Insolvency industry policy fails

By Fatima Schroeder Time of article published Jan 31, 2015

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Cape Town - A justice ministry policy, aimed at transforming the insolvency industry to give black and female practitioners better opportunities, has been ruled unconstitutional and invalid.

“Equality is an aspiration. More than 300 years of inequality and pernicious disadvantage (unfair discrimination) at the instance of the State cannot be thought away overnight by raising a new flag and adopting a new supreme law. More is required,” Acting Judge Anton Katz said in a judgment handed down in the Western Cape High Court.

The policy was to have been implemented in March, but was halted after the court granted the South African Restructuring and Insolvency Practitioners’ Association (Saripa) an interdict, pending the outcome of a review application it had instituted. In that, it sought to have the policy set aside as unconstitutional.

The policy divided practitioners into four categories, with African, coloured and Chinese women at the top, and white men, who are considered to be the top earners in the industry, at the bottom of a list from which the Master of the High Court makes discretionary appointments.

But Saripa argued that the policy prevented African, coloured, Indian and Chinese people, who became South African citizens after April 27, 1994, from being appointed.

White men would also only get 10 percent of the work, which would affect their ability to continue practising, the association submitted.

However, the minister, chief master and the Association for Black Business Rescue and Insolvency Practitioners of South Africa (Abripsa) countered that the system in place unfairly favoured white men.

In his judgment, Acting Judge Katz said the minister’s intentions were admirable.

“South Africa’s history of state-sponsored racism and sexism, race and gender will always be significant factors when considering the right to equality. Similarly, given the commitment to a democratic and open society based on the rule of law, effective measures for combating corrupt practices such as fronting are key.

“The minister and the chief master have clearly noted these issues, and the minister has attempted to adopt a policy to deal with the difficult process of appointments of insolvency practitioners to sequestrated estates and liquidated companies. The objectives and goals are admirable and are supported. There is certainly an attempt at remediation and an acknowledgement that practice needs to change within the Masters’ Offices to influence continuing inequities, quite apart from the prevention and combating of corrupt practices and fronting.”

However, he pointed out that such a policy could not pass constitutional muster on good intentions alone.

Referring to the policy’s aim of making the insolvency industry accessible to previously disadvantaged people, he said more work was needed than simply increasing numbers.

“Playing a ‘numbers game’ goes no further than formal equality which is not lawful affirmative action as contemplated by the constitution, and which is not the purpose behind the constitutional recognition of valid remedial or advancement measures,” he added.

He also pointed out that the policy introduced an inflexible race and sex-based appointments process.

“The Constitutional Court has emphasised that, while the constitution is a transformative one and that remedial action to address past injustices is a required and indeed lawful imperative, such measures need to be nuanced.”

The facts suggested that the actual policy would not “cure the mischief it aims to address”.

“There is no reasonable likelihood of the policy solving problems of corruption or fronting, nor of advancing the transformative agenda required by the constitution.”

Abripsa was ordered to pay Saripa’s costs.

Weekend Argus

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