Your Sectional Title Levies – Are They Valid?
Lending To a Friend: The R7 Million, The Law, and The Risks
Business Rescue – SARS Told To Stand In Line (For Now)
Unfair Dismissal and CCMA Hearings – Can Your Lawyer Represent You?
POPI – Watch This Space!
The February Website: Submit Your Tips For Budget 2013
YOUR SECTIONAL TITLE LEVIES – ARE THEY VALID?
A recent High Court case, in which a body corporate failed in its attempt to sequestrate
the deceased estate of a section owner, shows once again the necessity of complying
with all the requirements of sectional title legislation – what may appear at first
sight to be a “technicality” could easily turn out to be a critical requirement.
Bodies corporate and managing agents beware!
- Failure to comply can have serious consequences – the Court in this case held that
the body corporate had failed to prove that it had any valid claim for outstanding
- Critically, sectional title levies only become due and payable on the passing of
a resolution by the trustees determining them. Thus it can never be enough for the
body corporate to approve levies at a general meeting (normally members approve a
levy budget at the AGM). Nor, as pertinently illustrated in this case, does it make
any difference if the owner subsequently admits liability for the levies.
The bottom line - without a formal trustees’ resolution, the levies have been invalidly
raised and cannot be recovered.
LENDING TO A FRIEND: THE R7 MILLION, THE LAW, AND THE RISKS
"Be careful about lending a friend money. It may damage her memory" (Anonymous)
Of the many potential pitfalls inherent in making loans to friends, one of the more
dangerous (but lesser-known ones) is that presented by the requirements of the National
Credit Act (NCA). It’s a serious risk - failure to comply with the NCA’s many requirements
exposes you to substantial losses, including invalidity of your loan agreement and
the possibility of losing all your rights of recovery.
A recent Constitutional Court judgment illustrates the point.
- A Namibian farmer lent his friend R7m for property development in Cape Town per three
written loan agreements
- The lender wasn’t registered as a credit provider at the time as required by the
- He wasn’t in the business of providing credit, was unaware of the requirement to
register and had no intention of violating the NCA
- When the dates for the repayment of the loans had passed, the borrower was unable
to pay, he accordingly advised the lender who then applied to the High Court for
sequestration of his friend’s estate.
The NCA provides that -
- You are required to register as a “credit provider” in any of a variety of situations
set out in the NCA. In this particular case, registration of the lender was required
because the amount of the loan exceeded the set threshold (currently R500,000)
- It is irrelevant that the borrower is a friend – what counts is whether the loan
falls within the definition of “credit agreement” and whether the parties are “dealing
at arm’s length”
- If you fail to register as a credit provider, the NCA as it stands compels courts
(they have no discretion) to both -
A. Declare your agreement void, and
B. Order that your right to reclaim the loan be cancelled or forfeited to the state.
It is this cancellation/forfeiture provision that was under scrutiny in this case.
And, as ruled originally by the High Court and now confirmed by the Constitutional
Court, it is invalid - unconstitutional for breach of our Constitution’s prohibition
against “arbitrary deprivation of property”.
The practical effect of that ruling, and a warning
In practice, until the invalid cancellation/forfeiture provision is amended, the
common law will apply. What that means is, as the Court summarised it, that unlawful
agreements are still void, but “the credit provider would be able to claim successfully
from the consumer on the basis of unjustified enrichment, if the requirements of
the action are met. This could include the consideration of the circumstances of
each case and especially the degree of blameworthiness of the unregistered credit
provider, in order to reach a just outcome”.
The critical issue is that - if you are obliged to register as a “credit provider”
in terms of the NCA – you should do so. If you don’t, your agreement is void. And,
although now you can at least ask a court to exercise its discretion to allow you
to recover your loan, the court may well decline to do so – in which event you will
lose everything. There are grey areas here so take advice in doubt.
A further practical issue is that even if you succeed in court, you could still lose
everything anyway. As happened in this case, if your friend is bankrupt you are
left with a (probably worthless) concurrent claim against his/her insolvent estate.
Perhaps avoid all that by heeding Shakespeare’s warning: “Neither a borrower nor
a lender be; for loan oft loses both itself and friend”.
BUSINESS RESCUE – SARS TOLD TO STAND IN LINE (FOR NOW)
SARS has always enjoyed a privileged position in liquidation matters because its
claims are “preferent”, in other words whatever money may be left in the liquidation
pot after secured creditors and staff claims have been settled goes to SARS first.
As a result concurrent creditors, who only get a look in if there’s anything left
after SARS has had its fill, will normally have little hope of receiving any dividend
at all. As an old rule of thumb puts it: “You have about a 5% chance of getting
about 5 cents in the Rand”.
Your recovery odds just got better, if …..
If – and only if - a distressed company is in business rescue rather than liquidation,
your odds of getting at least something back just got better. The High Court has
recently held that in rescue proceedings, SARS loses its preference and joins the
queue with the other unsecured creditors - not only does it lose its liquidation
preference, but it has no special voting rights when a business rescue plan is under
What that means in practice is this - even if a rescue attempt fails in its primary
objective of restoring the company to viability and paying all creditors in full,
there is at least now more chance of a reasonable payment accruing to creditors generally.
Of course SARS’ loss of preference in a business rescue situation stems from the
current wording of the Companies Act, which could well now be amended to put SARS
back at the head of the queue. But perhaps that won’t happen, and anyway for now
at least it seems that concurrent creditors have one more reason to prefer a genuine
(and viable) rescue attempt over final liquidation.
UNFAIR DISMISSAL AND CCMA HEARINGS – CAN YOUR LAWYER REPRESENT YOU?
Although CCMA rules generally allow you to have legal representation in arbitrations,
there is one important – and common - exception.
Where the dispute is about the fairness of a dismissal related to either misconduct
or incapacity, the default position is that you are not entitled to be represented
by a legal practitioner. The commissioner in each matter has a discretion to allow
such representation, but only if either -
- The commissioner and all parties consent, or
- The commissioner concludes that it is “unreasonable” to expect you to deal with
the dispute without legal representation.
In a recent High Court decision this restriction - as currently worded – has been
found to be arbitrary and unconstitutional.
Critically, though, the Court suspended the declaration of constitutional invalidity
for 3 years to enable the relevant rule to be replaced, and noted that the rules
need not provide for an unrestricted right to legal representation - so even the
new rule will most likely contain restrictions (and a discretion for commissioners).
The current position
So do you now have an automatic right to legal representation at your arbitration?
The answer is still “no, you don’t”.
The Court’s suspension of its declaration of invalidity means that individual commissioners
are, for now at least, still free in law to apply the existing restrictions. Whilst
some commissioners may in practice be more ready now than in the past to allow you
legal representation in arbitrations, and whilst you should certainly ask for it,
you are by no means guaranteed to get it.
POPI – WATCH THIS SPACE!
“POPI” – the Protection of Personal Information Bill – has been receiving a lot of
media attention, because almost all businesses in South Africa are to some extent
or another “processors” of personal information, and will – as and when POPI comes
into effect - have to comply with stringent new requirements in regard to why and
how they collect, use and store people’s personal data.
On the other side of the coin, POPI will provide us all with important new protections
against misuse of our private information.
- But don’t panic, there’s no need to familiarise yourself with it all quite yet –
- The Bill dates from 2009 and is still (at date of writing) not in effect,
- It might be amended before being signed into law,
- Even when POPI is finally enacted, affected businesses will have a full year to comply
with the new law.
So watch this space – as soon as a final version of POPI comes into effect, we’ll
tell you all about it.
Footnote: Don’t confuse POPI with the similarly-named but totally unrelated Protection
of State Information Bill (previously just “Protection of Information Bill”) – also
referred to as the “Secrecy Bill”, and relating only to “State” information.
THE FEBRUARY WEBSITE: SUBMIT YOUR TIPS FOR BUDGET 2013
Finance Minister Pravin Gordhan presents the budget speech to Parliament on 27 February
2013. Tell him what you would like to see in our 2013 Budget – he wants your “thoughts,
ideas and tips”.
Online submission couldn’t be easier – fill out the “Budget Tips” form on the National
Treasury website http://tinyurl.com/budget2013tips.
Have a great February – and don’t forget ♥ Valentine’s Day ♥ on the 14th!
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