Sale by Levy
By Krishna Das
The sale by levy issue is a thorny one. Under pressure from a group of people a commission was established in 2004 under the chairmanship of Sir Victor Glover to inquire into the unfairness of the process and the alleged abuses on the part of money lenders, banks, other financial institutions and the legal profession especially attorneys or solicitors.
The terms of reference of the commission were (a) to inquire and report on whether the current system of sale by levy (i) gives rise to or allows any malpractice; (ii) causes undue hardship or prejudice to debtors; and (b) report on such changes, including statutory amendments, as may be necessary to better safeguard the interest of the public at large and debtors in particular.
For a proper understanding of what is meant by sale by levy reference can be made to the explanation given by the commission. Sale by levy refers to the “law and procedure that govern the sale by auction before the Master’s Court of an immovable property which had been offered as security for a credit facility and which has been seized following the debtor’s failure to honour his obligations.”
Nearly 300 witnesses expressed the wish to give evidence before the Commission and in the end 77 were heard and, out of these, 60 witnesses “complained that they had been dispossessed through the fault of people who can be considered to be, or to have become as a result of weaknesses in the system, stakeholders in the process of seizure and judicial sale; 30 of them laid the fault at the door of an attorney or a notary; 6 pointed a finger at an unlicensed money lender (‘casseur’); 6 at one of those hangers-on around the Master’s Court or the office of law practitioners commonly referred to as ‘courtiers’; 14 at a bank and 4 at an insurance company,” as stated in the report of the commission.
The Glover commission highlighted a number of factors that are recurrent in the context of sale by levy and the weaknesses of the system that may give rise either to misconceptions or abuses. Over-indebtedness was one of the matters the commission referred to. In this connection the commissioners wrote: “There is no point whatsoever in having a beautiful system of sale by public adjudication without first attempting to curtail over-indebtedness.”
The Commission was also highly critical of the “incomprehensible wording of the agreement forms used by financial institutions and of the notarial deeds drawn up to witness loans and other credit facilities.”
In regard to commissions paid to attorneys or solicitors, the commission stated that this is legally permissible but was quick to point out that the insertion of an obligation by the debtor in the loan agreement that he/she should pay 15% commission to recover any outstanding amount was not a happy situation because the borrower has no choice but to comply.
In addition, the Commission pointed out that “this may be responsible for the fact that certain attorneys to whom creditors refer cases of non-performing loans will be inclined to collect part-payments from borrowers who clearly have no hope of saving their property from being sold.” The other practice raised by the Commission was the manner in which attorneys would exact money to get a postponement before the Master’s Court.
The Commission also pinpointed the weaknesses of the judicial process leading to the sale of the property. Why should the usher who draws up the memorandum of seizure ascribe a value to the property? The particulars of the property are totally insufficient. There is no proper advertisement on the property to be sold. The mise-à-prix’, i.e. the price at which the bidding should start “is bound to be low, and have a consequent adverse effect on the price which the property will fetch in the end, because the law provides that, if there are no bids higher than the ‘mise-à-prix’, the property is automatically knocked down to the creditor, who has to buy it.” The law does not stipulate who is entitled to bid and purchase the property.
The Glover Commission recommended that a commission on indebtedness be established that would ensure that the proper safeguards are inserted in any loan contract both for the borrower and lender. That commission would also be vested with powers of mediation, conciliation and decision so as to ensure that no one is “dispossessed of his immovable property through seizure and forced sale except when all other avenues have been explored. To that effect provision should be made to enable the debtor to seek assistance from the Commission and to compel the creditor to seek guidance from it where the repayments are in arrears. It would be the duty of the Commission to make such enquiries as are necessary to distinguish between the unfortunate debtor and the defaulter, to find ways and means of setting matters right, to promote schemes of arrangement between the parties, to oversee every part-payment made and ensure that it is remitted to the creditor and no one else, to decide on the temporary suspension of interest or of the repayment of interest or capital or the rescheduling of a debt and to advise on and, where appropriate, promote the private sale of the debtor’s immovable property or a part of it.”
The Glover Commission also recommended an overhauling of the judicial process of the sale of property. The Commission recommended the following: “Where the Court is satisfied that there is no alternative to the sale of the property it shall make a receiving order which have for effect to vest the property in the Official Receiver. A receiving order will automatically freeze the computation of interest on the debt. The Official Receiver will thereafter be responsible for ensuring that public notice is given of the fact that the property is for sale by notices in situ, that it may be visited by appointment and that an accurate description of its property and the encumbrances burdening it, including the presence of tenants, is available on request.
“Finally the Official Receiver will, after causing a proper valuation to be made, invite sealed offers for the purchase of the property accompanied by an appropriate non-refundable deposit and with proof of the would-be purchaser’s means to buy. Rules of Court will prescribe that directors and other officers of a creditor financial institution shall not be permitted to offer to buy, directly or indirectly. The Court will be responsible for supervising one or more meetings of creditors and for approving the scheme of arrangement proposed by the Official Receiver for the disposal of the purchase price.”
The Commission also recommended that the Court should have the discretion to ensure that costs do not soar unnecessarily.
Most of the recommendations were not followed. That ironically happened under the MMM-MSM government with Paul Bérenger as Prime Minister. What was established was a Sale by Levy Solidarity Fund and a Commissioner for Protection of Borrowers. This did not give satisfaction to the alleged victims of sale by levy and today the problem is still staring at us. The government has therefore appointed another inquiry chaired by a magistrate to look into the issues arising out of sale by levy again.
The terms of reference of the commission are to: (a) inquire and report on whether the processes and practices involved in the granting of loans, secured on immovable property, are unfair or otherwise detrimental to borrowers; (b) inquire and report on the fairness of the current system of sale by levy and on whether the system gives rise or has given rise to any malpractice or wrongdoing resulting in undue hardship or prejudice to debtors, such inquiry being extended, where necessary, to matters and issues already dealt with by the previous Commission of Inquiry on the system of sale by levy, chaired by Sir Victor Glover, GOSK, in 2004; and (c) recommend such scheme as may be necessary to alleviate any undue hardship or prejudice which debtors or former debtors are experiencing.
This has incurred the wrath of the attorneys who have gone to court to challenge the decision on the ground that many of the attorneys may be subjected to a sort of double jeopardy as they have already testified before the Glover Commission and findings have been made.
It is quite amusing not to say disturbing to see attorneys who are lawyers challenge a mechanism that seeks to make the whole process of sale by levy more rational and transparent. What are the attorneys scared of and how would they ground their arguments before the Supreme Court?
Why should lawyers who should uphold the ethics of their profession be reluctant to allow a commission of inquiry to go ahead? Unfortunately there are many instances where some lawyers, attorneys and barristers, have got away with murder while through a selective process only a few are sanctioned. By acting as they are those who are leading the crusade against the commission of inquiry would be attracting even more criticism on the manner in which some members of the profession have been dealing with sale by levy. As lawyers they should know better.
The new commission has been appointed by the President of the Republic. It is hard to see how the attorneys can succeed in getting judicial relief because under the Constitution the President is immune from civil and criminal proceedings. In the case of Dayal v President of the Republic and Others in 1998 the Supreme Court put the President out of cause in view of section 30A of the Constitution that reads: no civil or criminal proceedings shall lie against the President or the Vice-President in respect of the performance by him of the functions of his office or in respect of any act done or purported to be done by him in the performance of those functions. Let us wait and see.
* Published in print edition on 31 August 2012