The National Credit Act 34 of 2005 (" NCA ") applies to every credit agreement except where:
- In terms of section 4(1)(a)(i) of the NCA, the Consumer is 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 (currently R1million); or
-In terms of section 4(1)(b) of the NCA, the credit agreement is a large agreement (which large agreement is currently above R250.000 and the consumer is a juristic person whose turnover asset value or annual turnover is below R1million.
With reference to the above and to be clear, section 4(2)(a) of the NCA states that for greater certainty, the asset value or annual turnover of a juristic person at the time a credit agreement is made, is the value STATED as such by the juristic person at the time it applies for or enters into that arrangement.
Of importance to note, is that the asset value or annual turnover is taken into account at the time the agreement is made. Accordingly, if the asset value or annual turnover of the consumer (the borrower in this instance) will only be R1million at a future date and not at the time of entering into the agreement, then it is clear that the exception described in section 4(1)(a)(i) of the NCA will not apply and the credit agreement will be subject to the NCA, unless the agreement is a large agreement (currently R250,000.00 or above) which exception is referred to in section 4(1)(b) of the NCA).
In the event that the asset value or annual turnover of the consumer (borrower) is R1million or above at the time of entering into the agreement, then the exception described in section 4(1)(a)(i) will apply, and any amount can be advanced to the consumer as the exception in the said section will apply. However, if the asset value or annual turnover of the consumer (borrower) is less than R1million at the time of entering into the agreement, and an amount less than R250,000.00 is advanced, then the NCA will indeed apply to the credit agreement.
It is however possible, for the avoidance of any doubt on the part of the provider of a loan, that when entering into the agreement, that the consumer (borrower) declares in the agreement or an annexure to the agreement its turnover/ asset value for the purposes of the NCA.
Whenever you are contemplating advancing a loan, you need to be very cautious of whether the NCA will apply. Always seek legal advice in such instances, as failure to do so can result in the agreement being declared void , or could expose you to some heavy fines for non-compliance with the NCA.
The above article is for information purposes only and is based on the law at the time of writing, and should not be regarded as legal advice. Please note it may contain errors and/or omissions and under no circumstance should you act on any information herein without seeking legal advice. Spence Attorneys accepts no liability whatsoever and howsoever arising with the information contained herein.
