Road Accident Fund hits the wall

South African Airways and Eskom are not the only state entities in a fiscal mess.

The Road Accident Fund (RAF) brought an urgent application in the Pretoria High Court this week against the Sheriff of Centurion East, Absa Bank and 346 claimants that have in the last six weeks sent the sheriff to attach all the monies in its eight Absa bank accounts.

The application is in two parts:

• In Part A the RAF is asking the court for breathing space. It wants the court to suspend its obligation to pay R173 834 583.23 overdue to the 346 claimants.
• In Part B the RAF asks for an order against itself that it pay the above amount by no later than February 29, 2020. It also seeks an order that it be relieved from paying court-awarded compensation to claimants before a period of 180 days from the date on which a court order is served on it.

The intractable problem

The founding affidavit deposed to by the acting CEO of the RAF, Collins Letsoalo, paints a stark picture of how hopelessly insolvent the RAF really is and suggests that, failing a government bailout and a radical plan of action, the black hole will simply deepen.

The RAF is a social security scheme to compensate the victims of road accidents.

Letsoalo: “The scheme can only work for all of us if victims of road accidents are treated equally to the extent that it is possible when it comes to dates on which they are paid their compensation. [The RAF] is liable to compensate any person injured in a motor vehicle accident, where the driver of the vehicle was negligent. With this low threshold for liability, the RAF attracts liability every day.”

Letsoalo told the court that the RAF does not generate its own funding but is reliant on the Road Accident Fund levy (currently R1.93 per litre of petrol or diesel).

The RAF in its current form will always be insolvent

He proceeds to detail that settled claims accrue at an average of R4.3 billion a month and the RAF’s sole income – from the fuel levy – is R3.5 billion.

Letsoalo: “It is clear that the RAF is by law burdened with extraordinary liability which exceeds the money allocated to it by law. This makes it impossible for the RAF to satisfy all judgment debts granted against it. At the date of this affidavit [November 28], the RAF owes its claims creditors not less than R17 billion.” (Trade creditors, payroll and operational costs are not even mentioned in the papers.)

A national crisis

To put the road accident payment crisis in perspective, claims against the fund accrue at R14 137 416 per day, R589 059 per hour, R9 817 per minute and R164 per second.

RAF legislation indemnifies the wrongdoer. In other words, a claimant may by operation of law not claim from the driver whose negligent or reckless driving caused their personal injuries. It may only be claimed from the RAF. In first world countries every vehicle has to be insured and claims for personal injury are made against the driver or owner of the vehicle and the insurer of the vehicle stands in the shoes of the wrongdoers and pays the claim.

Cash management plan

In the court papers, under this heading, Letsoalo sets out that the RAF has decided on a five-point plan:

• Available funds must be paid equitably to claimants;
• It needs to have the flexibility to deal with “exceptional circumstances which may require payment on an urgent basis”;
• RAF staff and operational expenses need to be paid first so that claimants claims can be processed and paid;
• Long overdue payments must take priority and in date-received order; and
• Court-ordered payments (which are the bulk of payments) must be paid first and only thereafter will claimants who settled directly with the RAF be paid.

Attorneys are part of the RAF’s problem

Letsoalo: “Most of the claimants’ attorneys know and understand the applicant’s financial position. There are other attorneys who, despite knowledge of the RAF’s financial position, advise their clients to issue writs of execution authorising the Sheriff to attach the RAF’s bank accounts. This has happened on many occasions.

“Even if the applicant were to pay all the amount it receives by way of the RAF [fuel] levy to satisfy judgment debts against it, it would still not be enough.

“This is the reality of the social security scheme operated by the applicant.”

Attachment of bank accounts creates chaos

Letosalo stated in court papers that “the RAF does eventually pay all judgment debts against it” and that no purpose was served by attaching bank accounts as there was already a queue of claims creditors and that by doing so “it only serves to cripple the RAF’s operations and ability to ensure that there is an equitable order of paying judgment debts”.

He goes on to inform the court that social security justice would be stymied by the few attorneys whose clients attach the RAF’s bank accounts.

Writs of execution cause embarrassment

The RAF’s head office in Pretoria is in possession of over 1 000 writs (some for multiple claims), and some are for “millions of Rand”.

Not only does the sheriff beat a trail to the RAF’s HQ every day with more writs but other sheriffs serve writs on the RAF’s regional offices on a daily basis.

Letsoalo says the RAF’s operations are brought to a standstill and he makes mention of “the embarrassment which is caused not only to the RAF but also to the Government of the Republic of South Africa which designed the social security scheme operated by the RAF”.

With the holiday season approaching, drivers not realising that a driver’s licence is a privilege and not a right, the lack of effective traffic policing, and an increasing road accident rate, it is simply a matter of time before the RAF is brought to its knees.

Absa confirmed to Moneyweb that it would abide by the decision of the court. No response had been received from the sheriff by the time of publication. It is customary in matters such as this for the sheriff to abide by the decision of the court.

Brought to you by Moneyweb

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