Proposed drafting changes to the Bill, as read with Werksmans' written submissions dated 29 July 2005.

1 Section 8(3)(a) - Definition of credit facility

1.1 Section 8(3)(a) of the Bill defines a credit facility. In our experience, as a result of the broad manner in which the definition has been drafted, certain agreements which do not have as their main purpose the lending of money or the advancing of credit, may fall within the ambit of the legislation.

1.2 Proposed solution -

1.2.1 We would suggest that the reference to "goods and services" be deleted from this definition. Alternatively, we would suggest that the section may be amended as follows (all of our suggested amendments are underlined and/or struck out)-

"(3) An agreement, irrespective of its form but not including an agreement contemplated in subsection (2), constitutes a credit facility if, in terms of that agreement -

(a) a credit provider undertakes -

(i) to supply goods or services or to pay an amount or amounts as determined by the consumer from time to time, to the consumer or on behalf of, or at the direction, of the consumer; and

(ii) either to -

(aa) defer the consumer's obligation to pay any determined amount which is due and payable in respect of the goods or services, or to repay to the creditor provider any part of an amount contemplated in subparagraph (i); or

(bb) bill the consumer periodically for any portion of the determined amount which is due and payable in respect of the goods or services, or any part of an amount, contemplated in subparagraph (i); and

(b) any charge, fee or interest is payable to the credit provider in respect of -

(i) the agreement;

(ii) any amount deferred as contemplated in paragraph (a)(ii)(aa); or

(iii) any amount billed as contemplated in paragraph (a)(ii)(bb) and not paid within the time provided in the agreement.".

2 Section 40(1) - Registration of credit providers

2.1 In terms of section 40 of the Bill, a credit provider is required to be licensed in cases where the credit provider is a provider under 100 agreements or more or the credit provider has a book in excess of a prescribed threshold.

2.2 The definition of a "credit provider" refers to a credit provider in respect of a credit agreement to which the Act applies and the definition of a consumer refers, again, to a consumer in respect of a credit agreement to which the Act applies. We assume then, that the obligation to register under section 40(1) of the Bill only applies to credit providers who are credit providers under credit agreements to which the Bill applies (see further section 4 of the Bill).

2.3 Proposed solution -

2.3.1 In order to avoid any uncertainty in this regard, we suggest that the following amendments could be included in section 40(1)(a) and section 40(1)(b) of the Bill -

"40(1) A person must apply to be registered as a credit provider if -

(a) that person, alone or in conjunction with any associated person, is the credit provider under at least 100 credit agreements to which this Act applies, other than incidental credit agreements that arise from outstanding accounts; or

(b) the total principal debt We assume that this only applies to credit provider under all outstanding credit agreements to which this Act applies, other than incidental credit agreements that arise from outstanding accounts, exceeds the prescribed threshold in terms of section 42(1)".

3 Section 84 - Effect of suspension of credit agreement

3.1 In terms of section 83(2) and 83(3)(b)(i) of the Bill, if a court declares that a credit agreement is reckless in terms of section 80(1)(a) or 80(1)(b)(i) of the Bill, the court may make an order suspending the force and effect of such credit agreement until a date determined by the court when making the order of suspension.

3.2 In terms of section 84(1)(b) of the Bill during the period that the force and effect of a credit agreement is suspended, no interest, fee or other charge under the agreement may be charged to the consumer.

3.3 In terms of section 84(2)(b) of the Bill it is stated that - "After a suspension of the force and effect of the credit agreement ends - ... for greater certainty, no amount may be charged to the consumer by the credit provider with respect to any interest, fee or other charge that were unable to be charged during the suspension in terms of sub-section 1(b)".

3.4 It is not understood what the legislature intends in respect of the payment of interest that had been suspended during the operation of section 84(2)(b) of the Bill.

3.5 Is it intended that all interest that was not charged during the relevant period of suspension must be written off by the credit provider?

3.6 Proposed solution -

We would suggest that in order to clarify the position relevant to the charging of interest during the period of suspension, section 84(2)(b) of the Bill should be amended as follows -

"After a suspension of the force and effect of the credit agreement ends - .....for greater certainty, any amount that would, in the ordinary course, have been charged to the consumer by the credit provider with respect to any interest, fee or other charge during such period of suspension, must be reversed and not charged to the consumer for such period. All interest, fee or other charge pursuant to such credit agreement will commence from the date upon which such period of suspension terminated.

4 Section 86 - Application for debt review

4.1 In terms of section 86(10) of the Bill, if a consumer is in default under a credit agreement which is the subject of review in terms of this section, the credit provider may give notice to terminate the review in the prescribed manner to - (a) the consumer; (b) the debt counsellor or (c) the National Credit Regulator, at any time at least sixty business days after the date upon which the consumer applied for the debt review.

4.2 In terms of section 86(11) of the Bill, if a credit provider who has given notice to terminate a review as contemplated in sub-section 86(10) of the Bill, proceeds to enforce that agreement in terms of part (C) of Chapter 6, the Magistrate's Court hearing the matter may order that the debt review resume on any conditions the court considers to be just in the circumstances.

4.3 There seems to be a contradiction in respect of sections 86(10) and 86(11) of the Bill. Is it possible for the Magistrate's Court to postpone the sixty day business day period referred to in section 86(1) indefinitely, upon application by a consumer who would be the subject of the credit review? It remains unclear as to what definitive time periods will apply from the date that a consumer submits himself and his credit agreement to review in terms of section 86 of the Bill. What is concerning is that when one considers the potential backlog in the Magistrate's Court (or the Consumer Court) the debt review process could be delayed for an indefinite term.

4.4 Proposed solution -

We would suggest that the following amendments to section 86(11) be made......"If a credit provider who has given notice to terminate the review as contemplated in sub-section 86(10), proceeds to enforce the agreement in terms of part (C) of chapter 6, the Magistrate's Court hearing the matter may order that the debt review resume on any conditions the court considers to be just in the circumstances but limited to a further period of at least thirty business days.

5 Insolvency implications

5.1 An application for debt restructuring has implications in terms of the provisions of the Insolvency Act 24 of 1936 ("Insolvency Act").

5.2 In terms of section 8(e) of the Insolvency Act, if a debtor "makes or offers to make any arrangement with any of his creditors for releasing him wholly or partially from his debts" such a debtor would have committed an act of insolvency. An application for debt restructuring in terms of the proposed legislation (which is in effect an offer of arrangement) based on an "inability to pay one's debts" could result in there being a determination that the consumer has committed an "act of insolvency" and which could result in the consumer's sequestration.

5.3 Furthermore, in terms of section 8(g) of the Insolvency Act, if a debtor (consumer) gives notice in writing to any one of his creditors, that he is unable to pay his debts, such notice would also constitute an act of insolvency.

5.4 The evidence submitted by a consumer in support of his inability to pay his debts in terms of a debt review under the proposed legislation could, therefore, be used by the creditor of a consumer in making application for the consumer's sequestration/insolvency.

5.5 In the case of Madari vs Cassim 1950(2) SA 35 (D) at page 38, it was held that an application for an administration order in terms of section 74 of the Magistrate's Court Act 32 of 1944, and which also demonstrates actual insolvency, was held to be an act of insolvency within the meaning of section 8(g) of the Insolvency Act.

5.6 In our view these matters need to be clarified as triggering an "act of insolvency" under the Insolvency Act is clearly not what is intended under the proposed legislation with regard to debt review and restructuring.

5.7 Proposed solutions -

5.7.1 We would suggest that an amendment be made to section 8(e) as follows - ........"This section shall not apply in the event that a debtor (consumer) makes application for debt review in terms of section 86 of the National Credit Act.

5.7.2 We would suggest that an amendment be made to section 8(g) as follows - ........"This section shall not apply in the event that a debtor (consumer) makes application for debt review in terms of section 86 of the National Credit Act.

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ERIC LEVENSTEIN (Director)

DIANE BOUWMEESTER (Senior Associate)

WERKSMANS INC

19 August 2005