Judge stops dodgy debtors’ schemeComment on this story
Cape Town - The Western Cape High Court has put the brakes on a countrywide scheme by three companies soliciting business from financially distressed people, whose details they found in notices of sales in execution published in the Government Gazette.
In a recent judgment in an application taken to court by Firstrand Bank, it emerged that the companies employed consultants across South Africa to contact people at risk of losing their homes.
For a fee, the consultants offer to arrange the publication of notices of surrender, which has the effect of forcing the cancellation of the sale in execution of their property.
However, sequestration will not follow because there is no intention of applying to court for the acceptance of the surrender.
For a further fee, a forensic audit of the debt can be arranged to reach a compromise with the bank.
Judge Ashley Binns-Ward pointed out that the scheme resulted in wasted costs totalling tens of millions of rand for cancelled sales, and as a result of the delay in obtaining execution after the notices lapse.
He said the move also had an adverse effect on the ratio of the extent of the debtor’s liability to the value of the bank’s security.
He quoted from an example of a proposal letter consultants use: “We work with the insolvency act (sic) but please note that we do not, under any circumstances intend to sequestrate or declare you insolvent. The only reason we use this law is because of the time period of 30 days it offers you, during which period neither the bank nor any other institution or company or creditor may touch any of your property. The notice we place in the Government Gazette is called a notice of voluntary surrender. It is not an official application for sequestration (insolvency). The law stipulates that in the event that you publish a notice of voluntary surrender in the Government Gazette, from the day of publication you have a period of 30 days from said notice being published that you can then basically re-evaluate your financial situation. If you do not go to court during this time to lodge an official application for sequestration during this 30 day period, the notice will just expire. Nothing stays against your name or goes down on your record.”
The letter stated that, once the auction was stopped, a forensic audit was conducted.
“When you default on your bond agreement, the bank gives instruction to their attorneys to take action against you. The attorneys in turn send the bank an account for their legal fees for the service they rendered to the bank. The bank is more than within their rights to retrieve those funds from you. But they have to invoice you on a different account with different interest rates and a different payment plan.
“Now this is where the problem comes in. The banks take those fees and adds it (sic) to the balance of your bond in order to inflate your bond so that they can charge you more interest. This is fraud.
“Your bond account is not an expense account for the bank. The only entries that may be on your bond statements are entries pertaining to your bond account. The banks also charge you a higher interest rate than what you agreed to on your bond agreement, they charge you compound interest and they even go so far as to charge you interest on your insurance that’s in arrears. This constitutes fraud which puts the bank in breach of contract,” the letter continues.
“To cover the further action from the bank and to afford you the chance to recover financially, once your notice of voluntary surrender has been published, we start doing a forensic audit on your bond account. By doing this exercise we can then establish what the discrepancy on your bond account amounts to. Once this has been done, we can prove that the bank is also in breach of contract. Then we have ammunition to fight the bank on your behalf. The bank then either has to deduct the discrepancy amount from your bond account against the arrears, or they have to pay you out in cash.”
The letter included a YouTube link of an overview of the business.
The three companies, Consumer Guardian Services, Consumer Verification Services and Securibond, all owned and managed by local businessman Johann Muller, charge R4 000 to stop the auction, R3 500 for the forensic audit and R5 000 to “negotiate” with the bank on clients’ behalf.
In the 12 months before the application was lodged, 166 auctions were stopped. The judge found that the companies’ conduct was unlawful and in conflict with the scheme of the voluntary surrender provisions of the Insolvency Act.