The protection of creditors is built into every stage of a section 21 application. The Matrimonial Property Act expressly requires that sufficient notice be given to all creditors of the spouses, and that no other person will be prejudiced by the proposed change. The Pretoria Practice Directive sets out the notice machinery in detail, and the standard order and notarial contract each contain an identical creditor-protection clause.
Why creditors matter
A change of matrimonial property regime can, in principle, affect what assets a creditor can look to for satisfaction of a debt. If a creditor of one spouse can recover only against that spouse’s separate estate after the change, and could previously have recovered against the joint estate, the position of the creditor may have changed. The Act and the Practice Directive ensure that this question is identified, notified, and protected against by the court before the regime is changed.
The statutory requirements
Section 21(1) of the Matrimonial Property Act 88 of 1984 requires the court to be satisfied that —
(a) there are sound reasons for the proposed change; (b) sufficient notice of the proposed change has been given to all the creditors of the spouses; and (c) no other person will be prejudiced by the proposed change.
Requirements (b) and (c) are the creditor-protection limbs of the section. They are not negotiable.
The Pretoria Practice Directive notice machinery
In summary:
- Government Gazette publication of a notice substantially in the form of the prescribed annexure.
- Registrar of Deeds report obtained before the Gazette notice is placed.
- Registered-post notice to every creditor at least three weeks before the hearing, with a covering letter setting out:
- the date, time and court of the hearing;
- the full names of the spouses, their identity numbers, and their residential addresses and places of employment in the preceding 12 months;
- the effect of the proposed order; and
- the statement that a creditor whose interests will be prejudicially affected may appear at the hearing to oppose.
- The name, address, amount owing, and cause of action of every contingent and other creditor set out in the application.
- A supplementary affidavit filed at the hearing, attaching the Gazette publication, the registered-post slips, and the covering letters, proving compliance.
The mandatory creditor-protection clause
Every order granted under section 21 in our office contains a creditor-protection clause. The clause is mirrored in three documents — the Notice of Motion prayers, the draft order, and the notarial contract — and the wording is identical in each:
This Order shall not prejudice or restrict the rights of any creditor of any of the Applicants as at the date of registration of the Postnuptial Contract.
In the contract itself, the clause is phrased: “The registration of this Postnuptial Contract shall not prejudice or restrict the rights of any creditor of any of the Spouses as at the date of registration of this Postnuptial Contract.”
The clause does what it says: every creditor whose debt exists at the date of registration retains exactly the rights they would have had if the regime had not been changed.
What a creditor can do
A creditor whose interests will be prejudicially affected by the change may appear at the hearing to oppose. In practice, opposition is uncommon, but the right to oppose is a real one and is the reason the notice machinery is structured as it is.
What if there are no creditors
If there are no creditors, the application is brought with a positive averment that both spouses have disclosed all creditors of whom they are aware, and that there are no current or contingent creditors. The application is still made by way of joint motion and the creditor-protection clause is still included in the order and contract; the practical work of registered-post notice falls away because there is no creditor to notify.
What can go wrong
- Omitted creditors. The spouses must disclose every contingent or other creditor of whom they are aware. Omission can affect the validity of the order. We work carefully through the creditor schedule at the consultation stage.
- Stale balances. Statements should be reasonably current at the date of the Government Gazette notice and registered-post letters.
- Wrong addresses. Registered post fails if the creditor’s address has changed. We use the most recent address available from statements.
- Insufficient time before hearing. The Practice Directive requires at least three weeks between the registered-post letter and the hearing. The court will refuse on the notice limb if this period has not been observed.