ConCourt to hear insolvency caseComment on this story
Johannesburg - The Constitutional Court will on Tuesday hear an application for leave to appeal on whether a debt-restructuring proposal constitutes an act of insolvency, allowing a creditor to begin sequestration proceedings.
The matter began when a Mr De Klerk in 2007 entered a credit agreement with Griekwaland West Co-Operative CC (Griekwaland), but failed to honour his payment obligations.
De Klerk approached a debt counsellor from Debt Wise, who concluded that he was over indebted.
In 2010 Debt Wise sent a debt-restructuring proposal to Griekwaland and De Klerk later filed a second debt-restructuring proposal with the Magistrate's Court.
Griekwaland then applied to the High Court in Kimberley for a provisional sequestration order, which was granted on two grounds.
First, that Debt Wise debt-restructuring proposal constituted an act of insolvency because it was an admission that De Klerk was unable to pay his debts. Secondly, that De Klerk was factually insolvent, an alternative ground for sequestration, partly because the High Court found that there was no evidence to support his claim that his farm was worth R5 million, and therefore exceeded his liabilities.
The High Court later made this sequestration order final.
De Klerk appealed to the Full Bench of the High Court, which found that the debt-restructuring proposal was an act of insolvency.
De Klerk had argued that he did not send the proposal himself and therefore it could not constitute an act of insolvency.
The Full Bench however rejected this, as it had been sent on his instruction. It also upheld the lower court's finding as to De Klerk's factual insolvency.
The Supreme Court of Appeal dismissed Mr de Klerk's application for leave to appeal.
De Klerk will approach the Constitutional Court to determine whether a debt-restructuring proposal, in terms of the National Credit Act, constitutes an act of insolvency from the debtor.
He argues that the notice sent by Debt Wise cannot be understood as an admission that he cannot pay his debts, as this would be contrary to the purposes of debt-review procedures. He also argues that he was not really insolvent.
Griekwaland contends that it is not in the interests of justice to grant De Klerk leave to appeal for two reasons.
Firstly, because of a pending remedial legislation dealing with the same issue. Secondly, because De Klerk has been found to be factually insolvent.
On the second point alone, one can be sequestrated in terms of the Insolvency Act. Griekwaland also argues, on the merits, that the notice Debt Wise notice, sent on behalf and with the consent of De Klerk, can reasonably be construed as an admission that he was unable to pay his debts.