Page 42 - Q&A 2019/2020

The underlying agreements may determine
whether the National Credit Act applies to your
transaction
Madeleen Ackermann
May 2019

“My company rents out large construction equipment to developers. One
developer has fallen behind in its rental payments. Using the shareholder
sureties we hold we have negotiated a settlement agreement for the Commercial
outstanding rentals and interest with the developer, but 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?”

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.

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