Does the Nca Apply to Loan Agreements
The NCA does not apply to a material agreement between the bank and a consumer who is a legal entity whose annual assets or turnover meet or exceed a threshold of R1m at the time of the agreement. In general, the provisions of the NCA apply to all credit agreements between parties acting on market terms and entering into or taking effect in South Africa. However, there are exceptions if the NCA is not applicable to such arm`s length credit agreements, for example: if the asset or annual turnover does not exceed the threshold, the following important consideration concerns the type of contract concluded. For the purposes of the NCA, a loan is by nature a credit agreement, but its provisions do not apply to all credit agreements. One of the consequences, if the NCA applies, is that the company lending the funds must be registered as a lender at the time of entering into the loan agreement or must have applied for registration within 30 days of the conclusion of the loan agreement. If the lender was not registered at that time or did not apply for registration, the loan agreement is illegal and can be cancelled by a court. Companies must also take into account the provisions of Article 44 of the Companies Act when determining the conditions that apply to loans to persons in order to enable them to acquire shares in that company. Paragraph 44(3)(b) of the Companies Act provides that a board of directors of a corporation may approve financial assistance within the meaning of section 44 only if it is satisfied that (i) the corporation would meet the solvency and liquidity test immediately after the financial support is provided; and (ii) the conditions under which the financial support is to be provided are fair and reasonable to the Company. If it is a “material agreement” within the meaning of Subsection 9(4) of the NCA, the NCA does not apply to the transaction, regardless of the consumer`s assets or annual turnover. In view of the above considerations, there are several ways of structuring the transaction for Mr X to ensure that it does not fall within the scope of the NCA. In the case of a credit agreement exceeding the threshold laid down in Article 42(1) of the NCA (now R0 – GN 513 of 11 May 2016). 39981), whether or not it is a one-off transaction and the lender is regularly involved in the lending industry, the NCA applies.
If the parties to the transaction do not trade on market terms, the NCA will not apply and is not required to consider any of the other exceptions. If you need to apply for a loan, be sure to contact a registered and reputable credit provider. Currently, any credit agreement through NIL loaned to a consumer in South Africa who charges interest (or similar fees/charges) on the loan (subject to the exceptions below or if the parties are not doing business on market terms) would in fact fall within the scope of the CAS, unless, of course, it falls under the following exceptions. Should such a strict interpretation still apply? Can a loan from a corporation to a non-shareholder for the acquisition of shares of such a corporation be considered, in certain circumstances, to be an agreement “in which each party is not independent of the other and therefore does not necessarily seek to derive the greatest possible benefit from the transaction”, in which case the company would not have to be registered as a lender? One might think that this should be the case if, for example, the borrower is a director (but not a shareholder) of the lending company and the loan is subject to favorable repayment terms, such as.B. a nominal interest rate (or a minimum interest rate not to be classified as a dividend by South Africa Revenue Services) and is repayable over a longer period of time or solely from the proceeds. of the dividend. are attributable to the shares acquired. Businesses and individuals operating outside the lending industry should be wary of the implications of the Supreme Court of Appeal`s decision on credit transactions and one-time credit agreements, as these transactions and their underlying arrangements could be reversed if the company or person providing the loan is not a registered lender. The NCA as a whole does not apply to legal persons with an annual asset or turnover of more than R1 million, or to legal persons with an annual assets or turnover of less than R1 million and who enter into a mortgage agreement or a contract with a loan value of more than R250 000. (a) agreements whereby a corporation submits a loan to its shareholder or to another legal person a loan to a person holding a majority interest in the legal person; (b) agreements whereby a shareholder submits a loan to an undertaking or a person holding a majority interest in a legal person grants a loan to that legal person; (c) credit agreements between family members who depend on each other; (d) credit agreements between family members where one family member is dependent on the other; and (e) any other agreement in which each party is not independent of the other and therefore does not necessarily seek to derive the greatest possible benefit from the Transaction.
There have been problems with these definitions, such as .B. that the rental of movable property violates the normal commercial and legal understanding of the lease, when ownership does not pass at the end of the contract. In addition, definitions such as mortgage contracts have been changed, and there are also questions about the overlapping definition of discount transactions and ancillary credit agreements, which could have serious repercussions. For the purposes of section 89(5) of the National Credit Act 34 of 2005, if a credit agreement is illegal despite a common law provision, other legislation or any contrary provision of an agreement, a court must order its nullity from the outset. It is also important that the lender is registered with the NCR as such at the time of the loan or conclusion of the loan agreement, as the lender cannot expect to resolve these issues by registering as a lender later. This may put the lender in an uncomfortable position because the funds for the loan have been advanced to the borrower, but the underlying agreement could be invalid, so the lender may not receive the loan amount or other applicable fees, but may also have to repay the interest to the borrower. Also note that subsection 8(2) of the Act excludes insurance policies, real estate leases and Stokvel contracts from the scope of the ESA. However, companies should be cautious when granting loans if that company is not registered as a lender, as one of the consequences of a business presenting a loan that falls within the scope of the NCA without being registered as a lender is that a court may declare the loan illegal and unenforceable. Given such a consequence, companies are vulnerable to abuse by individuals who may attempt to evade their repayment obligations by arguing the company`s non-registration as a valid, albeit technical, defense.
With such severe consequences, companies may be advised to register as creditors for the purpose of acquiring shares in the company before granting loans to persons (other than shareholders). Clients who are unable to meet their financial obligations can ask a registered debt advisor for a proposed solution. A debt advisor must be registered with the national credit regulator. In addition to the above exceptions, the NCA does not apply to credit agreements in cases where the parties to the credit agreement do not act on market terms. Although the NCA does not define the term “arm`s length”, it contains a non-exhaustive list of agreements in which the parties are not deemed to be acting on market terms. For the purposes of this article and the issue raised at the beginning, the following rules are considered not to be on market terms – a consumer is over-indebted if he cannot afford to repay all his debts and his expenses exceed his income. Mr X wants to fund a legal technology start-up founded by a friend of his son who is currently studying computer engineering at the University of Pretoria. Your customer (Mr. X) will send you an instruction to create a credit agreement for a transaction. All credit providers or suppliers operating in South Africa should be fully aware of the impact of the ANC on transactions when authorising any form of payment deferral, interest or fee deferral. .