Some comparative notes on anti-discriminatory credit laws regarding rehabilitated and unrehabilitated insolvent debtors

Abstract

During the sequestration process, an insolvent debtor is not only exposed to employment disqualifications but also to credit limitations, restricting the debtor from obtaining credit and participating in the economy. While these credit limitations may be justifiable during the sequestration process for public policy reasons, credit limitations that extend after the insolvent has been rehabilitated appear discriminatory against honest debtors. This is because the incentives for rehabilitation may include a debtor obtaining a fresh start through discharge from all pre-sequestration debts, the removal of insolvency disabilities, which include the restoration of full contractual capacity and, most importantly, the opportunity to start afresh, free to become an economically active member of society again. The question that will be addressed in this article is whether, in light of the international notion of a fresh start through discharge and the South African insolvency and credit laws, a rehabilitated debtor is indeed given a new opportunity to resume economic activity. More importantly, what does rehabilitation aim to achieve, and what ‘harm’ needs to be avoided to circumvent the discrimination of honest debtors once a debtor is rehabilitated? This article will address some of these questions by discussing the guidelines for an effective insolvency system according to the World Bank Report. Some comparative notes on anti-discriminatory credit laws in jurisdictions such as the United States of America and the United Kingdom will also be discussed. The antiquated rules of rehabilitation in South African insolvency law and credit limitations imposed on unrehabilitated and rehabilitated insolvent debtors in South Africa will be noted, and, lastly, the rationale for such limitations and the right to equality of rehabilitated debtors in South Africa will be analysed.