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Thread: Legal entities and sureties under the NCA

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    just me duncan drennan's Avatar
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    Legal entities and sureties under the NCA

    Juristic persons with an asset value over R1mil are exempt from the NCA, by this clause,

    4. (1) Subject to sections 5 and 6 (deals with incidental credit agreements and juristic persons), this Act applies to every credit agreement between parties dealing at arm's length and made within, or having an effect within, the Republic, except-

    (a) a credit agreement in terms of which the consumer is-

    (i) a juristic person whose asset value or annual turnover, together with the combined asset value or annual turnover of all related juristic persons, at the time the agreement is made, equals or exceeds the threshold value determined by the Minister in terms of section 7(1) (currently set at R1 000 000.00);
    and the definition of a juristic person under the NCA is,

    "juristic person" includes a partnership, association or other body of persons, corporate or unincorporated, or a trust if-

    (a) there are three or more individual trustees; or

    (b) the trustee is itself a juristic person, but does not include a stokvel;
    Now if a juristic person enters into a loan agreement (e.g. purchasing a property) there is often a surety associated with that. Let's say that one of the members/trustees/etc. signs the surety and co-principal debtor. Effectively they are liable for the loan in the case that the juristic person is unable to fulfil the agreement.

    Can, or does, the surety signers debt-to-income ratio play any role in their ability to sign surety?
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    Silver Member Eugene's Avatar
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    Duncan, a similar question was posted on Ghost Digest:

    "If a private person signs surety for a bond where the bond is provided to a juristic person, does the bond have to comply with the NCA regulations or is it excluded? (In which connection a bond being provided to a private person and a juristic person as co-principal debtors would presumably have to comply with the NCA insofar as it affects the private person?)"

    And the answer was: "The answer is no because in terms of section 8(5) of the NCA, the transaction in question will only be a credit guarantee to which the NCA is applicable if it is given in respect of an obligation of another consumer in terms of a credit facility or credit transaction to which the NCA applies."

    My opinion is that if the underlying agreement is exempt from the NCA (sec. 4(1), then credit guarantee (surety) will also be exempted and if you are exempted there will be no need for an assessment on your financials.

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    Site Caretaker Dave A's Avatar
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    Reading this, I thought it rang a bell. It was covered in post 20 this thread and the issue of credit guarantees was also touched on in our wiki here.

    Maybe we need to update that wiki page to cover the point more thoroughly, though. At the time I was hoping for confirmation of the interpretation.
    The trouble with opportunity is it normally comes dressed up as work.

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    Silver Member Eugene's Avatar
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    Credit Guarantee in terms of the NCA

    In simple terms a credit guarantee is an agreement in terms of which a person undertakes or promises to satisfy upon demand any obligation of another consumer in terms of a credit facility or a credit transaction.

    The NCA is quite clear that a surety agreement concluded by persons representing a juristic person in their personal capacities: it will be a ‘credit guarantee’ under the Act if an underlying credit agreement falls within the Act’s provisions. Therefore, if the underlying credit agreement entered into by the juristic person is exempt from the Act in terms of 1 of the categories contained in sec 4(1)(a)(i) or sec 4(1)(b) then the surety agreement will also be exempt (see of sec 4(2)(c)).

    Two exemption categories with respect to juristic persons (above) would mean that the agreement is exempted from the following provisions of the Act:

    - Credit marketing practices (Chapter 4, Part C)
    - Reckless credit and over-indebtedness (Chapter 4, Part D)
    - Unlawfulness of negative option marketing (Chapter 5, Part A sec 89(2))
    - Unlawful provisions relating to variable interest rates charged on the principal debt; (Chapter 5, Part A sec 90(2)(o)) and
    - Consumer’s liability, interest, charges and fees. (Chapter 5, Part C)

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    Hi Duncan

    Was wondering if you could possibily answer a question regarding surety. I was involved as a Guarantor in this Asset Management Specialist Scheme and now the bank is calling on the suretyship. I do not even remember signing the document as I posed a question of suretyship and liability if anything happened to the company and they said that I would never be liable. I have approached ABSA today for a copy of the agreement to see exactly what was signed. Because of this I had to apply for debt councelling so that I would not loose my own property. My question is when signing the papers I was never made aware that I was standing surety. What can I do?

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    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by joscal View Post
    I posed a question of suretyship and liability if anything happened to the company and they said that I would never be liable.
    The problem is they never complete the sentence. Should read "...as long as the company keeps making the payments."

    How long ago did you sign this surety, Joscal?
    The trouble with opportunity is it normally comes dressed up as work.

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    just me duncan drennan's Avatar
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    Hi Joscal,

    I'm not sure if I have anything useful to add. If there is some judgement against you, then that means the bank has a document saying you owe them the money. Isn't that exactly the reason that they want someone to be a guarantor - to pay them back if the venture fails? Knowing exactly what is in that agreement should help to make things clearer.

    I wish I had some useful advice for you, but maybe someone else on the forum (who has been through a similar situation) might be able to help.
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    Hi Duncan

    Once I get a copy from the bank will let you have the details. I signed documents in Dec 2006.

    Thanks

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    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by joscal View Post
    My question is when signing the papers I was never made aware that I was standing surety. What can I do?
    Quote Originally Posted by joscal View Post
    I signed documents in Dec 2006.
    That would be prior to the implimentation date of the NCA. So all the "they didn't explain" and "I didn't understand" type defences are out the window, I'm afraid
    The trouble with opportunity is it normally comes dressed up as work.

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    Hi Dave and Duncan

    Got the surety from the bank today. I have no idea who has witnessed the agreement, no one I have ever met. The only lady I signed documents with is not listed as a witness. Could this help my defence. Is this not a legal agreement. I can definately say that none of the two witnesses listed has ever seen or met me nor witnessed me signing that document. Can I use this argument with the bank and tell them to call on theses witnesses.

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