A case in the Western Cape High Court recently dealt with a matter where an individual lent R7-million rand to one of his friends. As one would expect from a friendship that ends up in court, the judge referred to the friend as the lender’s “then friend” in his judgement.
“The friend was not able to pay back the loans and so the lender applied for sequestration of his friend’s estate, and so what has become an all familiar story began to play out,” says Danie Strachan, partner trade marks at law firm Adams & Adams.
During the proceedings, the judge questioned the validity of the loan agreement in view of the provisions of National Credit Act, 2005 (“NCA”). The NCA requires that a lender (creditor) must register as a credit provider with the National Credit Regulator - if the lender is a credit provider under at least 100 credit agreements (other than incidental credit agreements) or the total amount outstanding under all credit agreements - to which the lender is a party (other an incidental credit agreements) - exceeds R500 000.
Strachan elaborates: “What this means is that if a lender is party to more than 100 credit agreements or if one adds up the outstanding amounts under all credit agreements to which the lender is a party and the total is more than R500 000, the lender must be registered as a credit provider.
“Because the lender, in this case, was not registered as a credit provider, the loan agreement was void in terms of the NCA. The NCA further provides that the credit provider must refund any money paid under the credit agreement to the credit provider, together with interest.
“Furthermore, the NCA stated that all purported rights of the credit provider (the lender) are either cancelled or forfeit to the state. However, the court declared these provisions unconstitutional on the basis that arbitrarily deprived a person of his property in breach of the Constitution.
“The good news is that the court did mention that the NCA did not apply to credit agreements between persons in a familial relationship who are in a situation of dependence or co-dependence.
It did however, point out that the NCA did not make any reference to friends. As such, the court applied the NCA to this credit agreement between the “friends”.
“This case reminds one to make sure you check whether you need to be registered as a credit provider if you intend to anyone money. While, this is not legal advice, one should also be careful when lending money to friends,” concludes Strachan.
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