Should All Natural Persons Standing Surety Be Protected by the National Credit Act 34 of 2005?

• Jurisdiction: South Africa
• Author: Michelle Kelly-Louw
• Published date: 25 May 2019
• Pages: 298-322
• Date: 25 May 2019
• Citation: (2012) 24 SA Merc LJ 298

Should All Natural Persons Standing Surety Be

Protected by the National Credit Act 34 of

2005?*

MICHELLE KELLY-LOUW**

University of South Africa

1 Introduction

The National Credit Act

1

provides full protection to natural persons who

stood surety for credit agreements entered into on or after 1 June 2007

2

by

other natural persons, stokvels, or trusts where there are only one or two

individual trustees and that are governed by the Act, irrespective of the

amounts involved. The Act provides limited protection to natural persons who

have provided surety for small and intermediate

3

credit agreements concluded

with certain juristic persons, as def‌ined in s 1 of the Act,

4

whose asset value or

annual turnover, together with the combined asset value or annual turnover of

*This article is based on a paper delivered at the Societyof LawTeachersof SouthernAfrica’s

2012 Conference held in Port Elizabeth on 10–14 July 2012.

**BIuris LLB LLM LLD (Unisa), Dip Insolvency Law and Practice (UJ). Professor in the

Department of Mercantile Law, School of Law,University of South Africa.

1

Act 34 of 2005. Hereinafter ‘the National Credit Act’or simply ‘the Act’. In this article words in the

singular also mean in the plural and vice versa, and words in the masculine also mean in the feminine

and neuter.

2

Although the National Credit Act had already been assented to by the President on 15 March 2006

(see GN 230 in GG 28619 of 15 March 2006), the different portions of the Act were phased in over a

period of twelve months. The Act came into operation in three phases (see Proc 22 in GG 28824 of 11

May 2006):

•A large part of the Act came into operation on 1 June 2006 (see ss1–25, 35–59, 69, 73, 134–162,

164–173 and Schedules 1–3). This included the provisions that dealt with the scope and application

of the Act; the establishment and functions of the National Credit Regulator; and the registration

requirements and procedures for the role-players (credit providers, debt counsellors and credit

bureaux). The provisions dealing with the establishment of a National Register of Credit

Agreements; the review, verif‌ication, correction or removal of consumer credit information held by

credit bureaux; dispute settlement other than debt enforcement; searches, offences, jurisdiction of

courts, evidence and procedural matters; repeal of laws and the rules for dealing with conf‌licting

legislation; the promulgation of regulations; transitional provisions; and the consequential

amendments to other pieces of legislation also came into operation during the f‌irst implementation

phase.

•On 1 September 2006, the National Consumer Tribunal was established and all the relevant enabling

sections of the Act came into operation (see ss 26–34). Certain provisions dealing with the consumer

credit information held by credit bureaux, the duties of credit bureaux, the conf‌idential treatment of

consumers’ personal and credit information, and consumers’ right to challenge the correctness

of such information also came into operation during the second phase (see ss 67–68, 70 and 72).

•The remaining sections of the Act, and probably the most controversial sections, came into operation

on 1 June 2007 (see ss 60–66, 71, 74–133 and 163). These included the sections dealing with the

basic credit rights of consumers; credit marketing and advertising practices; over-indebtedness and

reckless lending; consumer credit agreements; the permitted interest rates and other costs of credit;

collection and repayment of credit agreements; the debt collecting procedures; and the training of

employees and agents by credit providers.

3

See the discussion of these categorisations in footnotes 50 and 51 below.

4

See the def‌inition of ‘juristic person’ in s 1 read with ss4 and 6. See also the discussion of this in

par 3 below.

298

(2012) 24 SA Merc LJ 298

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all related juristic persons, at the time the agreement is made is below the

threshold value determined by the Minister in terms of s7(1) of the Act

(currently set at R1 million) (considered to be ‘small juristic persons’).

5

However, a natural person who stood surety for a credit agreement that

constitutes a large credit agreement (eg, a mortgage agreement)

6

in terms of

which the consumer (ie, the principal debtor) is one of these small juristic

persons (ie, whose asset value or annual turnover at the time the agreement is

made is below R1 million) will not have any protection in terms of the

National Credit Act.

7

Nor does the Act protect a natural person who provided

surety for a credit agreement concluded by a juristic person, as def‌ined in s 1

of the Act, 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, is equal to or exceeds R1 million (considered to be a

‘large juristic person’), since such an agreement (principal obligation) is

considered to be totally exempt from the provisions of the Act.

8

The individual who provides surety for a juristic person, as def‌ined in s 1 of

the Act, should, in principle, also be able to utilise fully the protection that is

afforded only to the natural person who provides surety for another natural

person, stokvel or trust where there are only one or two individual trustees. A

juristic person (irrespective of whether it is small or large) who provided

surety for a credit agreement, falling within the scope of the Act, that was

concluded with a small juristic person, will qualify for some protection in

terms of the Act: ie, it will be able to raise the same defences as the small

juristic person (principal debtor) could. However, if any juristic person (ie,

irrespective of whether it is small or large) stands surety for a natural person

consumer, stokvel or trustee where there are only one or two individual

trustees, then that juristic person will, in a way, receive the full protection of

the Act, because it can raise the same defences as the principal debtor can:

9

for example, that the principal debt constitutes reckless credit. So, to a certain

extent, a juristic person (clearly needing less protection) that stands surety for

a natural person is given preferential treatment above a natural person (much

more vulnerable and needing more protection) that stands surety for a juristic

person.

This current differentiation by the Act might be unconstitutional.At f‌irst

glance, it would seem that all natural persons who have provided surety for

credit agreements (irrespective of whether it constitutes a large agreement)

which were concluded with either a small or a large juristic person, should, in

theory, have the same protection provided for in the Act, and that theAct’s

protection should be extended to all such natural persons (sureties). All

natural persons who have stood surety for credit agreements concluded by

5

See ss 4(1)(a)(i), 4(2)(c) and 6 read with s 7(1)(a) and GenN 713 in GG 28893 of 1 June 2006.

6

See the discussion of a large credit agreement in footnote 19 below.

7

See s 4(1)(b) read with s 7(1)(a) and GenN 713 in GG 28893 of 1 June 2006.

8

See s 4(1)(a)(i) read with s 7(1)(a) and GenN 713 in GG 28893 of 1 June 2006.

9

See s 4(2)(c) read with s 6 and s 78(1).

SURETIES’ PROTECTION UNDER THE NATIONAL CREDIT ACT299

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