National Credit Act

[Dave A]

It seems Tito is aware that other measures might be required.

The SA Reserve Bank might "adjust" the reserve requirements of commercial banks to discourage the offering of credit to customers who do not need it, Reserve Bank Governor Tito Mboweni warned on
Thursday.

Citing consumer demand and credit extension as two of the factors which led the banks to increase the repo rate by 50 basis point to nine percent, Mboweni said the way credit cards were offered to consumers was "madness".

"Some of our colleagues received phone calls offering them all kinds of credit cards. Someone was offered two credit cards and told he could use the one to pay off the other. Clearly there is some madness out there that needs to be stopped," Mboweni said.

He had already met with chief executives of some of the big commercial banks, but they did not think it to be a problem.

"If this trend does not stop I may be forced to resort to adjust the reserve requirement," Mboweni warned.
from Business Report here

[sitho]

I'm currently working within the furniture industry..and as most of you know that the business practically thrives on credit sales.
I would like to be enlightend about the consequences and their impact of non-compliance with NCA after it has come into effect on the 1 June 2007.

[Dave A]

Hi sitho and welcome.

I think we've still got a way to go to get a full handle on the consequences of the NCA - except that in the worst case scenario - the granting of "reckless credit" - non-compliance could mean that the debt might not be collectable through legal process.

There are other pitfalls. Options to collect interest and collection costs may be harmed if we don't educate/notify the debtor in advance of the transaction. It seems there are still a number of practice notes/guidelines that still have to be published. Hopefully it will aid clarity on these issues.

My hope is that we will be able to develop a step-by-step guide here that will ensure that we as business owners don't fall foul of the NCA. Perhaps if you read through the existing work that has been done and then post some comments/questions from your point of view it will help.

The idea is to develop the solutions as a team, thus making it easier for anyone to find the right answers. Maybe it's time we did another push to understand this legislation better.

[Dave A]

I've started working on the National Credit Act using our Wiki here.

The goal is to structure an understanding of the Act in a useful format. Anyone else feel like joining me in this project?

[Dave A]

Whilst working on our Wiki project for the NCA, I've found that this statement may not always be true:

Company directors who, sometimes unwittingly, accepted liability for debts run up on the company credit card, and small business owners who made themselves personally liable for the credit facilities of the business, would also be protected under the new Act.

A surety is dealt with in the NCA by what is called a Credit Guarantee, which only applies if the credit itself falls within the ambit of the NCA. If the company is a juristic person to which the NCA does not apply, then the surety does not seem to be subject to the NCA either.

[Sieg]

National Credit Act - the first cases

The first cases dealing with aspects of the National Credit Act are filtering through.

For example, in the November 2008 Juta’s Law Reports, there is a case reported, Bridgeway vs. Markam where the Witwatersrand local division of the High Court held that a discounting agreement whereby a Seller sells his rights to receive payment of the purchase price, is NOT a credit agreement as defined in the National Credit Act 34 of 2005 and accordingly the discounter (who advances funds) does not have to comply with Sections 129 and 130 of the National Credit Act before the discounter can take legal steps.

Sieg

[DenP]

Hi
My husband, sadly has applied for liquidation (awaiting appointment of liquidator, not much assets) of his business a registered cc, after 30 years, due to bad economy. SARS and one supplier are who he owes monies to. The supplier has sent individual letters of demand to my husband, the business and myself. I have not been a member for about five years. My husband and I are married ICP, . We signed surety way back in 2008. What are our options? Thank you

[Justloadit]

I am not an attorney or lawyer, so this is not legal advice.
This is one reason why the companies act has stopped the registration of CC's as the members of the CCs are personally responsible for any debt that the CC incurs.
The fact that you signed a surety, no matter how long ago, that is one reason why retraction of sureties is difficult and a MUST when circumstances change retract the surety with signed paperwork on the person holding the surety is allowing you to retract, means that you are still responsible for the debt on which the surety was covered. Being married ICP, makes you just as responsible as your husband for the debt, hence the reason they got you and your husband to sign the surety, so that you are aware of the document.

Liquidating the CC, is going to cost you money, and in my opinion should not be followed, It's not going to resolve your position with respect to the CC debts, and will not relieve you of the debts that the company has in its books. In fact liquidating the CC will place you in a very precarious position because you personally are also going to be sequestrated if you can not cover the CC debts.

I suggest you contact a lawyer who is versed in company law to advise you on your next steps from here on wards.
Be careful which lawyer you talk to, as many are there just to get the last few Rands out of you as they know you will not be able to fight them due to lack of funds.
Making a payment plan and staying away from liquidation if at all possible is my suggestion.
Being sequestrated is a terrible place to be in, from stories of a number of people I know who went through it, as it affects all aspects of your life for the next 5 years.
But if there is absolutely no other choice then there is not much you can do.

[DenP]

phew that does not sound good, the liquidation is in process already

[Andromeda]

I am also not attorney, but rest assured that the members are not automatically liable for the close corporation's debts. Like directors of a company they are only liable in certain circumstances. Some circumstances are seldom thought of:

In terms of Section 22 of the Act the abbreviation “CC” – in capital letters –must appear behind the name of the Close Corporation in any sign on any of the premises of the Close Corporation. It must also be clearly visible in any documentation that the Close Corporation uses or signs.

In terms of Section 23 of the Act the full name and registration number of the Close Corporation must be clearly visible at its place of business as well as on any documentation that the Close Corporation uses or signs. This name and registration number must also be visible in at least one other official language

A member who signs or uses documentation and the details of the Close Corporation is not as set out as required, will be personally liable for any debt of the Close Corporation.

SECTION 24(4) requires that members have actually paid their members contributions.

SECTION 26(5) specifies that on de-registration any debts of the close corporation become the debts of the member.

SECTION 42(3) abandoning the fiduciary duties towards the close corporation by "taking" it's income for oneself.

SECTION 43 If the close corporation trades negligently. This in general means if it trades while not meeting solvency tests.

SECTION 63 refers to abuse of the cc and the law; especially where the members hides behind the corporate veil.

So generally speaking, if there was no reckless or negligent trading and unless there are sureties, then the members are not automatically liable.

To voluntarily liquidate the close corporation, the member must be a creditor. In other words the close corporation must owe the member, if memory serves me, at least R30.00. If not then the member is not a creditor and cannot proceed.

[Justloadit]

We signed surety way back in 2008

So generally speaking, if there was no reckless or negligent trading and unless there are sureties, then the members are not automatically liable.

Unfortunately she stated that she had signed surety, and hence my reply.

[DenP]

Unfortunately she stated that she had signed surety, and hence my reply.

Has anyone got legal advise about how to approach the supplier, there is only one ? So i gues the credit act does not apply to surety

[Andromeda]

Unfortunately she stated that she had signed surety, and hence my reply.

Sorry Justloadit, I didn't even see that. The reality these days is that very often no surety means no credit.

Denp, as far as I know if your turnover or net assets exceed R1m, then the Act does not apply. You would need to consult an attorney though (you would probably need to do so anyway) to make this as pain free as possible.

[Derlyn]

Hi Dave

Did you ever have this question of whether to register or not answered.

Most electrical contractors, like myself, when supplying COC's for properties being sold, issue the COC and invoice the attorney handling the transfer. The custom in the industry is that your invoice will be paid on registration of said property. This can take anytrhing from 2 to 7 months. Very seldom sooner. My question is: Must the electrical contractor be registered as a credit provider, seeing that he is providing credit on a regular basis ?

Derek

[Dave A]

With the threshold being dropped to zero, it seems anyone who provides credit is required to register...