8 August 2018 by Dispute Resolution Alert

Transforming the insolvency sector: The Constitutional Court has the last word

On 5 July 2018, the Constitutional Court dismissed an appeal by the Minister of Justice and Constitutional Development and another in the case of Minister of Constitutional Development and Another v South African Restructuring and Insolvency Practitioners Association and Others [2018] ZACC 20. In this case, the Minister challenged the decision by the Supreme Court of Appeal (SCA) that found a Policy, which sought to regulate the appointment of insolvency practitioners as a basis to transform the insolvency industry, to be unconstitutional and irrational.

This brief alert is a follow-up to our previous article published on 1 February 2017, on the SCA judgment and is aimed at reporting on the Constitutional Court judgment.

The Policy

You may recall from the SCA judgment that the Policy gave the Master of the High Court the power to appoint an insolvency practitioner regarded as a ‘previously disadvantaged individual’ (as defined in the Policy) to act as a co-trustee alongside an experienced practitioner so that he or she could learn from the experienced trustee how properly to administer an estate, in order to gain sufficient experience in the industry.

The basis for the invalidity

Section 9(2) of the Constitution is one of the provisions that authorises the adoption of remedial measures to address inequality and advance persons who were disadvantaged by unfair discrimination. In unpacking the provisions of s9(2), the court stated that such remedial measures must be “directed at an envisaged future outcome”.

The court found that the Policy’s methodology of lumping up African, Coloured, Indian and Chinese practitioners with the advantaged white males who dominate the entire industry in terms of numbers afforded everybody (in a category identified in the Policy) an equal opportunity of being appointed depending on whether they became citizens on or after 27 April 1994. Moreover, the court found that the methodology impermissibly discriminated against other races whose interests it sought to advance on the ground that they became citizens on or after 27 April 1994. To this extent, the court concluded that the Policy did not constitute a restitutionary measure envisaged in s9(2) of the Constitution. The court also stated that it undermined the progressive realisation of equality which the other parts of the Policy were designed to achieve.

In dismissing the appeal, the Court concluded that the Policy was not reasonably capable of achieving equality on the basis that certain of its provisions were arbitrary and constitutionally invalid.

Inasmuch as the court dismissed the appeal, the need to transform the insolvency sector cannot be overemphasised. The issue is now left to the Minister to review the Policy in its current form through engagement with the stakeholders to ensure that it passes the test of rationality envisaged by the Constitution.

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