iMali Matters: So, if you could please outline and highlight to us what preservation orders are and how they function in the context of debt recovery and within the broader legal framework of debt recovery, any theoretical underpinnings to that.
Mtho Maphumulo: So, if you are a creditor, meaning you either loaned out money, finances, or your belongings to someone, and that person is not acting in line with your agreement, you can bring a court application called a preservation order. The nature and effect of that order is that the court will order the debtor to bring back the property you lent them. The debtor will have to deliver it to the sheriff’s offices.
In the country, there are various offices for all the sheriffs. So, they would deliver it to the sheriff’s office, who would then find the most suitable auction house to store, preserve, or keep that particular item until the dispute between the debtor and creditor is resolved.
If it’s resolved in favor of the creditor, the creditor will take back that item permanently. Likewise, if it goes in favor of the debtor, then the debtor will repossess the item until the agreement is fully settled.
iMali Matters: That’s interesting. And in what ways do preservation orders provide a lifeline for creditors during a debt crisis?
Mtho Maphumulo: Preservation orders are available from the minute the parties enter into an agreement because the breach of an agreement can occur at any stage once the agreement has been entered into. So, if the debtor defaults in the first month of the agreement, the creditor is within their rights to bring this application to court.
iMali Matters: And it also helps with asset protection, right? Like they help in securing assets before a final judgment is reached in case the person decides to do damage to the property.
Mtho Maphumulo: Absolutely. That’s the whole purpose of preservation orders. They avoid a situation where, due to the dispute between the parties, the debtor may act in bad faith and destroy or misuse the loaned property. This is to preserve that item from being destroyed or, in some instances, from depreciating in value.
iMali Matters: Right, because depreciation would mean a financial loss for the creditor. So, preservation orders also act as a deterrent to debtors who may consider dishonest practices, correct?
Mtho Maphumulo: Yes, definitely. If a debtor receives this court application through the sheriff, they may be more inclined to comply with the agreement terms, understanding the preservation order’s effect, which is to repossess the property. It also protects the value of the item to ensure that the creditor’s investment is preserved to the greatest extent possible.
iMali Matters: It sounds like a significant support mechanism for creditors. Have you observed trends in terms of settlement speeds or recovery rates?
Mtho Maphumulo: Preservation orders can work wonders. Often, once the debtor realizes this application is going to court, they may choose to negotiate with the creditor, which helps both parties. Creditors generally don’t want to repossess items; they want the repayments as agreed. So, parties may enter negotiations, which leads to repayment, even if it’s slower, ultimately fulfilling the agreement’s terms.
iMali Matters: Are there any challenges creditors face when seeking preservation orders, and how can they navigate them?
Mtho Maphumulo: Legally, creditors must meet specific requirements, like an interim interdict, which can be challenging. It’s a matter of presenting enough evidence to support their case. Additionally, some debtors may attempt dishonest actions, like misusing or destroying the item before the preservation order is granted. In such cases, criminal proceedings can be initiated.
iMali Matters: Could you share the legal framework surrounding preservation orders in South Africa? And any recent changes or proposed reforms?
Mtho Maphumulo: Certainly. For a preservation order to be granted, certain interdict requirements must be met: proving a right to the item, showing reasonable suspicion that the debtor may destroy or misuse it, demonstrating a good chance of success in the main dispute, and proving that there’s no other legal remedy available. Additionally, the parties must be the same as those in the agreement, and there must be a factual dispute between them.
iMali Matters: In a broader sense, how do preservation orders contribute to financial stability in a crisis-ridden economy?
Mtho Maphumulo: Preservation orders allow creditors to lend or finance assets with a safety net, encouraging continued lending which supports consumer spending and economic growth. They provide creditors with a way to recover assets or funds, helping the economy retain liquidity and stability even in financially tough times.
iMali Matters: Do you foresee preservation orders remaining a vital tool for creditors in the future?
Mtho Maphumulo: I think so. While they’re not well-known, they’re valuable, especially for big institutions like banks. Awareness of preservation orders could greatly assist creditors in recovering what they’re owed and could support economic health more widely.
iMali Matters: Any specific examples of successful preservation orders?
Mtho Maphumulo: Yes, recently in the Pretoria High Court, a financial institution that financed a vehicle sought a preservation order to have the vehicle returned to the sheriff’s custody. The court ruled in favor of the creditor, acknowledging the vehicle’s use in business exposed it to risk, which preserved the asset for the creditor pending resolution of the dispute.
iMali Matters: Finally, what advice would you give creditors about navigating debt recovery in today’s economic climate?
Mtho Maphumulo: I’d encourage creditors to use preservation orders where justifiable. These orders allow creditors to recover as much as possible under the circumstances, supporting their financial stability. Additionally, creditors should balance the use of preservation orders with openness to renegotiating payment terms when debtors are willing to cooperate.
iMali Matters: Thank you so much for the insightful discussion, Mtho. This will certainly provide valuable information to our readers.
Mtho Maphumulo: Thank you. It’s been a pleasure.
