Since the onset of the recession, there has been an increment in debt collection efforts, whether by Banks or by other individuals. As the number of debt collection litigious cases increase, the judiciary has responded in kind by ensuring that the rights of debtors are protected in so far as possible.
In this article, we will expound on the most critical judgments affecting the repossession rights under Rule 108 of the Rules of the High Court of Namibia, the stance of the Namibian government and the effect we believe it may have on the operations in the banking sector.
The Current Legal Environment
In August 2018 the High Court effectively declared the issuance of default judgments and both types of warrants of execution by the clerk of court unconstitutional. The court called on the legislature to amend the rules of the Magistrate’s Court to reflect the current practices and rules of the High Court. The Court admonished the Magistrate’s courts lack of judicial oversight in relation to the attachment of immovable property, and declared the empowering legislation, being section 66(1)(a), Rules 36 (issuance of warrants of execution) and 43 (the process relating to the sale in execution against immovable property) unconstitutional and provided the deadline of August 2019 for the rules to be amended.
Laws take time to develop, and at a time where the implications and practicality of the Rule 108 process is subject to extreme interpretation concerns, it is no wonder that the legislature could not comply with the deadline. As recently as December 2021, the Supreme Court developed the laws surrounding Rule 108s, many of which could be argued to favour the judgment debtor, to:
- Rule out the possibility of Rule 108 being granted at Summary Judgment stage because this amounts to a conflation of issues;
- Restrict the application of Rule 8(2)(d) of the High Court Rules, in terms of which a combined summons could be ‘left’ at the domicilium citandi et executandi’ in that the court found that the process must be left with a natural person and describe who or how the process was left there;
- Require an exposition into the efforts taken by the representative of the banks to get a hold of and settle the matters out of court with debtors to avoid the attachment of the immovable property;
- Demand a more inquisitorial role of the presiding judge into the merits of the attachment to the benefit of the lay litigant; and
- Require an active approach by the creditor and their representative in the attempts for an alternative amicable resolution
Given the above exposition, the government called a stakeholder meeting on the 26th of January 2022 (“the meeting”), to discuss proposed amendments to our court rules and debate what could be done to curb the ‘abuse of the court process’ by creditors. Our firm was present at the meeting, and we advise that the proposals by government can be summarized to include the following:
- The amendment of rules relating to service to only allow for “personal” service on the debtors and extend the time which is given to file an appearance to defend the claim;
- Requiring service to be done on a person with adequate understanding of the process who can assist the debtor;
- Requiring service of Rule 108 documents on a person who may be able to financially assist the debtor;
- Setting a minimum outstanding amount due when executing against immovable property; and
- Requiring that the reserve price of houses, regardless of whether same is a primary residence or not, be limited to the current market value and/or the amount of the debt outstanding to the creditor.
Impact on the banks
The Bankers Association of Namibia “BAN” and various bank representatives of the credit, risk, rehabilitation and recoveries departments of various banks, were all present at the meeting. They spoke to the effects of the proposal and the effects of the judgments on the debtor portfolios of the banks.
Creditors raised the grievance that, the rules and judgments of the court as enunciated above, have made it entirely the creditor’s burden to ensure that there is satisfactory room for negotiation before allowing the attachment of an immovable property. Whilst seemingly protecting an inactive debtor. However, the judgment in the matter of Kisilipile vs FNB in the Supreme Court has made it clear that the mechanisms in place and the subsequent verdict of the Court, should not defeat the commercial interest of the creditor and their contractual right to enforce a contract.
This is clearly a problem that calls for a joint taskforce in trying to find common ground. In fact, during the period of lockdown and the Covid pandemic, we have seen the banks provide payment holidays to the tune of N$ 11 billion and corporate social responsibility projects to the tune of about N$ 2.3 million, according to BAN. They further highlighted that as at September 2021, the banks debtor’s books stood at over N$ 7.2 billion.
It was highlighted by the stakeholders that most of the time the houses that are sold on auction belong to debtors who have funds to settle the debt and/or meet the monthly instalments but have simply overcommitted their funds elsewhere, alternatively, play hide-and-seek with the banks in terms of repayment. However, now, regardless of movable or immovable property, the Magistrates Courts cannot and will not issue warrants of execution, relying on the Hiskia judgment, and the banks must pay more to recover the funds they are legally entitled to.
The current legal environment has a significant effect on legal costs and the execution against immovable property. However, in the Kisilipile v FNB judgment, the Supreme Court held that consideration should be given to feasibility of the offers made by debtors and that the alternative measures proposed should not be to the detriment of the creditor.
To assist in the determination, the Supreme Court provided factors that the Court should take into account when considering attaching a Defendants property: i.e.
- the debtors age and ability to obtain another loan,
- the outstanding amount, the arrears and the period of which the arrears have been outstanding;
- the commercial interest of the applicant the period that it could take the applicant to recover the debt when a proposal is made by the debtor; and
- the payment history of the respondent and the period of which the loan has been held.Debt recovery has become one of the most important parts of the bank’s functions for the protection of their investors and compliance with the Banking Institutions functionality and/or liquidity requirements. To lengthen the process, as the courts and the government have been doing over the past few years, will only have a ripple effect on the debtors finances and their subsequent estate lates.
In amplification, if the debtor has an inadequate repayment structure sanctioned by the courts, the interest and legal costs rise significantly – both of which the debtors and their subsequent heirs remain liable for. Further, creating a difficult environment for recoveries will encourage bad debtors to proceed with their questionable behaviour of ducking and diving recovery and rehabilitation attempts by creditors. In turn, this could increase lending requirements and interest rates, instalment requirements, banking requirements and bank charges in an attempt to secure the banks’ investment and collateral portfolios. We submit that this only affects the middle to lower income part of the population – purportedly the ones we are seeking to protect.
Koep aims to work within the parameters set by the court rules and our common law, as it has developed through the court cases, in achieving the most effective result possible for our clients, by actively managing the costs and the benefits related to each recovery.
We earnestly engage in negotiations with debtors and the banks alike, to ensure that all mediums are exhausted before proceeding with the attachment of immovable property. Further, we ensure to highlight same to the court when applying for Rule 108 attachments via full application. This ultimately shortens the time it takes when the execution of immovable property is applied for.
We aim to achieve personal service of process on debtors, as far as reasonably possible, to make sure that the Rule 108 attachment can be done at default judgment stage. Where we are unable to locate the debtor, we opt for substituted service via newspaper and email to provide sufficient probability that it will come to the attention of the debtor.
Essentially, we have created a system to ensure the smooth functioning of our recoveries department for the benefit of our clients, to ensure that at every point we can account for the steps our clients have taken to mitigate the harm against all interested parties but at the same time to achieve an efficient and effective result for them.
Shumirai Nyashanu (Associate)
Head of Recoveries and Collections
Koep and Partners
* Disclaimer – the content of this article is in no manner intended to constitute formal legal advice on its subject matter. The reader should not act only upon the information in this article, or decide not to act based upon the information in this article, without first seeking appropriate professional counsel from a legal practitioner