What is an administration order under section 74?

An administration order is the oldest debt relief mechanism in South African law still in daily use, and the one most often misunderstood by the people in it.

It is genuinely useful. For someone with a handful of small judgment debts, no assets worth attaching and a modest income, it stops the sheriff, stops the emoluments attachment orders, and reduces a chaotic set of demands to one affordable payment.

It is also the mechanism the South African Law Reform Commission has spent years reviewing, because of how badly it works for the people it is meant to protect.

What it is

Section 74 of the Magistrates' Courts Act 32 of 1944 allows a magistrates' court to make an administration order where a debtor:

• is unable to pay a judgment debt, or to meet their financial obligations, and
• has insufficient assets capable of attachment to satisfy those obligations, and
• has total debts not exceeding the prescribed amount, which is currently R50 000.

The court appoints an administrator, fixes an amount the debtor must pay weekly or monthly, and the administrator collects that amount and distributes it among the listed creditors proportionally.

The R50 000 limit is the first thing to check, and it is a hard limit on the total of all debts rather than on any one of them. It also explains a good deal about why the remedy suits some people and not others: it was designed for small debts, and it has not kept pace with what people actually owe.

What is covered

Administration is broader than debt review in one respect that matters.

Debt review under the National Credit Act applies to credit agreements. Administration covers all debts, including those that are not credit agreements at all: arrear rent, a delictual claim arising from a car accident, a judgment for damages, unpaid school fees, municipal arrears.

So a person whose problem is mostly judgment debts rather than credit cards may find administration is the only mechanism that reaches them.

You cannot sensibly be in both regimes at once for the same debts. If you are already under debt review, our guide on getting out of debt review early explains the exit, and that has to happen before anything else.

How to apply

The application is made to the magistrates' court for the district in which you reside, carry on business or are employed.

You complete the prescribed form, supported by a statement of affairs: your income, your expenses, your assets, and a complete list of your creditors with the amounts owing. Completeness matters, because a creditor left off the list is not bound by the order and can carry on executing against you.

Creditors are notified and the matter is heard. Any creditor can appear and oppose, and the most common objections are that the debts exceed R50 000, that the proposed instalment is too small, or that the debtor has assets they have not disclosed.

If the court is satisfied, it makes the order, appoints the administrator and fixes the payment.

What the order does

Creditors named in the order may not execute. No sheriff, no warrant of execution, no new emoluments attachment order for a covered debt. This is what people come for, and it works. Our guide on emoluments attachment orders explains the mechanism that stops.

You make one payment. To the administrator, in the amount the court fixed, on the frequency it set.

The administrator distributes. Pro rata among the creditors, and the administrator must render accounts of what has been collected and what has been paid out.

You may not incur further credit beyond a prescribed limit without disclosing that you are under administration. Doing so is an offence, and a credit provider who is not told has a complaint.

It is recorded. An administration order appears on your credit record, and its practical effect on your ability to obtain credit is severe and lasts well beyond the order itself. Our guide on how debt review affects your credit score covers the mechanics of listings, which work the same way here.

Where it goes wrong

This is the part nobody explains at the beginning.

The fee comes off the top. The administrator may recover no more than 12.5% of the moneys collected as remuneration. On top of that come the legal costs of the application and necessary expenses. So a payment of R800 a month does not send R800 to creditors.

Interest keeps running. Administration is not a moratorium on interest. Unlike debt review, where interest rates are commonly renegotiated as part of a rearrangement, there is no built-in concession here. If the distributions are smaller than the interest accruing, the debt grows while you pay.

The distributions are tiny and infrequent. Where a small monthly payment is split proportionally among eight creditors after fees, each creditor receives a few rand at a time.

Nobody is watching the clock. There is no statutory end date. Orders that were described as lasting two or three years run for ten or fifteen, and debtors frequently do not know what their balance is because they have never seen an account.

The combination of those four things is the trap. It is not that administration does not work; it is that it can carry on working indefinitely while the underlying debt barely moves.

What to do if you are already under one

Get the accounts. You are entitled to know what has been collected, what has been paid to each creditor, and what the administrator has taken. Ask in writing. An administrator who will not account is the clearest warning sign there is.

Check the arithmetic. Compare what you have paid in total against what creditors have received. If the gap is much larger than the 12.5% plus the original legal costs, something is wrong.

Complain to the court. The administrator is an officer answerable to the magistrates' court that appointed them. The court can call for accounts and can remove an administrator who is not performing. This is the pressure point, and it costs nothing to use.

Complain to the Legal Practice Council where the administrator is an attorney, or to the National Credit Regulator where credit agreements are involved.

Ask whether you should still be in it. If your income has improved, or if the total debt would now be better handled another way, the position should be reconsidered rather than allowed to run.

Getting out

An administration order does not simply expire. It is brought to an end by an application to the court that made it.

Where the debts have been paid in full, the administrator should apply for the order to be rescinded, and you should confirm that it has actually happened rather than assuming. An order that remains on the record after the debts are settled continues to affect you.

Where administration is no longer appropriate, you can apply for rescission on that basis, and the court will want to know what is proposed instead.

Where your circumstances have changed, the instalment can be varied.

How it compares

Debt review under the National Credit Act has no debt ceiling, is run by registered debt counsellors under national regulation, applies to credit agreements, and usually involves renegotiating instalments and rates. Our guide comparing debt review and sequestration sets out the trade-offs, and the debt relief options tool helps identify which route fits.

Sequestration writes debt off but requires that it be to the advantage of creditors, costs a great deal to apply for, and carries the consequences of insolvency.

Administration sits between them: it is cheap to enter, it covers everything, and it forgives nothing.

The honest summary is that administration suits a person with small non-credit debts, a stable modest income, and nothing worth attaching. It suits almost nobody else, and it is chosen far more often than that description would suggest, usually because somebody advertised it.

Worked example

This example is illustrative. Nomsa owes R38 000 in total: two judgment debts from furniture accounts, arrear rent from a previous flat, a clothing account and a cellphone contract. She earns R7 200 a month. The sheriff has attached nothing because she owns nothing worth taking, but an emoluments attachment order is taking R900 a month off her salary and she cannot manage.

Her debts are under R50 000, so she qualifies. The court makes an administration order and fixes her payment at R700 a month.

The emoluments attachment order for a covered debt falls away and the creditors in the order stop executing. That is a real improvement and it is why she applied.

Of the R700, the administrator may retain up to 12.5%, so R87.50, and the legal costs of the application are recovered as well. In the early months, most of what she pays is going to costs rather than to creditors.

Meanwhile interest continues to run on the accounts. If the interest accruing across R38 000 exceeds the few hundred rand a month reaching creditors, her balance is not falling.

What she should do, from the first month, is diarise a request for accounts every six months, keep her own record of every payment, and watch the total. If after two years the balance has not moved, that is information she needs in order to decide whether to apply for rescission and deal with the debt another way, and it is information she will not receive unless she asks for it.