Larry Claasen
4 minute read
4 Sep 2020
8:30 am

Attorneys approach High Court to shut down Road Accident Fund

Larry Claasen

Maponya Attorneys want the high court to wind up insolvent fund.

Unsustainable? The RAF does not generate its own funding and is ‘by law burdened with extraordinary liability’. Picture: Moneyweb

The Road Accident Fund’s (RAF) days could be numbered if Maponya Attorneys gets its way, as it has applied to the Gauteng High Court for the state entity, which compensates victims of motor vehicle accidents, to be wound-up.

Maponya, which was appointed to the fund’s panel in December 2014, says given the financial peril the RAF is in, a court-ordered winding-up is the fairest outcome for all stakeholders.

As things stand, the fund is insolvent at its total liabilities exceeded its assets by R262.11 billion according to its 2018/19 annual report.

It’s gotten worse since then too, as its accumulated deficit is expected to increase from R329.7 billion in 2019/20 to R593.1 billion in 2022/23 according to a presentation to parliament in June.

The deficit has risen on the back of a multitude of issues. In recent years it has encouraged people, who would have given little thought about making claims against the fund, to do so.

There have also been accusations that some attorneys were overcharging for their services, and that the fuel levy is an inadequate funding mechanism.

Fire sale

The RAF’s funding issues have led to creditors making 560 attachments to its bank accounts in the 2018/19 financial year. Maponya says several creditors, who are owed R97 million, have already attached movable assets seized at the fund’s office in Centurion in an attempt to sell them off.

Maponya is owned R20.6 million and it fears that in the rush of civil claims against the RAF, it and other creditors could lose out to those who have already attached assets.

To prevent this from happening, it asked the Gauteng High Court on August 26, to unwind it under the provisions of the Insolvency Act.

In doing so, Maponya says it will substitute individual debt collecting remedies to one that is fairer to all creditors. Doing it this way will also formalise the involvement of relevant trade unions, employees and the tax authorities.

The RAF has yet to respond to questions on whether it will oppose the application. It did point out in its 2019/20 annual performance plan that the financial issues around the RAF are nothing new as it has been insolvent since 1981.

The fund will have to deliver answering papers by the close of business on September 28.

Running out of road

The government has long seen the structure of the RAF as unsound, and this is why it wants to introduce the Road Accident Benefit Scheme (RABS) to replace it.

Under RABS, the aim is to expand access to benefits by removing the requirement to establish who was at ‘fault’ to qualify for benefits.

RABS also reduces the need for legal representation.

“Equally, the RABS will ensure that benefits intended for road crash victims and their dependents are in fact received by the intended beneficiaries, in contrast to the RAF where numerous intermediaries often unfairly benefit at the expense of the claimant,” according to the transport department’s 2019/20 annual performance plan.

With a new structure on the way, the government sees no need to unwind the RAF.

“While we as the Ministry of Transport concede that the debts of the RAF are substantial and that the turnaround time for plaintiffs’ payouts may leave much to be desired, we are of the view that the RAF’s financial obligations are not insurmountable if the necessary reforms that are currently underway are fully implemented,” the transport department said in a statement.

The department also points out that strides have been made in getting the RAF’s house in order, like increasing contribution of the fuel levy, reducing administrative costs such as those incurred through legal fees, which cost the RAF about R13 billion in the previous financial year.

“Taking the above-mentioned reasons into consideration, we believe that any attempt to have the RAF wound up, is short-sighted and narrow-minded. We are ready to defend our position in court if needs be.”

It is, however, unlikely that the RAF would not have been in this position if parliament had passed the RABS bill on December 6, 2018.

Back then, according to the department’s 2019/20 annual performance plan, a vote on the bill was scheduled but had to postponed as there were too few MPs to form a quorum.

This article first appeared on Moneyweb and was republished with permission.

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