Written by Rohan Lamprecht.
Bankruptcy can be traced back through the centuries to Hebrew Scriptures that refer to Moses' Laws that prescribed one "Holy Year" or "Jubilee Year" that should take place every 50 years, when all debts are eliminated among Jews and all debt-slaves are freed, due to the heavenly command. The law of debt forgiveness can be found in the Old Testament of the Bible:
"Every seven years we will let our fields rest, and we will cancel all debts." - Nehemiah 10:31b,
and
"Every seven years you must announce, "The LORD says loans do not need to be paid back." Then if you have loaned money to another Israelite, you can no longer ask for payment. At the end of every seventh year you must cancel your debts. This is how it must be done. Creditors must cancel the loans they have made to their fellow Israelites. They must not demand payment from their neighbours or relatives, for the LORD's time of release has arrived." - Deuteronomy 15:1-2.
The Bible makes it clear in Leviticus 25:39 that people are generally expected to pay their debts and no one should advance any argument against that. However, the moral and legal obligation to pay debts must be balanced by the need for compassion and the ability to cancel debts at periodic intervals. The Biblical basis for such ideas is based on the sabbatical and Jubilee years.
In ancient Greece, a similar concept existed regarding a "timetable for debt forgiveness". Only locally born adult males could be citizens, it was therefore the fathers (as the head of their family) who were the legal owners of property. If a father was indebted and he could not pay, his entire family including their servants were forced into "debt slavery", until the creditor recovered his debt through their physical labour. However, in most city-states debt slavery was limited to a period of five years and debt slaves had protection of life and limb, which regular slaves did not enjoy. Unfortunately the servants of the debtor could be retained by the creditor beyond the five year deadline. They were often forced to serve the creditor for a lifetime, usually under significantly harsher conditions.
During the period of the Twelve Tables which was promulgated in 451 BC, Roman Law dictated that the inability of a debtor to pay his debt, afforded his creditors the option of either selling him into slavery known as manus injection, or of cutting his body into pieces with the advantage of incurring no liability in case anyone cut off more than his share. These cruel practices were later abolished and replaced by imprisonment of the debtor in a public prison. Eventually in AD 320 imprisonment itself was abolished, save in a case of a debtor who contumaciously refused to pay his debts.
The formal concept of Bankruptcy stemmed from the Roman Empire. The actual word 'Bankruptcy' was derived from the ancient Latin term bancus ruptus which means 'broken bench', as it was common practice amongst the first bankers of that time to use a bench in public places such as markets to do business, count their money and to write bills of exchange on. Whenever a banker failed, he broke his bench in order to inform the public that his "bank" was no longer in business, as he was bankrupt.
This same practice was also frequented in Italy and therefore some people are of the opinion that the term 'Bankrupt' originated from the Italian term banco rotto, which also means 'broken bench'. Some however, choose to deduce the word from the banque and route meaning 'table' and 'trace', which was used for referring to the traces or signs left in the ground by a table that was once fastened to it, but has since been removed.
Modern British bankruptcy statutes can be traced back to the sixteenth century and formed the basis of modern U.S. bankruptcy law. Bankruptcy was originally more of a sword than a shield, initiated by creditors and often leading to imprisonment for the delinquent debtor. Roman-Dutch law of the 1700 provided debt relief in the form of surchéance of payments, which is defined as a favour granted by the state which afforded a debtor a right to obtain suspension of payment of debts for one year.
Pre-Union legislation relating to insolvency law in South Africa were regulated by various ordinances during the 1800. In 1916 the Parliament of the Union of South Africa repealed the existing statute law of insolvency in the various provinces and substituted a uniform law of insolvency which was implemented throughout the then Union of South Africa. The Insolvency Act, Act 32 of was repealed on the 1st of July 1936 by the commencement of the current Insolvency Act, Act 24 of 1936. Although it has been frequently been amended over the years since its implementation, it has remained largely unchanged. The most comprehensive amendments were brought about by the following Insolvency Amendment Acts: 16 of 1943, 99 of 1965 and 101 of 1983.
In 1987 the South African Law Reform Commission lodged an investigation into all aspects of insolvency law under their mandate to review the Law of Insolvency. The Insolvency Amendment Act 122 of 1993 and 32 of 1995 were passed, before the South African Law Commission Report Project 63, as it was known, eventually led to a draft Bill in 2000 and the implementation of Insolvency Amendment Act 33 of 2002 and subsequent Insolvency Second Amendment Act 69 of 2002.
Although the aforementioned draft Bill also adopted a fresh start approach for bona fide debtors by proposed certain new sections the various acts in order to facilitate pre-bankruptcy compromises, it was eventually resolved that prevention is better than cure.
In this regard it was submitted that the solution to over-indebtedness did not only lie in reform of the insolvency legislation, but in the reform of consumer protection legislation as well. This realization eventually led to the implementation of the new National Credit Act, Act 34 of 2005 with the aim to address and prevent over-indebtedness. The NCA as it is commonly referred to, offers mechanisms for debt payment restructuring by affording an over-indebted consumer the opportunity to apply for debt-arrangement.
Although the aim was to assist the over-indebted consumer, the NCA also opened up the proverbial "Pandora's box" with regards to unscrupulous Debt Counsellors. The main problem for the consumer seems to be that the relief offered by the NCA boils down to an extension of the debt repayment timetable, without addressing the effect of interest over the extended period.
Thus when all is said and done, the informed consumer that seeks a truly fresh start and clean slate from over-indebtedness is ultimately still left with only one recourse - filing for voluntary bankruptcy in terms of the Insolvency Act, Act 24 of 1936.
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