Garnishee Orders: A 7-Point Practical Guide to New Rules for Lenders, Debtors and Employer
On 13 September 2016, the Constitutional Court handed down judgment in a matter concerning an application for confirmation of an order of invalidity made by the Western Cape Division of the High Court and an appeal against certain parts of that order that declared certain specified words in section 65J(2) of the Magistrates’ Courts Act (Act) inconsistent with the Constitution and invalid to the extent that they fail to provide for judicial oversight over the issuing of an emoluments attachment order against a judgment debtor.
The judgment is the matter of University of Stellenbosch Legal Aid Clinic and Others v Minister of Justice and Correctional Services and Others; Association of Debt Recovery Agents NPC v University of Stellenbosch Legal Aid Clinic and Others; Mavava Trading 279 (Pty) Ltd and Others v University of Stellenbosch Legal Aid Clinic and Others  ZACC 32 is available in full.
But how does the Constitutional Court’s new ruling on garnishee orders (more properly referred to as EAOs or Emoluments Attachment Orders) affect you?
Here is a practical summary of what the changes to the law mean to lenders, debtors and employers; at least until proposed new legislation (reportedly soon to be tabled in parliament) replaces them –
- Who can issue EAOs? EAOs are court orders obliging a debtor’s employer to deduct amounts from his/her earnings and pay them over to the creditor. In the past, clerks of the court were able to issue them – a process which led to allegations of rubber-stamping in some local courts.
- Judicial oversight: Now, a magistrate must decide whether or not to grant an EAO after considering two factors –
- Is it “just and equitable” for an EAO to be granted?
- Is the amount “appropriate?” The court will have to decide here what the debtor can afford to pay.
- Which court? Where the NCA (National Credit Act) applies – which it will in most such cases – creditors can no longer choose courts far away from debtors. Only a court where the debtor lives or works will have jurisdiction, making it much easier for him/her to be heard in court.
- Existing orders: The changes are not retrospective and apply only from 13 September 2016, the date of the judgment. Therefore existing EAOs are valid, and payments already made to creditors under them are not affected.
- Lenders: Be even more careful than before when lending money to make sure that your debtors can pay you back. Incautious lenders will find that even loans not falling foul of the NCA’s reckless lending provisions will now be more difficult to recover.
- Debtors: If you have an existing EAO against your salary or wages, you can still challenge it in court on an individual basis.
- Employers: As said above, existing orders are still valid and must be complied with unless individually set aside – take advice in any doubt.
Note that existing requirements including a 10 day registered-post warning to pay the debt, and proof that the debtor consented in writing to the issue of an order, remain in place.
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Article disclaimer: While we have made every effort to ensure the accuracy of this article, it is not intended to provide final legal advice as facts and situations will differ from case to case, and therefore specific legal advice should be sought with a lawyer.