The government, realising the costs and ineffeciencies of the sequestration order, introduced the administration order procuedure, which incorporated into the Magistrates’ Court Act 32 of 1944 (section 74).

This procedure was designed for consumers who could not afford to use the sequestration procedure.

The present cap of total debt that can be placed under administration is R50 000.

In terms of this procedure the estate of the debtor is not completely dissolved but the Magistrates’ Court appoints an administrator to manage the financial affairs of the debtor.

Creditors are not permitted to deal directly with the debtor. Whilst the procedure was generally accpeted as necessary for estates that were in financial dire straits, concerns were expressed about the abuse of the procedure.

More and more individuals who were not insolvent were placed under administration by unscrupulous administrators. This was a disadvantage to both the consumer (in the sense that he/she could not get any more credit) and the creditor (who could not collect his money).

The winners were the administrators who were entitled to claim 12.5% of money collected from the consumer as fees. Initially, they charged 22.5% of the collected amount because of a 10% collection commission that was charged. This was fortunately altered by the Supreme Court of Appeal.

One of the major concerns was the fact that the administrators, because it was not compulsory to appoint an attorney as an administrator, were not regulated in any way, unlike the debt review process which is put in place by registered and reputable debt counsellors.