The appeal court has found that the requirement to register as a credit provider is applicable to all credit agreements once the prescribed threshold is reached (currently zero), irrespective of whether the credit provider is involved in the credit industry and irrespective of whether the credit agreement is a once-off transaction. The appeal court reluctantly adopted this approach which is clear from the remarks made in the judgment – that this is an imperfect solution but it is for the legislature to remedy.

The decision by the appeal court will have huge financial implications for those persons who make a once-off loan to an individual. Once-off lenders will now need to consider alternative funding arrangements such as waiving any interest, fees or charges on their loans (other than mortgage agreements and secured loans) to avoid the onerous credit provider registration requirements and costs, the risk of not being repaid and becoming involved in protracted litigation to recover any money owing to them. The sensible interpretation of section 40 in the context of the purpose of the NCA and in the context of phrases like ‘the total principal debt owed to that credit provider under all outstanding agreements’ (the current wording of the NCA) should have favoured the once-off lender.

The respondent, Karsten was like a son to the Du Bruyns. In 2012 there was a falling out between Du Bruyn and Karsten over operational issues in their business. Du Bruyn made an offer to purchase Karsten’s interest in all three entities for the price of R2 million, to be paid in instalments plus interest. Following the offer, separate sale agreements in respect of the three entities were drawn up and signed on 26 April 2013. Karsten was not registered as a registered credit provider under section 40 of the NCA at the date of the conclusion of the sale agreements (26 April 2013). Karsten submitted an application to be registered as a credit provider on 22 October 2012 but was only registered on 27 November 2013. During May 2013, Du Bruyn defaulted on the instalment payments. Karsten sued for the balance of the purchase price and interest of R1 133 169.39.

The appeal court held that Karsten’s subsequent registration on 27 November 2013 was insufficient, meaning there was a non-compliance with section 40(3) and 40(4) of the NCA which rendered the agreements, as well as the mortgage bond registration and the suretyship undertakings, unlawful and void.

The application was dismissed with costs and the sale agreements were declared unlawful due to non-compliance with section 40(1) of the NCA before the amendment thereof by the National Credit Amendment Act. It is not clear from the judgment whether the SCA took section 89(4) of the NCA into account which states that an agreement is not unlawful if at the time the credit agreement was made, or within 30 days after that time, the credit provider had applied for registration in terms of section 40, and was awaiting a determination of that application. Mr Karsten launched his application to be registered as a credit provider prior to signing the sale agreements which falls squarely within section 89(4).

The case is Du Bruyn NO & others v Karsten.