On full display: The fragility of the global order

Written by Ciaran Ryan. Posted in Journalism

Brought down by a microbe without a shot being fired. From Moneyweb.

Taleb argues that admission to the S&P 500 is the start of a suicide process for companies. His reasoning also explains why family businesses survive longer – the owners are punished for faulty decisions. Image: Scott Eells, Bloomberg
Taleb argues that admission to the S&P 500 is the start of a suicide process for companies. His reasoning also explains why family businesses survive longer – the owners are punished for faulty decisions. Image: Scott Eells, Bloomberg

Nassim Taleb, author of Antifragile: Things That Gain From Disorder, and before that The Black Swan, has spent the last two decades warning of the fatal cracks in the global financial ecology.

As a former options trader, he approaches the subject from a risk rather than an economic perspective. The more complex the system, the more cracks are waiting to be exposed by a ‘black swan’ event, such as the coronavirus pandemic. Dramatic movements in markets are caused not by predictable and incremental changes, such as earnings growth, but by calamitous events that are virtually impossible to predict. We are living in such a time right now.

The $1.5 trillion stimulus package announced last week by the US Federal Reserve had virtually no impact on markets. The old prescriptions are no longer working the way they once did. We’re in relatively unchartered territory. The Dow Jones sank more than 9% on Monday, triggering an automatic trading shutdown.

Dow Jones Industrial Index down 21% in a month

Source: ShareMagic

JSE All Share index down to 2014 levels

Source: ShareMagic

When it comes to investment, Taleb’s first rule is to preserve your wealth rather than maximise your return. Hence it is preferable to earn zero return than risk a 50% wipeout, as happened to some investments over the last few weeks. Our understanding of risk is woefully inadequate to the dangers inherent in a financial system where perceptions of value can swing by 20% or more in a week. Hence, forecasting is a type of fraud that does harm to those that act on the forecasts, says Taleb.

The events of recent weeks may ultimately lead to a complete rethink of our financial architecture.

If this is indeed the start of a major recession, as it now seems, the rent seekers will be knocking at the door of government for rescue or, in the case of failing banks, at the door of the SA Reserve Bank.

Banks may go back to their roots

Some may end up being nationalised, something economist Michael Hudson – author of J is for Junk Economics: A Guide to Reality in an Age of Deception – argues will be a welcome move as it will allow banks to return to their historic role as lenders to the productive sector rather than to stock market and real estate gamblers.

Governments will find it hard to resist the clamour for financial bailouts from all sectors. This may provide short-term stability to the commercial sector, but it will not address the long-term structural fault lines.

Taleb’s Antifragile argues that systems are made more robust by allowing companies to fail.

When the US banks were bailed out by the Federal Reserve in 2008, bad decision-making by bankers was rewarded and encouraged. The chances of a major banking failure have increased exponentially as the economic consequences of the coronavirus pandemic become apparent. Many airlines, travel companies, hotels and restaurants will likely file for bankruptcy or business rescue in the coming months. Factory closures and job lay-offs are almost certain.

Shielded bureaucrats

Taleb is dismissive of most economists for peddling advice for which they suffer no harm in the event their advice turns out to be wrong. The same goes for bureaucrats who are shielded from punishment regardless of the harm caused by their decisions. 

Tax revenues and expenditures are based on economic growth forecasts that are more PR fluff than actuality. Finance Minister Tito Mboweni’s forecast of 0.9% growth this year was already on the high side, even before the outbreak of the virus. That means tax revenues will undershoot and government borrowing will overshoot, pushing the deficit dangerously above the forecast 6.5% for the current fiscal year. That tab will be picked up by taxpayers.

Read: A decade of budgetary whoppers

Fiscal deficits have proven to be a prime source of fragility in social and economic systems. Government borrowing can be expanded with no accountability.

Another fault line is the pursuit of corporate size for its own sake.

There is very little evidence that size delivers economies of scale but can, in fact, be damaging during times of stress. Some economists have been wondering why company mergers do not deliver the promised ‘synergies’. The combined unit is now much larger, hence more powerful, and according to the theories of economies of scale, it should be more efficient.

Executive ego

Executive hubris appears to be the prime motivator behind merger and acquisition activity, as economist Richard Roll pointed out in 1978. Three decades later, Roll’s ‘hubris theory’” is as valid as ever, given the poor track record of mergers. Which is why Taleb argues that admission to the ranks of the S&P 500 is the start of a suicide process for companies. It also explains why family businesses survive longer. The scale is more manageable and the owners are punished for faulty decisions.

The bureaucrats who delivered us power blackouts (and they weren’t all Eskom employees) and deindustrialisation have moved on to other sinecures and have gone unpunished. As Efficient Group economist Dawie Roodt pointed out in a recent presentation on the 2020 budget to the Free Market Foundation, it was current Public Enterprises Minister Pravin Gordhan who was the responsible minister of finance while state-owned companies were being run into the ground. The EFF calls him the “minister of load shedding” and wants him gone for this and other reasons, though business leaders love him.

Lack of accountability for bad decisions carries no consequence for those who make them. Perhaps we should invoke the Code of Hammurabi, a pre-Christian Babylonian king, who demanded the heads of architects who built houses that collapsed and killed the occupants.

Roman engineers were expected to sleep under the bridges they built so they would be first to die in the event of collapse.

Errors, provided they are small, are fine as long as those making them suffer appropriate harm for causing them – what Taleb calls “skin in the game”. Most successful entrepreneurs have had one or more business failures. They learn from these losses and avoid repeating them. This is what makes for more robust societies.

“At no point in history have so many non-risk-takers, that is, those with no personal exposure, exerted so much control,” writes Taleb.

“This is the Davos crowd, empty suits who shape the future of the planet and carry no downside risk for their awful prescriptions. Inevitably, they will make fatal decisions and suffer no consequences.”

Government ‘cures’

Another fallacy of government is that its intervention is benign. When faced with complex and failing systems, the cure is subtractive rather than additive. If you are ill, removing things that harm the body, such as sugar and cigarettes, usually works better than taking a drug. On this basis, it is unlikely that the raft of new financial sector laws and regulations passed in last decade will deliver the stability it set out to achieve.

Most of recorded history derives from black swan events, rather than the ordinary.

Our risk models are based on false probability theories that assume the ordinary, when history tells us it is the extraordinary and the unpredictable that will decide our futures.

“Every additional deviation in, say, the unemployment rate – particularly when the government has debt – makes deficits incrementally worse,” writes Taleb in Antifragile. “And financial leverage for a company has the same effect: you need to borrow more and more to get the same effect.

“Just as in a Ponzi scheme.”

Rate cut not enough

Written by Ciaran Ryan. Posted in Journalism

Growing calls for freeze on debt repayments to ward off ‘social disaster’ aspect of Covid-19. From Moneyweb.

Moratorium should be ‘long enough’ for people from all walks of life to recover from the economic disruption caused by the virus. Image: Reuters
Moratorium should be ‘long enough’ for people from all walks of life to recover from the economic disruption caused by the virus. Image: Reuters

A growing number of organisations and consumer activists are calling on the government to follow international trends and impose a moratorium on debt repayment obligations due to the devastating impact of the coronavirus.

Consumer defence group Lungelo Lethu Human Rights Foundation is calling for a moratorium on debt repayments for six months, and a freeze on any debt-related legal proceedings.

The National African Congress of Trade Unions (Nactu) has likewise called for a freeze on debt repayments, as is happening in many other parts of the world.

“Potentially hundreds of thousands of South Africans stand to lose their jobs as a result of the economic downturn,” says Nactu secretary-general Narius Moloto. “We are looking at social disaster unless we provide immediate relief to those in financial distress.

“Already thousands of workers in restaurant and hospitality trade, and those involved in contract work, have lost most or all of their income,” says Moloto.

Nactu is calling on government to use its emergency powers to kick-start a massive infrastructure programme to get the country back to work as fast as possible.

This week, US President Donald Trump announced a freeze on foreclosures and evictions until the end of April. Several other countries have announced or are planning to introduce debt repayment holidays for consumers in distress.

Debt counsellor Michelle Barnardt says government will have to provide relief given the dire level of overindebtedness in the country, with nearly four out of 10 people already in arrears on one or more accounts. “If people cannot work and earn income they will not be able to make monthly debt payments. This will include groups like attorneys, advocates, and those in entertainment and hospitality.

“Drastic times calls for drastic measures,” says Barnardt. “In Afrikaans we say ‘Jy kan nie bloed uit ‘n klip tap nie’ [You can’t draw blood from a stone].”

“This situation is definitely affecting everything and everybody, and government must step up to the plate and prevent anyone being victimised as a result of this terrible economic downturn.”

Read: SA to regulate price increases linked to coronavirus – trade minister

Consumer lawyer Leonard Benjamin advises anyone facing legal action as a result of their deteriorating financial position to mount a legal defence. “It would be shameful if any court issued a judgment against a debtor in these circumstances, and almost certainly unconstitutional.

“No court can issue a judgment without considering all the circumstances of the debtor, and the economic impact of the Covid-19 virus is certainly sufficient grounds to defend against a monetary claim.”

Lungelo Lethu president King Sibiya says he is inundated with calls from people who have been unable to earn an income these last few weeks as a result of the virus. “These include people who earn commissions, part-time workers and informal sector workers. The impact of the virus could be catastrophic for the economy. We cannot expect people who have suffered a serious loss of income to be able to repay debts until the economic impact has stabilised.

“We are therefore calling on the government and the banks to be sensitive to the dire situation people find themselves in, and to allow a debt repayment moratorium. Many people, through no fault of their own, are going to find themselves seriously in arrears as a result of the economic disruption caused by the Covid-19 virus,” says Sibaya.

Freeze on evictions

“In addition to a moratorium on debt repayments, we are calling on the government to impose a freeze on any debt-related judgments and on evictions. These must cease immediately.

“This is not business as usual. If we do not address this matter urgently, we face massive social chaos, far worse than anything we have seen up to now,” says Sibiya.

He adds that the moratorium should be long enough for people to recover from the economic disruption caused by the virus. “Many banks overseas have introduced waivers to allow customers time to recover from the economic effects of the virus. We believe we should follow the example of Malaysia and impost a six-month freeze on loan repayments.”

Read: How much could Covid-19 impact the SA economy?

In Malaysia, Public Bank is offering an immediate moratorium of up to six months for the monthly instalment payments on loans and financing for individual and business customers affected by the outbreak. Last week Italy announced plans to introduce a moratorium on debt repayments, including mortgages, to help families and businesses cope, according to the Wall Street Journal.

In the UK, the government is backing mortgage holidays of up to three months. There are also calls in Ireland for mortgage holidays of up to six months.

All countries around the world are looking at imposing similar measures.

“We must follow the international example and impose a freeze on debt repayments for a reasonable period of time,” says Sibiya.

No time to waste

Moloto says there is no time to waste in getting the economy moving as fast as possible. “The construction sector is in terrible shape, in large part due to crony capitalism and state capture, but we cannot assume that conditions will turn around on their own. They won’t.

“These are virtual war-time conditions requiring emergency action.

“We have a chance here to create hundreds of thousands of jobs in the next few months,” he adds. “As a first step, government must place a freeze on debt-related legal action and impose a six to 12-month freeze on debt repayment obligations.

“We understand this will come at a cost to the banks, but we cannot put the interests of the banks above that of the people.”

The great foreclosure rip-off

Written by Ciaran Ryan. Posted in Journalism

January’s interest rate cut has effectively wiped out all mortgage bond arrears, say consumer activists. But you won’t hear that from your bank. From Moneyweb.

Banks that engineer situations in order to be able to argue that homeowners remain in arrears even after a rate change could find this approach backfiring on them in dramatic fashion. Image: Shutterstock
Banks that engineer situations in order to be able to argue that homeowners remain in arrears even after a rate change could find this approach backfiring on them in dramatic fashion. Image: Shutterstock

The January interest rate reduction should be even better news for hard-pressed consumers who are behind with their bond repayments.

Moneyweb readers may recall that the last time there was a rate change, in July 2019, all accumulated bond arrears were effectively extinguished.

Read: Congratulations, your mortgage arrears have been extinguished

The latest rate cut has had the same effect – but you won’t hear that from your bank. That’s because each time the interest rate changes, the banks spread the arrears over the remaining term of the loan. In legal terms, that wipes out the arrears. All you have to do is pay the latest, adjusted instalment and you’re back on track.

There is international case law to support this from the Northern Irish courts in Bank of Scotland versus Rosemarie Rea.

The problem is that there is now mounting evidence of banks pursuing customers through the courts for non-existent arrears.

Consumer lawyer Leonard Benjamin has been itching to test this in our local courts but so far none of the banks have bitten. It seems they would rather keep it out of the courts for reasons that are all too obvious. A decision against them would open a Pandora’s box of historic claims from people who lost their houses when they were not, in fact, in arrears.

Double dipping

Benjamin says what SA banks have been doing is called “double dipping” – the same thing Rosemarie Rea successfully argued in her case against Bank of Scotland.

If the bank spreads your arrears over the remaining term of the loan, and then still claims you are in arrears, it is charging twice for the same thing.

The UK courts have ruled that this is unlawful.

“There is absolutely no doubt that the banks understand that a rate change would automatically wipe out the accumulated arrears,” argues Benjamin. How they deal with this varies from bank to bank.

After the July 2019 interest rate change Moneyweb alerted readers to the double-dipping argument. Readers were advised to approach their banks for official confirmation that their interest rates had been changed on the basis that this would confirm that any arrears had been extinguished.

Some of the banks simply stopped, or refused, to issue the notice of the changed interest rate as they are required to do in terms of the National Credit Act (NCA).

Requests to banks denied

According to Benjamin, several of his clients approached their banks for official notification of interest rate changes, but were denied for various reasons. If so, this would be a breach of the NCA and the home loan agreement. In some cases their requests for the official interest rate notice were denied as the matter was “legal”. 

All banks approached by Moneyweb say they do not engage in “double-dipping”, though this is disputed by Benjamin. Standard Bank, for example, says one of the methods it uses to assist clients in financial distress is to re-spread the arrears over the remaining term of the loan. “This in effect means that the client would no longer be in arrears but would, as a result of the re-spread, need to pay a higher instalment to the bank in respect of the home loan due to the outstanding balance increasing,” says Standard Bank spokesperson Ross Linstrom.

FNB likewise refutes any suggestion of misconduct in the management of mortgage accounts in arrears.

Lee Mhlongo, CEO of FNB Home Finance, says when customers fall into arrears, each case “is assessed on its own merits and we endeavour to reach an agreement with the impacted customer”.

“Some customers are able to settle the full arrear amount and others can enter into a payment arrangement to pay an additional amount over and above the monthly instalment in order to bring the account up to date,” says Mhlongo. “FNB’s objective in all cases is to help customers avoid falling into arrears, both to the benefit of our customer in terms of saved interest and to the bank in terms of not having to raise impairment provisions. However, we cannot unilaterally increase the instalment that is raised, therefore recovering on arrears requires consultation with our customer.”

Calculating move

Again, Benjamin refutes this, saying in cases he has seen, FNB changed the way in which it calculates the new monthly instalment on arrears accounts when there is a rate change to exclude arrears. It does this by deducting the arrears from the outstanding account balance and calculates the instalment on the net outstanding balance. The bank then argues that mere payment of the new instalment will not eliminate the arrears, which remain intact and can, therefore, be relied on to foreclose on the consumer’s property.”

The problem here is this is unlawful in terms of common law, the NCA and their own home loan agreements, says Benjamin.

The question arises: Why are the banks so hellbent on foreclosure when they have claimed before the courts that they do this only as a last resort?

Read: The days of easy evictions are drawing to a close

Judges are being bamboozled by the banks

“Banks are routinely deceiving the court in claiming they use foreclosure as a last resort,” says Benjamin. “Where are the judges in all this? They are being bamboozled by the banks.”

Benjamin says this behaviour only makes sense once you understand the financial incentives behind the rush to court.

“In many cases, the banks’ lawyers have been getting away with this unlawful behaviour for decades, so why should they stop now? The banks are being badly advised. In the second instance, many home loans are backed by insurance policies or guarantees that trigger in the event of default. The banks receive a financial benefit from these guarantees, but only once there is legal judgment against the customer.”

Benjamin backs his claims of double-dipping with more than a dozen cases that have come across his desk since the July 2019 interest rate change.

“In all of these cases, the banks are violating the NCA and their own home loan agreements.

“The clients are not in arrears. None of them. If necessary we will take this to the Constitutional Court to prove it. We have to stop this abuse of the courts and the human and legal rights of bank customers.”

Many of his cases are now before the courts, but the banks appear to be ducking the day of reckoning by avoiding arguing the merits of the cases. The faint vapours of a massive class-action suit are beginning to waft through the corridors of justice.

Law Clinic weighs in

Stephan van der Merwe, senior attorney with the University of Stellenbosch Law Clinic, says banks that engineer situations in order to enable them to argue that homeowners remain in arrears even after rate changes could find this approach backfiring on them in dramatic fashion.

“In light of the recent judgment of the Cape High Court in Stellenbosch University Law Clinic & Others vs National Credit Regulator & Others, there may be further limitations placed on the amounts that banks can recoup under defaulting mortgage bonds.”

Read: Court decision opens the way for consumers to get billions in fees back

This is because of Section 103(5) in the NCA, otherwise known as “the statutory in duplum [double] rule”, which prohibits credit providers from recovering more than double the outstanding loan amount once a borrower defaults and remains in default thereafter. “One could argue that by capitalising and amortising the arrears amount, the consumer effectively remains in default up and until the last instalment is made in terms of the loan,” says Van der Merwe.

“In the case of a mortgage bond over 20 years, the impact would be significant,” he adds.

“Take for instance a mortgage bond of R1 million to be repaid at current interest rates over a 20-year period. At the end of that 20 years the consumer could have paid a total amount of R2.6 million. If the consumer misses the first payment but thereafter continues to make the monthly payments in accordance with the mortgage agreement the consumer would actually be in default the entire time. As a result, the total amount that the bank would be entitled to claim from the consumer is R2 million, a loss of R600 000 to the bank. It makes no difference if that first payment is capitalised and amortised as this arrear would only be settled at the end of the 20 years. Therefore, the entire time the consumer would be in default and Section 103(5) would apply.”

Muddying the waters

Forensic accountant Andre Prakke says the problems start when a debtor is in arrears and the entire loan becomes payable. To avert this problem, the overdue amount is then capitalised.

This has the effect that the interest included in the amount capitalised becomes capital. Given the scenario of a bond, the greater portion will then be interest that is capitalised and the interest charge is then in effect changed to capitalised interest.

“This muddies the water in that it could become such that the in duplum rule is ignored as it is a matter of fact that, after constantly capitalising interest, the interest charge loses its character and it cannot be distinguished ‘what is what’ that is debited as an additional charge. It becomes impossible to know what is owed by way of capital or other charges, such as the insurance premium, and that also has an interesting effect – maybe legal charges of past transgressions, although only taxed legal cost can be debited – and so on.”

In the next instalment, we will look at how other banks are claimed to be subverting the courts.

It never rains but it pours: Sasol, coronavirus, and now Amplats

Written by Ciaran Ryan. Posted in Journalism

‘Force majeure’ shutdown of Amplats’ Waterval smelter complex batters its share price. From Moneyweb.

The group has indicated that its refined production for the year could be lowered by about 25% as a result of the explosion. Image: Waldo Swiegers, Bloomberg
The group has indicated that its refined production for the year could be lowered by about 25% as a result of the explosion. Image: Waldo Swiegers, Bloomberg

Anglo American Platinum’s (Amplats’) share price is down a third from its R1 395 high achieved just two weeks ago, bringing to an end one of the most magnificent runs for shareholders in recent mining history.

On Friday the company declared ‘force majeure’ (an unexpected calamity) as the reason for the shutdown of its Waterval smelter complex, which is likely to shave nearly one million ounces of platinum group metals (PGMs) off its 2020 production.

An explosion occurred at Phase A of the Anglo Converter Plant on February 10, forcing a shutdown of the plant and the immediate commissioning of the backup Phase B plant, which was also shut down when water was detected in the system – raising the likelihood of a second explosion. It may take 80 days to get the backup converter online, while repairs of the Phase A converter will be completed by about mid-2021.

Not that this is all entirely bad news for PGM prices, which have held reasonably firm amid the turmoil.

Palladium prices in US dollar per 100 oz

Amplats accounts for about a quarter of global palladium supply, mainly used in the production of petrol-driven cars, and a whopping 42% of global platinum and rhodium supply. Production of palladium is likely to take a 300 000-oz hit this year, with platinum production expected to be up to 450 000 oz lower, according to a company announcement on Friday.

The Amplats announcement added to the pre-existing volatility in the PGMs sector and had a knock-on effect on Northam Platinum and Sibanye-Stillwater. Northam’s share price jumped 10% in the last few days, just as it looked like the PGM “melt up” was topping out. Sibanye-Stillwater’s share price looked to be in freefall last week after falling nearly a third, before bouncing 12% on the news coming out of Amplats.

Royal Bafokeng Platinum is down nearly 30% in the last two weeks.

Knock-on effect

The shutdown of the converter plant had an immediate knock-on effect on other producers supplying concentrate for processing at Waterval. James Wellsted, senior vice president of investor relations at Sibanye-Stillwater, says the group has significant unutilised processing capacity at its Marikana operations (formerly Lonmin), which could provide an alternative processing option while Amplats’ converters are shut down.

In a statement on Friday the group said it has “significant spare PGM processing capacity at the Marikana operations and at the Precious Metal Refinery in Brakpan and will be assessing how best to utilise this capacity.

“We are engaging with Amplats with respect to the various alternatives and will provide a further update once we have clarity,” it said.

Sibanye-Stillwater’s Marikana and US PGM operations are not affected and will benefit from the commensurate short-term commodity price increases, due to the Amplats supply disruption.

“This is a real shock,” says Peter Major of Mergence Corporate Solutions.

“And I can’t believe the reaction in Northam, Implats’ [Impala Platinum‘s] and Sibanye-Stillwater’s share prices. This comes just as all the PGMs were topping out, finally, and starting to roll over. What timing for PGM prices. Too uncanny for words. I have never seen volatility like I have seen these past six months in gold and PGM metals, let alone in gold and platinum shares.”

“It never rains but it pours,” says David Shapiro, deputy chair of Sasfin Securities. “From the coronavirus to Sasol and now Anglo Platinum, which has indicated its refined production for the year could be lowered by about 25%.”

Sasol

Sasol’s share price has been in meltdown since September 2018, when cost overruns at its Lake Charles Chemicals Project first came to light. This was followed by a poor set of results for the six months to December 2019, with earnings before interest and tax down by more than half to R9.9 billion (R20.8 billion).

The impact on Amplats’ earnings before interest, depreciation and amortisation could be as high as R18 billion for the full year, though the platinum producer may have overstated the likely impact, with a view to restoring operations earlier than the projected 80 days.

In the meantime, its peers – notably Sibanye-Stillwater and Northam – can expect to pick up some of the production slack.

It just got a whole lot easier to do business in SA

Written by Ciaran Ryan. Posted in Journalism

New web platform makes it possible to register a company in minutes. From Moneyweb.

CIPC Commissioner Rory Voller says the launch of BizPortal will go a long way to improving the ease of doing business in SA. Image: Supplied
CIPC Commissioner Rory Voller says the launch of BizPortal will go a long way to improving the ease of doing business in SA. Image: Supplied

A little nugget of good news got drowned out by the depressing economic news of the last few weeks: SA is getting serious about making itself more attractive to do business.

In terms of the ease of doing business, SA has been in freefall for the last decade. It currently ranks 84 out of 190 countries in the World Bank’s Ease of Doing Business survey, having fallen from 34th a decade ago. Other African countries such as Kenya (56th place) and Rwanda (38th) have sailed past us. New Zealand, Singapore and Hong Kong are the most congenial countries for ease of doing business, occupying the top three slots in the rankings.

Read: Togo, Nigeria big winners in ease of doing business in Africa

SA is determined to muscle its way back into the Top 50 rankings.

The Companies and Intellectual Property Commission (CIPC) recently launched its BizPortal online platform which allows anyone to open a company in minutes for R175.

At the same time they can:

  • Register with the South African Revenue Service (Sars)
  • Open a business bank account
  • Get registered with the Unemployment Insurance Fund (UIF)
  • Get registered with the Compensation Fund, and
  • Get a B-BBEE certificate.

All of this takes just one day, without having to join a single queue.

Finance Minister Tito Mboweni trumpeted the launch of the new service in last week’s budget speech as part of a broader programme to address SA’s lagging international productivity. CIPC Commissioner Advocate Rory Voller says the launch of BizPortal will go a long way to improving the ease of doing business in SA.

BizPortal is able to achieve in hours what previously took weeks or even months.

It does this by linking up with databases hosted by the departments of home affairs and labour as well as Sars and other data providers.

For example, the Department of Home Affairs database is able to verify the identity of new company directors, or changes to existing directors. Previously, this had to be done by joining a queue and lodging documents at the CIPC offices around the country.

The CIPC was set up under the Companies Act to monitor and enforce compliance with the act and establish regulations aimed at reducing the risks of doing business in SA. It took over the functions of the old Companies and Intellectual Property Registration Office (Cipro), which earned a deserved reputation as a ‘black hole’ for losing company registration documents.

Mammoth task

The CIPC has a mammoth task to perform. There are two million companies in SA that are required to submit their annual financial returns to the commission each year. The majority of these are smaller companies for which audited financial statements are not required. A so-called ‘independent review’ by an accounting officer is sufficient for most of them. An independent review offers a lower level of assurance on financial statements than an audit, and can be compiled by an accounting officer rather than an auditor.

One of the main functions of the CIPC is to monitor company solvency and liquidity. In terms of the Companies Act, businesses may not trade in a commercially insolvent position (where a company has insufficient cash to pay its bills). Companies may be technically insolvent (where liabilities exceed assets) but are still able to pay their bills when they fall due.

Read: Irba reports Nova to Sars and CIPC

The CIPC is in the process of analysing the roughly 20 000 company financial statements received each year to achieve a detailed understanding of the country’s economic drivers, then making this available for a fee to the public.

In 2017 the CIPC announced that all companies would have to fill out a 24-question checklist to monitor compliance with the Companies Act, but last week decided to ditch the compliance checklist for smaller companies after lobbying from the accounting sector.

“There was an outcry from certain groups that this would add to the regulatory burden for smaller companies, and we decided this was not in the best interests of promoting the ease of doing business in SA,” says Voller.

“We understand that there is a cost to companies of complying with regulations, and this can be quite substantial for smaller businesses. We don’t want to be adding unnecessarily to these costs.”

Voller expects the launch of BizPortal and the relaxation of compliance obligations on smaller businesses to improve SA’s international ranking for the ease of doing businesses.

The World Bank’s Ease of Doing Business rankings are based on a range of factors, many of them outside the control of the CIPC, such as:

  • The ease of obtaining electricity connections and registering a property
  • The level of taxes payable and the costs of preparing tax returns
  • The ease of trading across borders
  • The efficiency of contract enforcement, and
  • The speed and cost-efficiency of resolving bankruptcies.

Voller says the CIPC has not completely shut the door on introducing a compliance obligation for smaller businesses in future, but if any such obligation is introduced, it will be far simpler and less costly than the 24-question list.

Voller was one of the drafters of the amended 2008 Companies Act, which has been hailed as among the best in the world.

Read: Companies regulator charges KPMG, McKinsey, SAP

Another proposed amendment in the works will require companies to disclose their beneficial ownership. This is something the Guptas exploited to the maximum, often hiding their beneficial ownership in offshore trusts and complex corporate structures.

The construction mafia moves to the townships

Written by Ciaran Ryan. Posted in Journalism

And how one consultant got them to leave. From Moneyweb.

The disruptive actions of those who storm construction sites and mines harm growth and lead to job losses. Image: Supplied
The disruptive actions of those who storm construction sites and mines harm growth and lead to job losses. Image: Supplied

No longer content to invade larger construction sites in KwaZulu-Natal and Gauteng, the construction mafia has moved into the townships.

Mpho Moropane, founder of Phoroza Trading & Projects, was awarded a R6 million contract for the construction of 50 houses in Soshanguve, north of Pretoria, by the Gauteng Department of Housing. No sooner had the contract been awarded than “representatives of the local community” arrived to demand their take – a whopping 50% of the budget.

They then went further than this, proposing to take over the entire budget and source materials for the project, leaving Moropane with little if anything other than an obligation to deliver the houses to the client.  

Moropane, who is from Soshanguve and knows the community well, recognised he had a bunch of chancers on his hands but felt powerless to deal with them. He called on construction consultant Canon Noyana for his advice.

Construction consultant Canon Noyana, fair but firm. Image: Ciaran Ryan

Noyana suggested calling a meeting with the “representatives of the local community” to find out what they wanted.

After listening to their plans to carve up the profits for their own benefit, Noyana leapt to his feet and informed the local thugs that they had no right to be present in the meeting and that they would receive nothing. Nada. The contract was fairly awarded to Moropane and he would employ local skills, as required in terms of the Preferential Procurement Policy Framework Act, but there was no room for uninvited partners.

“They were shocked that someone stood up to them,” says Noyana.

“Most times contractors are too intimidated and start entering into negotiations with criminal gangs. It’s time to put a stop to this, no matter where it happens.”

The gang left the meeting with their collective tail between their legs, but then launched a campaign of harassment by attempting to disrupt delivery of supplies and materials to the site. This too was thwarted when Moropane and Noyana enlisted the support of a local magistrate and senior police officers in the area.

The campaign of disruption came to an abrupt end.

With the local thugs sent packing, the project was completed within budget, and on time, says Moropane.

This was not the first time the mild-mannered Noyana had run-ins with the construction mafia.

“They’re looking for a free ride, and they’re entering township construction sites because they see the tactic working elsewhere,” he says.

“The only way we can revitalise construction in this country is by each one of us saying no to corruption and demanding a return to the rule of law. We have shown that it can be done.”

The problem of the so-called construction mafia – who prefer to call themselves “business forums” – started more than two years ago when armed gangs turned up at construction sites in KZN demanding 30% of the work, then 30% of the revenue, and in some cases 50%.

The problem has now gone countrywide, but is particularly rampant in Gauteng, according to Peter Barnard of attorneys Cox Yeats, who has fought off dozens of mafia invasions through the courts.

“The only reason it continues is because it is tolerated by law enforcement,” says Barnard.

“Hopefully, we will now see stronger law enforcement to bring an end to this after Finance Minister Tito Mboweni called for tougher action against the mafia [last] week.”

Read: Moves afoot to rein in the ‘construction mafia’

Mboweni in his budget speech last week seemed to have had enough of this lawlessness: “The disruptive actions of those who storm construction sites or mines harm growth and lead to job losses. Communities should expose such people to allow ministers [Bheki] Cele and [Ronald] Lamola [ministers of police and justice) to ensure that the law takes its course.

“I hope all South Africans join me in condemning this,” said Mboweni.

Some site invasions have turned violent, with construction staff held prisoner until money was handed over, and some have been shot.

Read: Construction sector braces for a stormy year

All of this stems from new regulations to the Preferential Procurement Policy Framework Act, which allows 30% of all contract value above R30 million on state construction contracts to be allocated to certain designated groups, including black-owned small and medium-sized enterprises.

The regulations do not apply to private sector construction contracts, but this has not deterred the local forums.

“We are pleased with the [government’s] commitment to arrest criminal gangs that disrupt work on construction sites. It is a form of anarchy that has no place in any progressive society,” said John Matthews of Master Builders South Africa (MBSA).

The problem will now be dealt with by specialised units of the South African Police Service (Saps) and the National Prosecuting Authority. “It is the first step that will provide immediate relief to contractors who have construction sites in limbo, and we most welcome the commitment. We will be following up with the [Saps] on how to prevent further disruptions,” said Matthews.

Site invasions by armed extortionist groups have been cited as one of the leading causes of the decline in construction activity in the country, causing company closures and loss of employment, says MBSA.

Read: Construction industry in survival mode

In the last three years, several large construction companies such as Group 5, Basil Read, Liviero, NMC and Esor Construction have closed operations, while many of the remaining firms have reported financial difficulties. Sluggish economic growth, a decline in government infrastructure spending, late payment of contractors by the state and the lack of capacity to undertake public projects with approved budgets have been recorded as other leading causes of the problem.

President Cyril Ramaphosa announced R700 billion in infrastructure development in his state of the nation address earlier this year, but no further details have been provided.

Read: Construction sector welcomes R700bn ‘project pipeline’

Mboweni has committed to providing R10 billion towards a R200 billion infrastructure finance programme by the Development Bank of Southern Africa.

Let the ‘Makana’ revolution begin

Written by Ciaran Ryan. Posted in Journalism

Dysfunctional metros and municipalities could start falling like dominoes. From Moneyweb.

The PAC has put Tshwane on notice: it either gets its act together or, like Makana, will face dissolution. Image: Waldo Swiegers, Bloomberg
The PAC has put Tshwane on notice: it either gets its act together or, like Makana, will face dissolution. Image: Waldo Swiegers, Bloomberg

When the Makhanda (formerly Grahamstown) High Court last month ordered the dissolution of the municipality of Makana for failing in its constitutional duty to provide services to the community, the great fear among the political class was that this would unleash an orgy of similar court challenges to unseat dysfunctional municipalities around the country. 

Read: Landmark court ruling highlights crisis in SA’s cities and towns

Barely a month later, it looks like that day is at hand. 

PAC president Narius Moloto this week put the Tshwane city manager and the three major political parties – the ANC, DA and EFF – on notice that they either quit their squabbling and return to governing the city or he will approach the Pretoria High Court to have the council dissolved and placed under administration.

That would open the door to fresh elections, which could be disastrous for the ANC, says Moloto. “Let the people decide whether any of the politicians who engineered this crisis are worthy of holding office again.” 

Tshwane has been in chaos for several months, with the ANC and EFF attempting to unseat DA Mayor Stevens Mokgalapa after several votes of no confidence. That’s being appealed and is still unresolved.

The EFF hopes to emerge from this as the kingmaker and appoint one of its own as mayor. Its gripe is that the DA-controlled council under Mokgalapa is dysfunctional, resulting in a water and power crisis in and around the city.

The ANC threw its weight behind the vote of no confidence over what it called a corrupt property tender in the city. This looked like a return slap for the DA, which repeatedly hammered the ANC for corruption when it ran the city. 

Moloto says city residents are left to pay the price for the power play between the three major parties. If he gets his way, Tshwane is about to get the Makana treatment.

“The despicable display of politicking among the three major parties has descended into farce, each side more concerned about guarding the public trough from which they feed than in governing the city,” he says.

The implications of this are potentially huge for the country. Imagine, says Moloto, if residents in failed municipalities across the country used the Makana decision to toss the cadres out of office.

Read: Confirmation that municipalities are a huge burden on taxpayers

Of the 257 municipalities and 21 municipal entities assessed by the Auditor-General in 2018, only half received unqualified opinions on their financial statements, and only 19% were free of any material misstatements. 

“This is a shocking betrayal of our political liberation,” adds Moloto in a recent statement. “Those responsible must be held to account, investigated and removed from office. Those found guilty of criminal conduct must be jailed.”

Read: Auditors of SA municipalities say they are intimidated and threatened

Cilliers Brink, DA shadow deputy minister for Cooperative Development and Traditional Affairs, and formerly part of the DA’s ruling alliance in Tshwane, says it is Tshwane’s ruling council that is dysfunctional rather than the municipality itself, though this has a knock-on effect on governance in the city.

Hence, it may be harder to convince a court that the metro council should be dissolved. “But there is no doubt that many smaller municipalities around the country are failing to provide even the most basic level of services,” says Brink. “Part of that is mismanagement, part of it is corruption, and about 12 years of economic decline, which has hit the income of these municipalities. It’s hard to deny that Tshwane has become dysfunctional, and a political power play is the cause.

“The EFF has revealed itself as a faction of the ANC, and this is something the DA has had to learn the hard way.”

The DA formed coalitions with the EFF that allowed the former to govern in Tshwane, Johannesburg and Nelson Mandela Bay in the Eastern Cape. All of these coalitions have fallen apart. Brink points out that under the DA, financial governance improved to the point where Moody’s awarded it a two-notch credit upgrade. 

Michelle Rademeyer, a Freedom Front Plus (FF+) representative in the farming town of Bethal in Mpumalanga, came within a whisker of unseating the ANC candidate in the town during last year’s elections by campaigning against corruption and mismanagement.

Parts of the town have had virtually no water for most of the last year, and rely on farmers trucking water into the town.

Power cuts are a daily affair. “In addition to the Eskom outages, we also have daily power cuts implemented by the municipality,” she says.

Refuse collection in Bethal has ceased to exist for most, so private refuse collectors have stepped into the breach, charging R4 a bag for removal. The Govan Mbeki Municipality, responsible for an area covering 2.5 million square kilometres from Bethal to Secunda and Leandra, has 12 refuse trucks but only two are working.

The sewage system functions erratically and potholes have gone unrepaired for decades. Local residents try to patch the potholes to keep the roads driveable, but they are not allowed by law to make any permanent repairs. 

“I have abundant evidence of corruption in the municipality which is fed to me by local residents, so we could definitely argue that this municipality has virtually ceased to function, but the cost of bringing a Makana-style case to court means we would have to fundraise for this,” says Rademeyer.

“If we are going to get rid of dysfunctional municipalities, we would need legal assistance.”

The story of broken dreams is repeated up and down the country, from Mokopane (formerly Potgietersrus) in Limpopo to Mamusa (Schweizer-Reneke) in North West province. Many parts of Mokopane have water for two to three hours a day and roads are being destroyed by coal trucks. Power supply is erratic and people complain noisily but feel there is little they can do to change things.

It has started to dawn on smaller political parties like the FF+ and PAC that change can come from below.

As Argentine revolutionary Che Guevara observed, revolution never falls fully ripened from the tree. It has to be plucked.

Deidre Carter, former MP for Cope, recently left politics after 10 years in parliament armed with a conviction that change will only come about with grassroots movements driven by civil society and alliances with like-minded groups.

There is now a very real possibility that corrupt and mismanaged municipalities can be unseated.

Carter now works for Agri Limpopo, which has given her a deeper understanding of the privation of living in small-town and rural SA.

“This is the result of decades of mismanagement and corruption. We have to take back control of our local governance structures and restore accountability. I think the Makana judgment is a great step in the right direction.”

The Makana municipality was dragged into court by the Unemployed Peoples Movement (UPM) on the grounds that it had failed in its constitutional duty to provide basic services such as a healthy environment, health care, food, water and social security. Governance had all but collapsed. Livestock roamed the streets, refuse piled up in residential areas, the water taps ran dry for days at a time and raw sewage poured out into the community. 

Judge Stretch found that the local municipality could not provide even the most basic of services such as clean water, refuse collection and sewage, and for this reason should be dissolved. The decision put other dysfunctional metros and municipalities on notice: either perform your constitutional duties or face getting the boot.

This may turn out to be one of the most liberating court decisions in recent history, says Moloto, even though the losers in the case say they plan to appeal. “What a breath of fresh air it would be if corrupt and incompetent municipalities across the country were to be tossed out of office to face the wrath of the electorate. This court decision can and must be replicated across the country.

“While the Guptas were busy looting state-owned enterprises, the ANC not only turned a blind eye, many of its senior officials were eager participants. We now know from Open Secrets’ The Enablers report that state capture cost the country R5 trillion and five million lost job opportunities.

“Think about that for a minute, and imagine where South Africa would be today had the state capture project been strangled at birth. Not a single participant in state capture has yet been jailed, while the ruling party circles the wagons and defends those in its ranks who gaily joined in the looting.”

Tax D-Day looms for South African expats

Written by Ciaran Ryan. Posted in Journalism

From March 1 they will have to pay SA tax on income over R1m earned abroad. From Moneyweb.

Financial emigration does not necessarily mean relinquishing SA residence or citizenship. Image: Shutterstock

Financial emigration does not necessarily mean relinquishing SA residence or citizenship. Image: Shutterstock

From next month South African expatriates will be required to pay tax in SA on income above R1 million earned from employment beyond the country’s borders.

It’s crunch time for hundreds of thousands of people who will have to decide whether to pay the tax and retain their South African residence status, or to financially emigrate to avoid it. Another option is to rely on double tax treaties signed between SA and other countries, to argue that taxes have already been paid in the countries where they work.

Read: To financially emigrate or not?

Financial emigration is a drastic measure, but an option nonetheless.

It is reckoned that there are more than 100 000 South Africans in Dubai alone, many thousands of whom will be earning in excess of R1 million a year. There will be hundreds of thousands more scattered across the globe, a good percentage of whom will have to make a choice whether to emigrate or not.

Financial emigration does not necessarily mean relinquishing SA residence or citizenship. It is an approval granted by the SA Reserve Bank to be recognised as non-resident for exchange control purposes.

Under the new tax rules, the first R1 million is exempted from SA tax if the expat spends 183 days a year working abroad. Only amounts above R1 million will be taxable.

Tim Mertens, chairman of Sovereign Trust SA, which has 25 offices worldwide, says those earning substantially more than the equivalent of R1 million a year are likely to financially emigrate. The R1 million threshold includes fringe benefits such as pension payments and housing and travel allowances. For South Africans working in Saudi Arabia, housing and subsistence allowances are typically part of the total remuneration package, pushing many of them over the R1 million threshold.

Read: Troubling new interpretation of tax credits and deductions on foreign income

“We have had a surge in inquiries from South African expats in our various offices around the world, and our sense is that many of the higher earners are planning to financially emigrate. Lower-earning expats, such as nurses and artisans, are probably not earning sufficient income abroad to be affected by the new expat tax, so it is unlikely they will opt to financially emigrate.”

Mertens says there is likely to be a period of confusion as the new rules are bedded down and expats decide which routes to pursue.

“A lot of professional South Africans have gone abroad in search of work over the last decade, and I suspect many of them may not return. They are concerned at the lack of reforms in the country, and the poor economic prospects. Sadly, we may have lost a good percentage of our most skilled professionals to the wave of emigration, but they still have assets and family in this country, so they have emotional and financial ties to SA.”

The tax amendments have attracted criticism from some quarters as potentially counterproductive, in that they could force many high-earning expats to surrender their SA residences.

It remains to be seen whether Sars succeeds in raising additional tax revenue as a result of the new expat tax. Some doubt it will make much difference to tax collections, yet Sars is confident it will rope in considerable new tax revenue.

Read: Looming ‘expat tax’ is ultimately fair

Sharon MacHutchon, tax consultant at Mazars, advises that the amendment to the legislation that comes into effect on March 1 only affects income received as a result of employment.

The amendment does not apply:

  • If you are an independent contractor working abroad,
  • In cases where you earn foreign investment income, or
  • If you are no longer a resident of South Africa for tax purposes.

South African expats working abroad may already be regarded as non-residents for tax purposes, even though a formal declaration was never made to Sars.

Anyone planning to break tax residency risks having to pay an exit capital gains tax.

Banks hit with class action suit over ‘unlawful’ home foreclosures

Written by Ciaran Ryan. Posted in Journalism

Dispossessed homeowners demand billions in damages from major banks for selling their properties at a fraction of their worth. From Moneyweb.

All the major banks in SA are cited as respondents, and could be facing claims of R60bn or more. Image: Shutterstock
All the major banks in SA are cited as respondents, and could be facing claims of R60bn or more. Image: Shutterstock

Hundreds of dispossessed homeowners filed a class action suit in the South Gauteng High Court on Tuesday (February 10), claiming damages from the major banks for foreclosing and then selling their properties for a fraction of their market value.

The applicants attempted to have the case heard directly in the Constitutional Court in 2017, but the judges ruled it should be heard in the normal way in the High Court.

The dispossessed homeowners are asking to be recognised as a class of applicants with substantially the same complaints. Many are clients of the Lungelo Lethu Human Rights Foundation, which is an applicant in the case.

The court application asks the court to recognise several different classes:

  • Those whose properties were sold for more than 10% below market value since the Constitution came into effect in 1994;
  • Those whose properties were sold by the banks in a manner that was not a “last resort” as required by law;
  • Those who remain in debt to the bank after their properties were sold at prices below market value; and
  • Those who were overcharged on their bond fees in the course of legal action.

All the major banks are cited as respondents, as well as the National Credit Regulator, the SA Human Rights Commission and the Minister of Constitutional Development.

It is estimated that up to 100 000 South Africans have lost their properties through foreclosure since the Constitution came into effect.

Opt-out case

This is an opt-out class action, meaning that anyone who fits within one of the class categories is automatically assumed to be part of the action unless they specifically opt out.

It has been estimated that dispossessed homeowners have suffered a 35% loss of home equity through the foreclosure process, which means the banks could be facing claims of R60 billion or more.

Advocate Douglas Shaw, legal representative of the applicants, says the mortgage banks have routinely claimed they use foreclosure as a last resort, but the evidence suggests otherwise.

“Foreclosure, as it was practised by the banks in SA before the current reforms, was cruel and inhumane.”

“It has resulted in tens of thousands of families being rendered homeless at a time of financial distress, and most never recover from this. We are saying that the banks have violated the Constitution by arbitrarily depriving South Africans of their properties when alternative means of recovering their loans were available to them, and by stripping them of dignity.

“The result was a massive transfer of wealth to property speculators and the banks. This case is intended to right this wrong.”

Read: Sim Tshabalala put to the test over ‘vindictive’ home foreclosure

King Sibiya, president of the Lungelo Lethu Human Rights Foundation, says the case is vital to restoring human rights and dignity for those stripped of their homes.

“Most of those affected are from poor communities. SA has a shocking history of property deprivation and eviction.

“In the 1980s it was the apartheid government that was doing the evicting, but this was child’s play compared to what the banks have managed to accomplish over the last 25 years. It is beyond argument that the banks have abused the court processes to have people thrown out of their homes, often for trivial arrears. The evidence is incontrovertible.

“Most of our applicants were not even informed that there was a judgment against them. They only found out when the new owner turned up with an eviction order. The banks are violating the human rights of their customers and they are abusing our court system. This must stop.”

Until December 2017, foreclosed properties were sold at sheriffs’ auctions without a reserve price, which resulted in some properties being sold for as little as R100 (and even R10), leaving the defaulting homeowner with a substantial debt to the bank.

Read:
Banks slapped down over home repossessions in Joburg court caseStandard Bank accused of ‘double dipping’ in home repo case

The high courts in 2018 changed court rules to allow reserve prices to be imposed by judges. The widespread sale in execution of homes at below market price violates Constitutional rights against arbitrary deprivation of property, argue the applicants.

Many properties have been sold for “50% or even 90% less than they were worth,” according to the court papers.

Syndicates

It has long been claimed that criminal syndicates comprising bank representatives and property buyers operated unimpeded from the sheriffs’ offices, with bid rigging and unlawful sales in execution being rammed through even when the homeowners were in the process of appealing court judgments against them, or making arrangements to catch up on arrears.

Some of the applicants had their properties sold at auction for a fraction of their market worth even when they had better offers from private buyers.

Others had judgments issued against them even though they were up to date on their monthly mortgage instalments. Some attempted to have their arrears spread over the remaining term of the mortgage loans, a routine practice in the UK, but SA banks are seldom willing to do this, says Shaw.

Some of the applicants lost their houses even though they had rescission applications or appeals pending before the court – which should freeze any attempt to sell the property.

Many of those whose properties were sold in the foreclosure process lost most or all of the equity in the home – their life savings in most cases.

Focus

The applicants are asking that the court trial focus “on the questions of whether the witness’s property was sold for substantially less than value and whether the sale was a last resort and thus whether the bank is liable to that class and to avoid issues extraneous to those issues”.

Victory for the applicants would result in financial compensation for their losses, the rescinding of any judgments against them and the expunging of adverse listings with credit bureaus.

One of the deponents in the case, Innocent Gwisai, says banks have a common law duty of care to take reasonable measures to only sell as a last resort and to minimise the damage to the client when it does sell in execution (SIE). They also have an obligation to respect the right to housing and other constitutional rights such as property, dignity, just administrative action, and life.

The banks have shown a pervasive disregard for these rights over a prolonged period, even though they may have been in possession of a court order, says Gwisai.

At a Wits University presentation last year, on the problems surrounding sales in execution, Wits School of Law associate professor Jackie Dugard said courts were still pursuing SIEs on an ad hoc basis and there was no guidance regarding what reserve price to set in which circumstances.

“As a result, people are still losing their homes to sales in execution that are not the last resort and where there is an arbitrary/no reserve price set.”

Stephan van der Merwe, senior attorney at Stellenbosch University’s Law Clinic, says although SA has some excellent statutes and case law in defence of consumers, including the National Credit Act and the Consumer Protection Act, enforcement of these laws in the courts remains a problem.

“There is huge inequity between consumers and creditors when it comes to courts. Banks are able to outlast consumers when it comes to litigation because of their vast financial resources. Consumers rightfully complain that they are denied justice in a system so heavily weighted in favour of the banks.”

International trends

The class action suit comes at a time when judiciaries around the world are coming out in favour of distressed consumers.

Last year the European Union issued the Unfair Contract Terms Directive to tilt the scales of equity more in favour of consumers. This came after an avalanche of complaints that borrowers and consumers were being required to sign agreements heavily weighted in favour of creditors.

“Contract terms are unfair and, therefore, not binding on consumers if, contrary to the requirements of good faith, they cause significant imbalance in the parties’ rights and obligations to the detriment of the consumer,” says the EU directive.

Read:
Congratulations, your mortgage arrears have been extinguished
Forgive them their debts

Legal bias

Many South African consumers have complained of a legal bias towards creditors with regards to both unfair contract terms and the ability of deep-pocketed banks to out-litigate their customers in court.

Thousands of Europeans have lost their houses in recent years due to mortgage loans priced in Swiss francs. Some Polish homeowners ended up owing twice the original amount borrowed due to the doubling in value of the Swiss franc since 2008. The European Court of Justice last year ruled that local courts could substitute the terms of contract and allow payment in local currency.

In Romania, the Datio in Solutum (DIP) law allowed overindebted consumers to hand back their homes to the bank and walk away free of debt under certain circumstances, one of which was financial hardship. This point was routinely challenged by the banks in court.

Like many other European countries, many Romanians had taken out mortgage loans in Swiss francs. The Romanian Constitutional Court last year made it easier to plead financial hardship, and therefore satisfy the requirements of the DIP law, which means customers will have the choice of returning their homes to the bank free of debt, or adjusting the mortgage repayments on terms that are affordable to them.