Legal entities and sureties under the NCA

[duncan drennan]

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?

[Eugene]

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.

[Dave A]

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.

[Eugene]

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)

[joscal]

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?

[Dave A]

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?

[duncan drennan]

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.

[joscal]

Hi Duncan

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

Thanks

[Dave A]

My question is when signing the papers I was never made aware that I was standing surety. What can I do?

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

[joscal]

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.

[Dave A]

They'll be members of the bank staff.

The question will be asked so let's ask it now - are you disputing you signed the document and it's not your signature?

[BusFact]

joscal, I fear that you are trying to find a loophole in a document and a process that has been fine tuned by banking and legal experts over many years. I don't fancy your chances unless your situation is an exctremely unusual one.

If you did sign the document, then they've got you.

Although maybe I'm just a pessimist.

[AndyD]

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 understand you feel like a victim but I'm finding it hard to believe you signed a surety agreement when you took a business loan and you have recollection what you were signing. Didn't the bank furnish you with copies of all the paperwork???
At the risk of sounding harsh you (or the company you were involved with) borrowed money knowing full well the repayment terms. You (or the company) defaulted on the payments and the bank is now trying to recover their money through the legal avenues that are available to them. You are trying to wiggle out of it on a technicality. Maybe your efforts would be more productive if you engage the bank in repayment negotiations that are acceptable to both them and yourself rather than looking for what are probably non-existent loopholes in the agreements.

[Dave A]

When someone is about to hit you with a sledgehammer, don't you try to duck out of the way?
I've been there - I know how it feels. It hurts like hell.

Maybe sledgehammer is the wrong analogy. It's more like this massive vice...

Anyway, it's bad news and you have to work through the five stages to acceptance - Denial, Anger, Bargaining, Depression, Acceptance.

Joscal, the only consolation I can offer at this stage is the end experience can be strangely liberating, and many people go on to achieve much greater things as a result.