A full bench sitting of the Constitutional Court in Johannesburg. File picture: TIRO RAMATLHATSE

Johannesburg - The Constitutional Court will rule on Thursday whether a debt-restructuring proposal by a debt counsellor constitutes an act of insolvency.

In 2007, Marthinus David de Klerk entered into a credit agreement with Griekwaland West Co-Operative but failed to honour his payment obligations.

De Klerk approached a debt counsellor from Debt Wise, who concluded he was over-indebted.

In 2010, Debt Wise sent a debt-restructuring proposal to Griekwaland. 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 - that the proposal by Debt Wise constituted an act of insolvency because it was an admission that De Klerk was unable to pay his debts, and that De Klerk was factually insolvent, an alternative ground for sequestration.

The court found no evidence to support De Klerk's claim that his farm was worth R5 million, and therefore exceeded his liabilities.

The high court later made the sequestration order final.

De Klerk appealed to the full Bench of the high court, which found the debt-restructuring proposal was an act of insolvency.

De Klerk argued he did not send the proposal and it therefore could not constitute an act of insolvency.

The full Bench rejected this, as it had been sent on his instruction. It also upheld the lower court's finding that De Klerk was insolvent.

The Supreme Court of Appeal dismissed De Klerk's application for leave to appeal.

De Klerk approached the Constitutional Court to determine whether a debt-restructuring proposal, in terms of the National Credit Act, constituted an act of insolvency.

He argued that the notice sent by Debt Wise could not be understood as an admission that he could not pay his debts, as this would be contrary to the purposes of debt-review procedures. He argued he was not insolvent.

Griekwaland contended that it was not in the interests of justice to grant De Klerk leave to appeal because of a pending remedial legislation on the matter, and because De Klerk had been found to be insolvent.

Griekwaland further contended that the Debt Wise notice sent with De Klerk's consent could reasonably be construed as an admission that he was unable to pay his debts.