Trusts and the National Credit Act
It will probably come as a surprise that many trusts will be regarded as natural persons for the purposes of the National Credit Act, 2005 ("NCA"), greatly limiting their ability to obtain credit.
Since coming into effect on 1 June 2007, the NCA has dramatically altered the ability of many credit-seekers to obtain credit, particularly those credit-seekers that do not meet the definition of a "juristic person" as contained in the NCA.
The entire NCA does not apply to juristic persons with an asset value or annual turnover of more than R1 million.
In respect of juristic persons with a lower asset value or annual turnover, the NCA also does not apply to such entities when they are entering into a mortgage agreement or a large credit transaction with a value exceeding R250 000. In addition, where these "small" juristic entities enter into other credit transactions, only certain provisions of the NCA apply. Provisions relating to marketing, over indebtedness and reckless credit as well as the cost of credit do not apply to any juristic persons.
It is therefore critical to establish whether your business entity falls within the definition of a "juristic person". The NCA defines a juristic person as including:
- a partnership;
- an association;
- any other body of persons, corporate or unincorporated, or
- a trust if:
- there are three or more individual trustees; or
- the trustee is itself a juristic person.
Many trusts have trust deeds that provide for only 1 or 2 trustees to act as trustees and many others have vacancies which are nor filled, resulting in the number of trustees falling below 3. In such circumstances, the trust will be regarded as a natural person for the purposes of the NCA, unless one of the trustees is a juristic person.
For trading, property-holding and investment trusts which require credit at any stage, it is therefore imperative to check the number and nature of the trustees to ensure that the trust meets the definition of a juristic person for the NCA.
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