRand Bank Limited, applied for debt review and received a debt-restructuring order. They fell behind on their payments and breached the debt-restructuring order. FirstRand issued summons for payment of the full balance of the loan, interest, and an order declaring the property specially executable. Judgment was granted. The Ferrises appealed to the Constitutional Court.

Section 88(3)(b)(ii) of the National Credit Act, 2005 precludes a credit provider from enforcing a debt that is subject to debt review unless the debtor defaults on a debt-restructuring order. The judgment was correctly granted because once the debt-restructuring order had been breached, FirstRand was entitled to enforce the loan without notice. The wording of the debt-restructuring order itself stated that the loan would be enforceable if the terms of the order were breached.

This confirms the Eastern Cape High Court judgment of FirstRand Bank Limited v Fillis which held that once the debtor has defaulted on the debt-restructuring order the credit provider is entitled "to proceed and to exercise and enforce... any right or security" under the original credit agreement.

The Ferrises unsuccessfully raised the fact that a notice for termination of debt review in terms of s86(10) of the Act was not given to them. However that notice deals with a different situation. It allows a credit provider to terminate the debt review process of a defaulting consumer by giving notice no sooner than 60 business days after the consumer applied for the debt review.

FirstRand was entitled to enforce the loan, not because the debt review proceedings had been terminated, but because the Ferrises had breached the debt-restructuring order.

The court found no evidence that the Ferrises could comply with the debt-restructuring order and the relief sought would only delay the inevitable. The application was dismissed.

If a debt-restructuring order is breached at any time, the terms and conditions of the original loan are instantly enforceable by the creditor without any further notice to the debtor.