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

 
ADVERTORIAL
Competition regulation for a growing and inclusive economy

ADVERTORIAL: The Competition Commission of South Africa is conducting advocacy work in the South African automotive aftermarket industry and has gazetted a Draft Code of Conduct for public comment.

/News
 

How to open a beer bottle without an opener

Do the right thing and never be thirsty again…

 
 

You won't want to miss...

WATCH: Man films himself going down water slide upside down as things go very wrong…
WATCH: Conor McGregor: Notorious the trailer
Best date night restaurants in South Africa
WATCH: Ryan Reynolds offers fans a free tattoo in new Deadpool 2 teaser
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.