The Western Cape High Court has reaffirmed that the reckless credit provisions of the National Credit Act (NCA) do not automatically apply where a credit provider seeks sequestration under the Insolvency Act rather than enforcement of a credit agreement.
The judgment, handed down in February, addresses the interaction between sections 80(1)(a) and (b) and 81(2) of the NCA and sections 8, 9, and 10 of the Insolvency Act, and clarifies the doctrinal distinction between debt enforcement and insolvency proceedings.
System deployment error and R2.6 million exposure
The respondent, Izak Petrus van Zyl, held a private bank account (PBA) with Investec Bank, the applicant, subject to an authorised credit limit of R150 000. On 1 February 2025, he applied for an increase in that limit. Investec declined the request on 4 February.
On 5 February, Investec implemented a system deployment affecting its internal credit card platform. The deployment temporarily disabled the balance-check function for tokenised transactions. As a result, transactions were processed regardless of whether sufficient funds or available credit existed.
Between 5 and 11 February, online betting transactions were processed on Van Zyl’s account, resulting in an outstanding balance of R2 601 609.86.
It was common cause that SMS notifications were sent to Van Zyl as each transaction was processed.
On 13 February, Investec demanded immediate payment of the full outstanding balance. Van Zyl did not dispute liability at that stage. Instead, he sent written proposals dated 18 February 2025 and 6 March seeking to repay the debt by instalments extending to April 2028. Investec rejected the proposals and launched sequestration proceedings.
In opposing the application, Van Zyl denied liability for the amount exceeding the R150 000 authorised limit.
He relied on sections 80(1)(a) and (b) and 81(2) of the NCA, contending that Investec had effectively extended credit beyond the agreed limit without conducting the affordability assessment required by the Act. He argued this amounted to reckless credit, and the dispute should be resolved in action proceedings.
He further stated that the excess transactions were incurred by his wife’s gambling activities, and he had relied on the understanding that the credit limit would be enforced.
The High Court in Cape Town found this defence internally inconsistent.
Acting Judge S Yake noted that Van Zyl is a financial adviser by profession and “expected to have vast knowledge regarding financial matters and his financial obligations”.
The judge observed that Van Zyl had formally applied for an increased limit days before the system error occurred, demonstrating he understood that a credit increase required approval. It was therefore “illogical” to suggest that the bank would decline a formal increase request and then automatically extend unlimited credit days later.
Yake AJ described Van Zyl’s respondent’s reliance on the NCA as “misplaced and internally inconsistent” and characterised the contention that the excess transactions constituted authorised credit as a “dilatory tactic”.
Contractual terms and absence of credit extension
Central to the Court’s reasoning were clauses 2.8 and 2.11 of the PBA terms and conditions.
Clause 2.8 provided that certain purchases may be processed without pre-authorisation and that the client understood that the credit limit may be exceeded because of such transactions, agreeing to remain liable.
Clause 2.11 expressly stated that any transaction exceeding the credit limit would not be construed as the exercise of discretion to extend or increase the credit limit, nor as a waiver of any of Investec’s rights.
The Court found no evidence that Investec had authorised an extension of the facility. The processing of transactions during the technical failure did not constitute the conclusion of a new or amended credit agreement.
On that basis, the Court held that sections 80(1)(a) and (b) and 81(2) of the NCA “find no application” in the present matter.
The Court emphasised that sequestration proceedings are not civil proceedings for the enforcement of a debt. Relying on longstanding authority, including Collett v Priest and Prudential Shippers SA Ltd v Tempest Clothing Co (Pty) Ltd, Yake AJ reiterated that sequestration alters a debtor’s civil status and sets in motion the statutory machinery for the administration of an insolvent estate. It is not a claim for payment.
Liquidated claim and locus standi
The Court was satisfied that Investec had established a liquidated claim exceeding the statutory threshold of R100 required under section 9(1) of the Insolvency Act.
Even if the disputed excess were excluded, the authorised R150,000 facility exceeded the threshold. Section 9(2) makes clear that a claim need not be due and payable at the time of the hearing. Investec accordingly had locus standi.
Factual insolvency
Investec alleged liabilities of R2 601 609.86 against assets of R468 342.10.
Van Zyl stated that he had sold immovable property in May 2025, generating approximately R503 525. However, in his own affidavit he indicated this was subject to a R156 000 shortfall on a motor vehicle, leaving net proceeds of R347 525.
The Court held that even after accounting for the property sale, the proceeds were insufficient to discharge the indebtedness.
Yake AJ further noted that Van Zyl failed to provide a clear account of what had become of the proceeds of the sale and had not demonstrated any attempt to apply those funds towards settlement of the debt.
On the evidence presented, the Court was satisfied that Investec had established, on a prima facie basis, that Van Zyl was factually insolvent.
Acts of insolvency under section 8
The Court also found that Van Zyl had committed acts of insolvency in terms of section 8(e) and 8(g) of the Insolvency Act.
Section 8(e) includes making or offering arrangements with a creditor to be released wholly or partially from debts. Section 8(g) includes giving notice in writing of inability to pay debts.
The written repayment proposals sent after receipt of the demand were held to fall within these provisions. The Court regarded them as written acknowledgment of inability to satisfy the debt immediately and as offers of arrangement.
Advantage to creditors and discretion
In considering whether there was reason to believe sequestration would be to the advantage of creditors, as required under section 10 of the Insolvency Act, the Court referred to Stratford v Investec Bank Ltd and Meskin v Friedman.
It reiterated that advantage need not be proved as a likelihood of dividend; it is sufficient that there is a reasonable prospect that investigation by a trustee may yield pecuniary benefit.
Although the number of creditors was unclear, the Court inferred that Investec may be the sole disclosed creditor. It nonetheless held that sequestration may still be granted where there is reason to believe investigation may reveal assets or value.
The Court further referred to Mercantile Bank Ltd v Ross, noting that the purpose of the Insolvency Act is not confined to securing pecuniary benefit for creditors but also serves to protect the broader public.
Yake AJ acknowledged that sequestration is a drastic remedy but found no special or unusual circumstances warranting the exercise of discretion in favour of the debtor.
A provisional sequestration order was granted, with a return date of 25 March 2026.
Compliance and regulatory implications
For credit providers regulated under the NCA, the judgment confirms:
- The reckless credit provisions of sections 80(1)(a) and (b) and 81(2) do not automatically apply where the relief sought is sequestration rather than enforcement of a credit agreement.
- A system processing error does not, without more, constitute an authorised extension of credit.
- Clear contractual provisions stipulating that excess transactions do not amount to credit increases may be material in resisting reckless credit arguments.
- Written repayment proposals may constitute acts of insolvency under section 8(e) and (g).
- Sequestration may be granted even where a single creditor is involved, provided there is reason to believe investigation may benefit creditors.
The decision reinforces the distinction between remedies under the NCA and those under the Insolvency Act, even where both arise from the same underlying credit relationship.
