South African municipalities in financial distress: what can be done?

Abstract

South African municipalities have been faced with financial distress for some years. In some municipalities, financial distress has intensified to the extent that local government faces a "collapse”. On the other hand, many municipalities have been in reasonably good financial shape, at least until the recent pandemic. The information National Treasury publishes can help to identify cases of real concern. The primary responsibility to address municipal financial problems lies with the municipality, but other parties also have a role to play. Financial problems have different causes and will differ in severity. Consequently, different tools are appropriate, depending on the cause, severity and aggrieved party. These tools include discretionary and mandatory financial recovery plans, debt relief and restructuring. Where a municipal financial crisis amounts to a disaster, further tools can come into play. We hope that this exploration of legal remedies will stimulate greater action to resolve financial problems in municipalities. This article addresses situations where a municipality is already faced with financial distress , and does not delve into measures aimed at preventing municipal financial distress.1