Where does National Credit Act apply?

2019-07-03 06:00
Madeleen Ackermann

Madeleen Ackermann

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Question:

My company rents out large construction equipment to developers. One developer has fallen behind in its rental payments.

Using the shareholder sureties we hold, a settlement agreement for the outstanding rentals and interest was negotiated with the developer.

However, they have now again fallen behind. We have warned them that we will institute action against them for breach of the settlement agreement, but they now demand that we follow the procedures of the National Credit Act.

Surely this can’t be right?

Answer:

The National Credit Act (“NCA”) was introduced to create a transparent, fair, responsible and accessible credit market in South Africa and help protect consumers by regulating the credit industry.

Accordingly, the onus is on credit providers to ensure that the requirements of the NCA are met or face civil or criminal liability. This makes it important to be aware of whether you are a credit provider who must comply with the provisions of the NCA and whether procedures and protection afforded by the NCA may be applicable.

The NCA generally (with exceptions) applies to every credit agreement between parties dealing at arm’s length within South Africa. Section 8 of the NCA defines a credit agreement as a credit facility, credit transaction, a credit guarantee or a combination of the three.

If one assumes that your initial rental transaction and sureties fall outside the scope of the NCA because of the size of the transaction and nature of the parties involved, it then becomes a question of whether the settlement agreement falls within the ambit of the NCA requiring you to have to comply with the provisions of the NCA before you can enforce the settlement agreement through civil action.

In the recent Supreme Court of Appeal case of Ratlou v MAN Financial Services the court held that if the underlying agreements, such as rental and accompanying sureties, were excluded from the ambit of the NCA, a settlement agreement concluded to enforce outstanding amounts and interest arising from the underlying agreements would also fall outside the ambit of the NCA, even though on a literal interpretation the settlement agreement may appear to meet the definition of credit transaction.

The court held that it could never have been the intention of the legislature that a settlement agreement immediately fall within the ambit of the NCA.

Accordingly, in your case, if it is assumed that the underlying agreements do not fall under the NCA, then it is highly likely, based on the finding of the Appeal court in this case, that the settlement agreement would also not fall under the NCA and would not require you to follow the procedures of the NCA to collect your outstanding debt under the settlement agreement.

Consult your attorney to help you review the agreements and establish the correct approach to collecting your outstanding debt under the settlement agreement.

– Madeleen Ackermann, candidate attorney, Phatshoane Henney Attorneys.

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