People who owe money and apply to court for administration orders often end up in a position where they are unable ever to pay back their debts, the Banking Council said on Wednesday.
Addressing reporters in Johannesburg, Banking Council representative Bob Tucker said there had been a great increase in credit extension over the last five years, especially to low-income earners. Many people found they could not repay their debts, and turned to the courts for protection.
Under the Magistrate’s Court Act of 1944, a person with debts of less than R50 000 and who is unable to meet their monthly repayments may have an administrator appointed by the court. The administrator is supposed to collect an agreed sum of money from the debtor every month, and make payments to the creditors quarterly. In the meantime the creditors may not take legal action against the debtor.
According to research conducted by firms of auditors for the Banking Council, some 100 000 to 120 000 administration orders are granted annually. Twenty administrators — mainly attorneys — were investigated.
The researchers found many breaches of the Magistrate’s Court Act.
”In the majority of cases, the orders obtained from the courts… result in insufficient payments by debtors to creditors… to settle the outstanding debts in a reasonable time frame,” their report said.
Administrators were found to be charging more than the 12,5% fee the act allows — in some cases as much as 22,5%.
The costs of the court application — often brought by the administrators themselves — were a first charge on the monthly payments by the debtors, and could take between nine months and two years to pay off before anything was paid to the other creditors.
Administrators often paid the other creditors late or not at all, while interest continued to accumulate.
Administrators often approached people with enticing offers to help them get their affairs in order.
Tucker said the typical creditors of people under administration were micro lenders, banks, retailers, furniture shops, car dealers and life assurers.
Tucker said the Banking Council did not deny that banks had taken part in the considerable extension of credit to low-income earners in the last five years. But the abuse of administration orders was not in the interests of either debtors or creditors.
The Banking Council was in touch with the Department of Justice about new guidelines for magistrates hearing applications for administration orders. While an administration order could be useful in many cases to allow debtors to get their affairs in order, often they were not appropriate.
The Banking Council’s advice to financially overburdened people was:
— Approach your creditors first. Think carefully before applying for an administration order;
— If administration is your only option, make sure the administrator is ethical;
— Ask the administrator for a quotation that discloses all fees;
— Ask the administrator how long it will take to pay off your debts after his fees have been paid;
— If you have been placed under administration, insist that the administrator give you a copy of the court order showing all the creditors he will pay on your behalf. Make sure all your creditors are listed, and no incorrect creditors are on the list;
— If the administrator deducts a monthly amount from your pay, keep your payslips as proof of the amount;
— Visit the administrator at least quarterly and ask for a statement of all costs deducted and payments made;
— Check with your creditors that they have in fact been paid;
— Retain a good credit record, and only use administration as a last resort. If you are unhappy with what your administrator is doing, you can approach the court for protection. – Sapa