IN THIS ISSUE - FEBRUARY 2013  

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 levies.
  • 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.  

 

The facts

  • 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 NCA  
  • 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 law

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)

 

Property PitfallsSARS 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 consideration.  

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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