For some time
now there has been confusion whether it is necessary for a lender, in a
once-off loan, to register with the National Credit Regulator where the loan
reached a certain threshold. The Supreme Court of Appeal confirmed now that
although it would be reasonable and sensible to interpret the National Credit
Act as being inapplicable to onceoff transactions where the role players are
not participants in the credit market, the current wording did not support
this.
The Court suggested that the legislature
should address this aspect.
FACTS Mr Du
Bruyn and his wife are an elderly couple, married in community of property. Mr
Du Bruyn’s business is the sealing of industrial leaks, a business he set up in
1984 which resulted in the formation of three interrelated entities: Vaal Steam
Supplies (Pty) Ltd (Vaal Steam); Naisa Trading CC (Naisa) and Lekoa Steam &
Environment (Pty) Ltd (Lekoa Steam). Mr Karsten was like a son to the Du
Bruyns. In the early 2000’s Mr Du Bruyn introduced Mr Karsten into the business
with a view to him one day taking over the business. Under Mr Du Bruyn’s
patronage and pupillage Mr Karsten gradually became more involved with the
businesses until he was appointed as the technical director in 2008. Eventually
Mr Karsten held a substantial number of shares in both companies and 50%
member’s interest in the close corporation, Naisa. In 2012 there was a falling
out between Mr Du Bruyn and Mr Karsten over operational issues in the business.
This led to a
decision that they should part ways. By this stage both Mr and Mrs Du Bruyn
were in their mid 70’s and were looking forward to their retirement. Their
initial proposal was that Mr Karsten purchase Mr Du Bruyn’s interest in all the
entities. A price of R2,500,000.00 was set and an option agreement concluded,
valid until 1 March 2013. However, Mr Karsten was unable to obtain the
necessary finance, even after having been afforded a further 6 weeks in which
to raise the money. Mr Du Bruyn then made an offer to purchase Mr Karsten’s
interest in all three entities for the price of R2,000,000.00. A cash offer of
R1, 500,000.00 was rejected by Mr Karsten. The offer of R2,000,000.00 to be
paid in instalments was subsequently re-instated. Pursuant thereto separate
sale agreements in respect of the three entities were drawn up. 2 // 3 The
three sale agreements are, to all intents and purposes, identical.
They were all
signed on 26 April 2013. The same terms of payment were applicable to all three
agreements of sale: a deposit of R500,000 was to be paid by 1 May 2013;
thereafter instalments of R30,000 to be paid on a monthly basis, subject to an
identical amortisation table for a period of 5 years; and interest to be levied
on the deferred amount. In all three sale agreements Mr and Mrs Du Bruyn bound
themselves as sureties and co-principal debtors. In clause 8 of each addendum,
Mr and Mrs Du Bruyn undertook to register a covering bond over their immovable
property, within 60 days, which they guaranteed to be unencumbered. Mr Karsten
was not registered as a credit provider in accordance with section 40 of the
NCA at the date of the conclusion of the agreements of sale on 26 April 2013.
Mr Karsten accepted that he had to be registered as a credit provider in order
to facilitate the registration of the covering bond. He therefore made an
application to be registered as such on 22 October 2012 and his registration
occurred on 27 November 2013. The Du Bruyns did not register the covering bond
within 60 days but eventually effected registration of the covering bond in
early 2014. By 1 May 2013 Mr and Mrs Du Bruyn had taken full control of the
businesses which they managed for their own benefit. The businesses started to
decline, to such an extent that Mr and Mrs Du Bruyn were compelled to dispose
of personal assets to keep the businesses afloat.
They later
defaulted on the instalment payments. As of 1 September 2014 Mr Karsten had
received only the amount of R866, 830.61. In November 2014 Mr Karsten
instituted proceedings for the balance of the purchase price, the sum of
R1,133,169.39. He alleged a breach of the agreements of sale. The Du Bruyns’
defence was that the agreements are null and void due to non-compliance with
the NCA. It was first communicated by the Du Bruyns through their attorneys, on
3 September 2014, that the agreements of sale constituted agreements as
contemplated by the NCA.
Accordingly,
it was contended that Mr Karsten was obliged to have been registered as a
credit provider at the time the agreements were concluded on 26 April 2013. His
subsequent registration on 27 November 2013 was insufficient. The non-compliance
of sections 40(3) and 40(4) of the NCA rendered the agreements, as well as the
mortgage bond registration and the suretyship undertakings, so it was argued,
unlawful and void. The High Court found in favour of Mr Karsten and Mr and Mrs
Du Bruyn appealed to the Supreme Court of Appeal. Here Karsten argued that (a)
the sale agreements were not arms-length transactions; and (b) the requirement
to register as a credit provider was directed at participants in the credit
market, not once-off transactions. 3 // 3
HELD: · In a previous 2015 judgment, Friend v
Sendal, the Gauteng High Court held that the NCA was directed only at those in
the credit industry and did not apply to single transactions where credit was
provided, irrespective of the amount involved.
· However, although the aforementioned
approach in Friend was sensible and pragmatic, the interpretation was not
warranted against a reading of section 40 of the NCA. Section 40 was clear and
unambiguous and made it obligatory for a person to register as a credit
provider if the total debt exceeds the prescribed threshold. At the time of
concluding the sale agreement it is common cause that the applicable threshold
was R500,000.
· It was
this threshold which triggers the obligation to register, irrespective of
whether it is a single transaction or not. To hold that registration as a
credit provider in terms of the NCA does not apply to once-off transactions or
to those who are not regular participants in the credit market was to not be
true to the text and the context of the NCA.
The appeal accordingly succeeded.