Could sale of shares make me a credit provider?

2017-01-25 06:03
Lelanie Botha-Peyper

Lelanie Botha-Peyper

Multimedia   ·   User Galleries   ·   News in Pictures Send us your pictures  ·  Send us your stories

Question:

My company holds shares in a larger construction company worth about R5 million. I am looking at selling my shares to an interested party that the construction company is also happy with.

However, the party can only pay a deposit of R1,5 million and thereafter the remainder in monthly instalments over a period of 18 months with an interest of prime plus 1%.

My bookkeeper says I must be wary of falling under the National Credit Act (NCA).

Could this be a possibility?

Answer:

In terms of the NCA, an agreement can be considered a credit agreement if it is a credit facility, a credit transaction, a credit guarantee, or any combination of the above.

In the case where a party sells his shares to a purchaser and the agreement determines that payments of an amount owed by one person to another are deferred and that interest, fees or charges are payable, the possibility exists that such agreement could be seen as a credit transaction as defined by the NCA.

In the matter of Vesagie NO and Others vs Erwee NO and Another, the Supreme Court of Appeal found that a sale of shares, where the payment of an amount owed by one person to another is deferred and interest is charged by the seller, does constitute a credit transaction.

The court accordingly declared the contract null and void because the seller was not registered as a credit provider in terms of the NCA.

The NCA, subject to certain exclusions, requires that a person or entity must apply to be registered as a credit provider if the total principal debt owed to that credit provider under all outstanding credit agreements exceeds the threshold determined by the Minister of Trade and Industry.

On 11 November 2016, a new threshold of R0 came into effect, resulting in all credit providers (even if you only have one credit agreement) to register as a credit provider with the National Credit Regulator.

Failure to register as a credit provider could result in the credit agreement being declared void and unlawful.

In short, should you contemplate structuring a sale of shares by deferring payment of an amount due, with interest charges, it must be understood that the possibility exists that you may need to register as a credit provider or risk the agreement potentially being determined null and void if challenged.

So be prudent and obtain the necessary legal advice before you conclude the sale of shares transaction.

  • Lelanie Botha-Peyper, associate, Phatshoane Henney Attorneys

Join the conversation!

24.com encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

We reserve editorial discretion to decide what will be published.
Read our comments policy for guidelines on contributions.
NEXT ON NEWS24X

Inside News24

 
Partner Content
How data is changing investments

Technological disruption is rife in many spheres of business and given the quantity of data available, it’s no surprise that the way in which asset managers work is also changing fast.

Behind the sparkle

Alluring, beautiful and timeless - diamonds are some of the most sought after gems in the world and are a true testament of everlasting brilliance. Let us take you behind the sparkle to show you the history behind this coveted jewel.

/News
 

Play with your pet when you're not at home

Many pets are alone at home during the week while their owners are at work. So what do these animals get up to while they’re home alone?

 
 

Paws

How to get rid of fleas
12 Cool cat facts
Chocolate can be fatal for dogs
Spider-man star's adorable relationship with his dog
Traffic Alerts
Traffic
There are new stories on the homepage. Click here to see them.
 
English
Afrikaans
isiZulu

Hello 

Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.


Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire 24.com network.

Settings

Location Settings

News24 allows you to edit the display of certain components based on a location. If you wish to personalise the page based on your preferences, please select a location for each component and click "Submit" in order for the changes to take affect.




Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.