Authored By: Sekoati David Tiiba
Abstract
The Insolvency Act reintroduces the “advantage to creditors” requirement as a precondition for liquidation in Lesotho.1 Although intended to protect creditors, it effectively denies NINA debtors2 access to insolvency relief. This article argues that the requirement is unconstitutional as it discriminate on the basis of economic status, contrary to Section 19 of the Constitution guaranteeing equality before the law.3 Drawing on Attorney General of Lesotho v ‘Mopa4and comparative South African jurisprudence, it concludes that the requirement fails the constitutionality test and should be amended or struck down to uphold substantive equality in Lesotho’s insolvency regime.
Keywords: Insolvency Act 2022; advantage to creditors; constitutional law; equality clause; economic discrimination; AG v ‘Mopa.
Introduction
In 2022, the Lesotho Parliament repealed the Insolvency Proclamation5and enacted the Insolvency Act (the Act) as the principal law “to provide for regulation of insolvency practice…and for related matters.”6 A central feature of this Act is the advantage to creditors requirement, which stipulates that liquidation of a debtor’s estate may only be granted if doing so will be to the advantage of his creditors. 7 This requirement has been interpreted to mean that the court will only grant the liquidation order if the liquidation of the debtor’s estate will result in a measurable benefit to creditors. 8 While this provision is intended to protect creditor interests, it raises a critical constitutional question: does it unfairly discriminate against poor debtors who lack sufficient income and assets to satisfy this threshold?
This article argues that the advantage to creditors requirement is unconstitutional as it violates Section 19 of the Constitution of Lesotho, which guarantees equality before the law and equal protection of the law. By limiting access to insolvency proceedings only to those whose financial position already presents a benefit to creditors, the law disproportionately excludes poor and assetless debtors, thereby entrenching inequality. In effect, the provision creates a class-based barrier that favours financially advantaged individuals and denies statutory relief to those most in need of legal protection.
Through doctrinal and constitutional analysis, with reference to judicial precedent, this article demonstrates that the advantage to creditors requirement constitutes indirect discrimination on the basis of socio-economic status and fails to meet the constitutional standard of substantive equality.
Background and Legal Framework
The advantage to creditors requirement is a longstanding feature of Lesotho’s insolvency regime. Under the now-repealed Insolvency Proclamation,9a debtor could only be placed under sequestration if the court was satisfied that such a step would be to the financial benefit of creditors.10 When Parliament enacted the Act, it retained this requirement without amendment or constitutional reconsideration. In effect, the legislature reintroduced a rule developed during a pre constitutional era, despite the fact that Lesotho now operates under a supreme Constitution which guarantees equality before the law.11
The relevant provision under the new Act states that an application for sequestration must demonstrate that there is a “reasonable prospect of benefit to creditors” arising from the administration of the debtor’s estate.12 In practice, this means that unless the debtor possesses sufficient income or assets that can be realized for the benefit of creditors, the application must be dismissed, for the focus is on ensuring financial benefits for the creditors.13 This creates a direct barrier for poor or assetless debtors who are often in the greatest need of legal protection and financial rehabilitation.
Section 19 of the Constitution of Lesotho
Section 19 guarantees that “everyone shall be entitled to equality before the law and to equal protection of the law.” This provision has been interpreted by the Court of Appeal in Attorney General of Lesotho v ‘Mopa14 as protecting not only formal equality (where laws apply equally in wording) but substantive equality, which concerns the real-life impact of laws on different groups. The Court held that a law may still violate section 19 if its effect perpetuates inequality or disproportionately disadvantages a particular class of people.
Equality Implications of the Advantage to Creditors Requirement
By limiting debt relief only to those who can demonstrate financial advantage to creditors, the law effectively differentiates between wealthier debtors and indigent ones.15 This differentiation is not based on merit, fault, or public interest, but purely on economic status. This creates a constitutional concern that will be examined in the analysis that follows.
Equality Analysis and Constitutional Implications
The equality clause under Section 19 of the Constitution embodies one of the most important values in Lesotho’s constitutional democracy; that all persons are equal before the law and entitled to its equal protection. Equality, however, does not mean treating everyone the same in a mechanical sense. It means recognizing and addressing differences that cause disadvantage or perpetuate inequality. As the Court of Appeal explained in ‘Mopa case, formal equality, where a law appears neutral in wording, may still be constitutionally defective if its effects are discriminatory in practice. The focus must therefore be on substance, not form.
Applying this principle to insolvency law reveals a troubling picture. The advantage to creditors requirement creates a clear divide between those who have assets and those who do not. In principle, both categories of debtors are subject to the same law. In practice, however, the poor are excluded from accessing relief because they cannot show that liquidation would yield a financial benefit to creditors.16 The wealthy debtor is thus permitted to seek debt relief and rehabilitation through legal mechanisms, while the poor debtor remains trapped in perpetual insolvency, exposed to attachment, harassment, and social humiliation. This distinction, though not explicit in wording, is deeply discriminatory in effect.
In ‘Mopa, the Court held that a law that disproportionately impacts a particular class, without a rational connection to a legitimate state purpose, violates Section 19. The supposed objective of the advantage to creditors requirement is to ensure efficient use of judicial resources and protect creditor interests. Yet, this justification collapses under scrutiny. Protecting creditors is a legitimate aim, but excluding poor debtors altogether is neither necessary nor proportionate to achieving it. It prioritizes economic expediency over equality, ignoring the broader social purpose of insolvency law, which is to rehabilitate the honest but unfortunate debtor.
Comparative jurisprudence from South Africa supports this conclusion. In Ex Parte Ford,17 the Court emphasized that insolvency law must balance the interests of creditors with the constitutional imperative of human dignity and equality. A system that bars debtors from access to insolvency proceedings on the basis of financial insufficiency, the Court noted, undermines the constitutional commitment to fairness and equal treatment before the law. Although South African constitutional provisions may differ, the reasoning is highly persuasive for Lesotho’s context, where economic inequality remains deeply entrenched.
The advantage to creditors requirement, by conditioning legal relief on wealth, perpetuates a hierarchy in which the indigent are denied equal benefit of the law. It is therefore submitted that the provision constitutes indirect discrimination contrary to Section 19, as its impact is to favour the financially capable while excluding the vulnerable, a result that offends both the letter and spirit of Lesotho’s Constitution.
Constitutionality Test
Even where a law differentiates between groups, it may survive constitutional scrutiny if that differentiation is reasonable and justifiable in a democratic society.18 The test developed in ‘Mopa requires the court to assess whether the distinction serves a legitimate purpose, whether it is rationally connected to that purpose, and whether it goes further than necessary to achieve it.
Applying this test to the advantage to creditors requirement reveals its constitutional weakness. The stated purpose of protecting creditors from futile proceedings is legitimate. However, the means chosen; completely denying NINA debtors access to insolvency relief, goes far beyond what is necessary to achieve that purpose. The same objective could be met through less restrictive measures, such as allowing judicial discretion to grant liquidation where it would serve rehabilitative purposes, even if there is no immediate financial advantage to creditors.
The provision’s effect is therefore disproportionate; it imposes a severe burden on those least able to bear it, while conferring procedural privilege on wealthier debtors. It entrenches economic inequality under the guise of administrative efficiency. In constitutional terms, such a measure cannot be regarded as reasonable or justifiable, as it undermines the very equality values the Constitution seeks to protect.
Conclusion and Recommendations
The advantage to creditors requirement under the Insolvency Act is a legacy of a pre-constitutional era that fails to align with Lesotho’s modern constitutional order. By conditioning access to insolvency relief on the existence of assets, it impedes indigent debtors from benefiting from the law and perpetuates systemic inequality. Such differentiation, though facially neutral, is discriminatory in effect and violates Section 19 of the Constitution, which guarantees equality and equal protection of the law.
It is therefore submitted that the provision cannot withstand constitutional scrutiny. It should be struck down, or at least the legislature should amend the Act to introduce flexibility, perhaps through judicial discretion, to ensure that insolvency law operates not merely for creditor benefit but also for social rehabilitation and fairness. Constitutional democracy demands that the law uplift rather than exclude, and equality before the law must remain the cornerstone of justice in Lesotho’s evolving legal system.
Bibliography
Statutes
Insolvency Act No.9 of 2022.
Insolvency Proclamation No.51 of 1957.
The Constitution of Lesotho 1993.
Cases
Attorney General of Lesotho v ‘Mopa (C. of A. (CIV) 3/2002) (CIV/APN/474/98) [2002] LSHC 3 (11 April 2002).
Ex parte Bouwer 2009 (6) SA 382 (GNP) 386.
Ex parte Ford 2009 (3) SA 376 (WCC).
Lynn and Main Inc v Naidoo 2006 (1) SA 59 (N).
Meskin & Co v Friedman 1948 (2) SA 555 (W).
R v Oakes (1986) 65 N.R. 87 (SCC).
Books
Sharrock, R. et al, Hockly’s Insolvency Law (9th edn, Juta 2012).
Theses and Dissertations
Lesenyeho Ntsane, “Constitutionality of the Advantage to Creditors Requirement and a Comparative Investigation in Insolvency Law” (LLM Dissertation, University of Pretoria 2017).
1Insolvency Act No.9 of 2022, Section 6(11)(a)(ii), read with Section 11(1)(c)(i) and/or Section 12(1)(c).
2 No Income No Asset debtors.
3 The Constitution of Lesotho 1993, section 19.
4 Attorney General of Lesotho v ‘Mopa (C. of A. (CIV) 3/2002) (CIV/APN/474/98) [2002] LSHC 3 (11 April 2002).
5Insolvency Proclamation No.51 of 1957.
6Insolvency Act No.9 of 2022, the Preamble.
7Insolvency Act No.9 of 2022, Section 6(11)(a)(ii), read with Section 11(1)(c)(i) and/or Section 12(1)(c).
8 Meskin & Co v Friedman 1948 (2) SA 555 (W) 558; Lynn and Main Inc v Naidoo 2006 (1) SA 59 (N) 68; Ex parte Bouwer 2009 (6) SA 382 (GNP) 386.
9Insolvency Proclamation No.51 of 1957.
10 Ibid, section 6(1), 10(c), 12(1)(c).
11 The Lesotho Constitution, section 19.
12 The advantage to creditors requirement as outlined in Section 6(11)(a)(ii), read with Section 11(1)(c)(i) and/or Section 12(1)(c) of the Act, and as interpreted by the Court in a South African case of Meskin & Co v Friedman 1948 (2) SA 555 (W) 558.
13 Robert Sharrock and others, Hockly’s Insolvency Law (9th edn, Juta 2012) 4.
14 Attorney General of Lesotho v ‘Mopa (C. of A. (CIV) 3/2002) (CIV/APN/474/98) [2002] LSHC 3 (11 April 2002).
15 Lesenyeho Ntsane, “Constitutionality of the Advantage to Creditors Requirement and a Comparative Investigation in Insolvency Law” (LLM Dissertation, University of Pretoria 2017) 11.
16 Lesenyeho Ntsane, “Constitutionality of the Advantage to Creditors Requirement and a Comparative Investigation in Insolvency Law” (LLM Dissertation, University of Pretoria 2017).
17 Ex parte Ford 2009 (3) SA 376 (WCC).
18 R v Oakes (1986) 65 N.R. 87 (SCC).
