By Michael Mbikiwa on 25 June 2014

The central legal question in this case is whether a debt restructuring proposal, purportedly sent to a creditor in terms of section 86(1) of the National Credit Act, is an act of insolvency for the purposes of section 8(g) of the Insolvency Act. However, in a unanimous judgment by van der Westhuizen J, the Constitutional Court (the “Court”) refused the application for leave to appeal without needing to reach this central question.

In June 2010, after determining that Mr de Klerk was over-indebted, a debt counsellor delivered a debt‑restructuring proposal to his creditors, including to Griekwaland Wes Korparatief Limited (“GWK”), the Respondent. The proposal suggested restructuring Mr de Klerk’s instalments to an amount insufficient to cover even the interest owed to GWK. In August 2010, Mr de Klerk filed an application in the Magistrate’s Court to make a second debt-restructuring proposal. In his founding affidavit, he stated that he could not meet his monthly financial obligations.

On 10 August 2010, GWK applied for Mr de Klerk’s provisional sequestration. The High Court (per Williams J) granted the provisional sequestration order, which it later made final, on two grounds: first, because the first proposal constituted an act of insolvency and, second, because Mr de Klerk was in any event factually insolvent.

On appeal, the Full Court (per Kgomo JP, Pakati J and Mamosebo AJ concurring) upheld the High Court’s findings on both counts. It rejected Mr de Klerk’s argument that because he did not send the proposal himself it could not constitute an act of insolvency.

The Supreme Court of Appeal dismissed Mr de Klerk’s application for leave to appeal.

Writing for a unanimous Court, van der Westhuizen J accepted that “the question whether a notice concerning debt restructuring is (under section 86 of the National Credit Act) is or could be an act of insolvency (under section 8(g) of the Insolvency Act) is of some obvious significance”. However, even on the assumption that this question met the jurisdictional requirement of being a matter that “raises an arguable point of law of general public importance which ought to be considered by [the] Court”, he concluded that the Court should not answer it.

This was because the High Court and Full Court had found – independently of their conclusion that the proposal constituted an act of insolvency – that Mr de Klerk was factually insolvent. The latter finding alone was a sufficient basis to grant a sequestration order. There existed no exceptional circumstances to deviate from the general principle that the Court will not interfere with the factual findings of lower courts. In fact, Mr de Klerk did not persuasively argue why the High Court’s factual finding was incorrect. And because the finding of factual insolvency stood, it made little sense for the Court to consider the question – which would make no difference to his sequestration – regarding the relationship between section 8(g) of the Insolvency Act and section 86 of the National Credit Act.

A further reason militating against granting leave to appeal was that, less than a week before the hearing, the President assented to an amendment to the National Credit Act, which reads:

“8A A debtor who has applied for a debt review must not be regarded as having committed an act of insolvency.”

In the light of this amendment, which appears to be aimed at resolving the perceived tension between the National Credit Act and the Insolvency Act, van der Westhuizen J held that there was little benefit in attempting to clarify the issue in this case.

Accordingly, the Court held that it was not in the interests of justice to grant leave to appeal.

Download the judgment here..