INSOLVENCY: New race-based policy on appointment of liquidators

On 7 February 2014 the Department of Justice and Constitutional Development published a new policy on the appointment of insolvency practitioners, which will come into effect on 31 March 2014. This policy is highly problematic in many respects and has been labelled as “racist” by major role-players. The policy’s stated objects include transformation of the insolvency industry and compliance with the B-BBEE Act. However, as will be seen below, the policy contravenes a number of the provisions of the B-BBEE Act and associated legislation.

In essence, the policy seeks to regulate the way in which the Master of the High Court appoints trustees, liquidators and other insolvency practitioners to wind up insolvent estates or companies. This is based on race and gender and the policy actually prescribes a race-based ratio of 4:3:2:1 (representing black females, black males, white females and white males respectively) for the appointment of insolvency practitioners. This ratio-based system presents two problems – firstly, it contravenes the recent ruling by the Supreme Court of Appeal (in the widely reported case of police captain Barnard against the SAPS) in the context of employment equity that it is unlawful to make use of racial quotas when appointing officials or employees; and secondly, its definition of black people is not compliant with the same definition under the B-BBEE legislation.

In the Barnard case, the court confirmed the ban against the use of race-based quotas contained in Section 15(3) of the Employment Equity Act. While this legislation deals specifically with employees, which would not include insolvency practitioners, who are not “employees”, but rather officers of the court, accountable to the Master, it does lay down the principle that racial quotas may not be used for the purposes of affirmative action.

The second problematic aspect with the new policy is its classification of disadvantaged people. It refers to “African, Coloured, Indian and Chinese” people who became citizens before 27 April 1994 or their descendants. However, this is a more limited category of people than the definition of “Black Persons” under the latest B-BBEE legislation encapsulates, which includes people who could have become citizens before 27 April 1994. In other words, the policy excludes a whole category of people who are actually recognised as “black” under the B-BBEE legislation, even though one of its stated objects are to promote the objectives of the B-BBEE Act!

A third problem with the new policy, which is not directly related to racial issues, relates to the fact that it takes away the ability by creditors to appoint provisional insolvency practitioners by way of requisitions to the Master, which has become accepted practise over the years. Under the new policy the power of appointment of provisional practitioners will also lie with the Master, which will greatly delay the process of appointing such practitioners, as anyone who regularly deals with the often dysfunctional Master’s office can confirm.

A final problem with the policy is that is makes almost no mention of merit. While it does state that the Master must distinguish between “junior” and “senior” practitioners, these classifications are purely based on number of appointments and not on any performance ratings. Furthermore, the selection and allocation of practitioners is required to happen alphabetically, with no reference to performance or competence.

This policy is quite obviously very problematic and has already been criticised by the South African Restructuring and Insolvency Practitioners Association, who have indicated that they are obtaining legal opinion on the policy. No doubt there will be more in the news on this policy in the very near future. A full copy of the policy is available at this link:

https://dl.dropboxusercontent.com/u/92238049/New%20policy%20on%20appointment%20of%20liquidators.pdf

#employmentequity #MasteroftheHighCourt #bankruptcy #racism #Liquidation #discrimination #racialprofiling #insolvency