THE CREDIT AGREEMENT

A4_bIf you default on a credit agreement and action is taken against you by the credit provider, you still have time, according to Section 129(3)(b) read with 129(3)(a) and S129(4) of the National Credit Act (“NCA”)[1] as well as the case of Firstrand Bank Limited v Nomsa Nkata[2] to re-instate the credit agreement until the goods have been sold in execution.

Prior to the National Credit Act coming into force, the position regarding the right of a consumer to re-instate a credit agreement was determined by the principle of redemption in common law. According to this principle, a consumer would be able to re-instate the credit agreement by paying the credit provider the full amount of the debt, together with ‘default charges’ and reasonable costs of enforcing the agreement. According to the National Credit Act, ownership and possession of an item or premises can be redeemed by paying only the amount overdue at that date, together with charges and costs.

The issue, however, is at which point it becomes too late to pay the amount overdue in the execution process. This issue was addressed in the recent case of FirstRand Bank Limited v Nomsa Nkata.[3] Section 129(3) and (4) of the NCA states the following:

“(3) Subject to subsection (4), a consumer may –

(a) at any time before the credit provider has cancelled the agreement re-instate a credit agreement that is in default by paying to the credit provider all amounts that are overdue, together with the credit provider’s permitted default charges and reasonable costs of enforcing the agreement up to the time of re-instatement; and –

(b) after complying with paragraph (a), may resume possession of any property that had been repossessed by the credit provider pursuant to an attachment order.

(4) A consumer may not re-instate a credit agreement after –

(a) The sale of any property pursuant to –

(i)         an attachment order; or

(ii)        surrender of property in terms of section 127;

(b) The execution of any other court order enforcing that                                  agreement; or

(c) The termination thereof in accordance with section 123.”

The Supreme Court of Appeal found in the FirstRand Bank Limited case that in terms of both the common law as well as the NCA, “the Rubicon has been, and remains the sale in execution.” This means that at any point up until the time of the sale in execution, the consumer can put a halt to the execution proceedings and reinstate the agreement by paying the amount overdue, together with charges and costs.

The reason that the above provision was placed in the NCA was to make provision for the fact that many consumers borrow money over an extended period in order to finance the acquisition of large purchases such as a home or a motor vehicle. It was also noted in the above judgment that less affluent citizens may make use of extended credit to purchase household items and appliances. Therefore the NCA assists consumers in providing them with the option of paying the overdue amount rather than having to pay the entire amount of the debt.

The Court established in the FirstRand Bank Limited case that Section 129(4) (b) can only be used before the sale has taken place and not thereafter. Once the sale has taken place the credit agreement cannot be re-instated between the consumer and the credit provider. Should you find yourself in the temporary position of not being able to pay the monthly instalments of your credit agreement but are able to pay those instalments at a later stage, and to not want to cancel the credit agreement, then it is imperative that you pay the money which is overdue to the Credit Provider prior to any sale in execution as you will not be able to re-instate the agreement thereafter.

Bibliography

  • National Credit Act, 34 of 2005

Firstrand Bank Limited v Nomsa Nkata, (213/14) [2015] ZASCA 44 (26 March 2015)

[1] 34 of 2005

[2] (213/14) [2015] ZASCA 44(26 March 2015)

[3] (213/14) [2015] ZASCA 44(26 March 2015)

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

DIFFERENCES BETWEEN LIQUIDATION AND SEQUESTRATION PROCESS

A3_bThe application for liquidation and sequestration processes are often confused. Many people think that the processes are the same.

However, there is a big difference between these two processes.

A simple way to describe liquidation is that liquidation is the winding up of a firm by selling off its free assets to convert them into cash to pay the firm’s unsecured creditors. Before a liquidation application can be issued in court, a founding affidavit needs to be drafted. This affidavit will include all the details of the Applicant and / or Respondent. The Applicant is the person who wants to liquidate the company and the Respondent is the company. In the case where the Applicant is the company, there will be no Respondent. The affidavit will also include any details of the company, employees and creditors. A bond of security also needs to be signed for the purpose of the Master of the High Court.

Once the application is issued, the only people who receive this notice is the South African Revenue Services (SARS), the Master of the High Court, employees of the company and any trade unions. As soon as this is done, a Master’s certificate is obtained verifying the application, and a provisional liquidation order is granted.  A return date is then set, and all creditors are notified of the provisional liquidation through registered post and by placing the provisional order in two local newspapers. Should the Applicant’s attorneys receive no notice of intention to defend the matter, a final liquidation order is granted. The order together with the application is sent to the Master of the High Court and a liquidator will be appointed.

Sequestration is the preferred option for the individual who has exhausted all other options of resolution, and is now in a position where even if all their assets are sold, they would be left with such a high shortfall that it would be unreasonable to expect them to recover from this loss. A sequestration involves a little more administration work before a court date can be obtained. Before the Notice of Motion and Founding Affidavit are drafted, a valuer needs to be appointed in order to value the Applicant or Respondent’s estate. This needs to be done in order to ascertain whether the debtor is indeed over-indebted, and whether he / she has enough assets to provide a benefit for all creditors involved.

In the matter of a voluntary sequestration, the Applicant will be the party whose estate is to be sequestrated. The valuer needs to value the property of the Applicant on a forced sale scale. This will be calculated by subtracting 20% of the actual value of the property.

As soon as the valuer has made an estimate for the Applicant / Respondent’s estate, a Statement of Debtor’s Affairs needs to be handed in to the Master of the High Court for inspection by all creditors. This needs to be done no less than 14 or more than 30 days before the court date. A Notice of Surrender needs to be sent through registered post to all creditors to inform them that the Statement of Debtor’s Affairs is available for inspection.

The Notice of Surrender needs to be posted in two local newspapers and the Government Gazette no less than 14, or more than 30 days before the court date. Once all of the above-mentioned requirement has been adhered to, the notice of surrender can be annexed to the Founding Affidavit and can be heard by the court, no Bond of Security is needed at this point. A sequestration can only be heard by the High Court, whereas a liquidation can be heard either by a Magistrate’s Court or by the High Court, depending on the merits of the case.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

WHAT IS MEANT BY REAL SECURITY?

A2_bReal security means that, on the basis of a creditor’s right against the debtor (principal debt), a creditor acquires a limited real right in the property of the debtor as security for the payment of the creditor’s right (principal debt) by the debtor. Real security differs from personal security in that a creditor does not acquire a limited real right in the property of the debtor in the case of personal security, but only acquires a creditor’s right against a third party as security for the payment of the principal debt by the debtor. Such a third party is normally surety of the debtor.

A requirement for real security is the existence of a valid and enforceable principal debt. The real security is accessory to the principal debt, in other words the real security is terminated automatically if the principal debt is paid in full.

If the object of security is moveable property, real security can be in the form of either pledge or notarial bond. In the case of pledge the object of pledge (corporeal or incorporeal moveable property) must be delivered by the pledgor (debtor) to the pledgee (creditor). Physical control of the pledge object is a requirement for the establishment and continuation of a limited real security right to the security object. The pledgee has the obligation to maintain the pledged property within reason and, on termination, to return the property to the pledgor. A notarial bond can be registered in respect of specified, corporeal moveable property of the debtor (mortgagor) in favour of the creditor (mortgagee) in the deeds registry. After registration of this bond, the mortgagee acquires a limited real right to the encumbered property without delivery thereof to the mortgagee.

Immoveable property of the debtor serves as the object of security in that a mortgage is granted by the debtor (mortgagor) to the creditor (mortgagee) and registered in the deeds registry. A mortgage is a liquid document which grants the mortgagee a limited real right in respect of the immoveable property of the mortgagee without the physical control of the property being passed to the mortgagee. More than one mortgage can be registered over the same immoveable property at the same time. Priority is given, in this case, to mortgagees in the order that the mortgages were registered (prior in tempore, prior in iure).

The pledge of the mortgagee (creditor) can, if the principal debt is not paid in full by the mortgagor or pledgor (debtor), have the security object sold in execution and is entitled to the proceeds of the sale in execution for payment of the principal debt. In the case of insolvency of the pledgor or mortgagor, the pledge or mortgagee acquires a preferent claim to the proceeds of the sale of the security object.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

DONATIONS

A1_bWhether you are thinking of helping your son financially to enable him to purchase his first property or donating money towards a worthy cause, there are some things to keep in mind. A donation is defined in the Income Tax Act No 58 of 1962 as “any gratuitous disposal of property including any gratuitous waiver or renunciation of a right.” The donor may therefore not receive anything in return from the donee, as this will constitute an exchange agreement.

There are two types of donation, viz. donatio inter vivos (donation between two persons who are both alive) and donatio mortis causa (a donation where the donee will only receive the donation on the death of the donor).

The requirements for both an inter vivos and a mortis causa donation are:

  1. The donor must make an offer to donate, which offer must be accepted by the donee;
  2. The donor must have the necessary legal capacity to make the donation and the donee must have the necessary legal capacity to accept the donation;
  3. Anything that a person can trade (in commercio), can be donated;
  4. A donation must be legal and feasible; and
  5. A donation must be identified or identifiable.

Donations can also be withdrawn. In the case of an inter vivos donation, the donor can at any time before the donee accepts the donation, withdraw such donation. After acceptance of the donation by the donee, a valid contract has been formed and the donor will only be able to withdraw the donation in the case of gross ingratitude on the part of the donee, e.g. if the donee threatens the donor’s life. A mortis causa donation can be repealed at any time before the donor’s death, as the donation will only be ratified on the death of the donor.

Finally, and probably of the most importance to some people, is the matter of donations tax payable to the Receiver of Revenue. Currently donations tax is calculated at 20% of the fair market value of the property donated.

In terms of article 59 of the Income Tax Act, the donor is liable for payment of donations tax within three months after the donation was made. If the donor fails to pay the tax timeously, the donor and the donee will be jointly and severally liable for the payment thereof. An individual can make a donation of R100 000 per annum, free of donations tax.

There are also a few exemptions in terms of section 56 of the Income Tax Act, which should be noted. They include the following:

  1. A donation in terms of a duly registered prenuptial or postnuptial contract to the spouse of the donor;
  2. A donation between spouses who are still married to each other;
  3. A donation in the form of donatio mortis causa (this donation occurs in terms of the donor’s will and is therefore not subject to donations tax);
  4. A donation that was cancelled within six months after it was made; and
  5. Donations to certain public benefit organisations.

If spouses are married in community of property they should pay attention to section 57A of the Income Tax Act. If any property, which forms part of the joint estate of both spouses, is donated by one of the spouses, such donation shall be deemed to have been made in equal shares by each spouse. However, if property that has been donated by one of the spouses belongs to only that spouse (the donor), the donation shall be deemed to have been made solely by the spouse who made the donation.

There are several factors to keep in mind when making a donation and it is therefore advisable to consult with an expert to discuss the tax and legal implications before a decision is made.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.