Law Update


The Proposed Increase in the Official Rate of Interest

The 2018 National Budget revealed a proposed increase in the “official rate of interest” as set out in the Income Tax Act. Increasing the official interest rate increases the individual tax burden, including discouraging low interest loans from employers and creating significant extra tax on loans to trusts.

The official rate of interest is currently 7.50% (repurchase rate plus 100 basis points). The proposed increase would bring the official rate of interest up to 10%, reflecting a tax increase of 33.3%.

A higher “official rate of interest” would also result in:

  • Higher employees’ tax payable by employees receiving low or no-interest loans from their employers;
  • Higher dividends tax payable in relation to low or no-interest loans from a company to its individual shareholders (creating a higher deemed dividend); and
  • Higher donations tax payable in relation to low or no-interest loans from individuals (deemed donation).

The 2018 / 2019 Budget Speech stated that:

“Given that interest rates lower than prime are now uncommon, it is proposed that the official rate be increased to a level closer to the prime rate of interest. This would allow the benefit of lower rates to be measured with reference to a rate that approximates the rate offered by commercial banks to low-risk clients.”

Whilst this may be true for individual borrowing, it isn’t for loans by individuals i.e.: loans to trusts where the interest rate is lower than the official rate. In this case, one has to consider the investment return the individual could otherwise earn, presumably substantially below prime.

The cost of maintaining foreign and local trusts has been rising due to increased focus by tax authorities, compliance complexity and increased reporting obligations. The proposed increase of the official rate further increases this burden. Currently, if the loan to a trust is made in Rands, the effective donations tax is 1.5% of the loan (7.5% of 20% donations tax rate). If the loan is in another currency, the official rate of interest might be as low as 1.5%. Should the official rate of interest be increased as proposed, the effective donations tax will be 2.05% of the loan.

The Companies Amendment Bill 2018: Proposed Amendments

The Companies Amendment Bill was published on 21 September 2018 for comment. The Bill proposes amendments to the Companies Act No. 71 of 2008.

The Bill proposes a solution to the question of when amendments to a company’s Memorandum of Incorporation (MOI) take effect. The Bill proposes a default position if the Companies and Intellectual Property Commission (CIPC) does not respond timeously. It proposes that amendments will take effect 10 business days after receipt of the notice of amendment if CIPC has not endorsed the notice of amendment or has failed to reject the amendment with reasons timeously. If CIPC fails to timeously respond, it is then prohibited from ever doing so. The Bill is silent on what the effective date would be if a notice of amendment is rejected with reasons.

The Bill proposes enhanced transparency through remuneration reports. In addition to directors, remuneration and benefits received by “Prescribed Officers” (executives in a position to influence company management) must also be disclosed. In seeking to align the Companies Act with King IV, directors of public companies have to prepare a directors’ remuneration report for presentation to shareholders at an AGM.

A court, upon application by an interested person or the company, is granted the power to order that shares created, allotted or issued invalidly or in an unauthorised manner be validly authorized if it is “just and equitable” to do so. The Bill is, however, silent about whether existing shareholders have a say on whether to admit a shareholder. The Bill does not address the period between a court application and a resultant court order (i.e. does the admitted shareholder have the right to vote on shareholder resolutions?).

The Bill proposes that, where companies grant financial assistance or loans to their own subsidiaries, they are no longer required to secure the authorisation of a special resolution of shareholders. This will benefit companies who engage in cash-sweeping and/or have inter-group loan agreements. The proposed wording of this section does, however, raise some technical questions, which will hopefully be clarified.

The Bill requires that a share buyback must be approved by a special resolution of shareholders if shares are being bought back from a director, a prescribed officer or a person related to a director or a prescribed officer. A special resolution of shareholders will also be required if the buyback entails an acquisition, except for a pro rata offer made to all shareholders or transactions effected in the ordinary course on a stock exchange.

The Bill proposes that any person who has had a close relationship to a company in the last two years cannot act as auditor to that company. This is a change from the five financial year period currently stipulated in the Act.

Comments may be submitted to DRamabulana@thedti.gov.za at the Department of Trade and Industry by 20 November 2018.

For more information, please contact Andreas Tsangarakis: AndreasT@stbb.co.za.

 

Law Update 7 – 2014

“My spouse cheated and now his/her lover is going to pay!” Think again…

In the recent Supreme Court of Appeal case of RH v DE (594/2013) [2014] ZASCA 133 the existence of the delictual claim for damages based on adultery between two spouses, came under the spotlight.

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Summary

Amendment of prescribed interest rate

If parties to a transaction have not agreed on a rate of interest, expressly or implied, and the rate is not governed by any other law, the rate of interest is determined as prescribed in terms of the Prescribed Rate of Interest Act No. 55 of 1975. Recently an amendment was made to the rate applicable in the above instance due to the prescribed rate not being market related. What is the position now?

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Summary

Law Update : Issue 6

EVICTING A NON-PAYING TENANT

A large majority of residential lease agreements contain a clause affording a landlord the right to summarily cancel the lease agreement, without further notice to the tenant, should the tenant fail to pay rental when it is due. This is, however, not allowed where the CPA and PIE Act are applicable, and in the below paragraphs we briefly explain what the correct procedure is.

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Summary

UNDERSTANDING TRUSTS AND TRUSTEES

In practice, one receives many questions from trustees regarding the practicalities of managing trusts. What must be done if a trustee dies or resigns? What is required to record decision-making, if anything? Sound trust administration demands diligence and concern with legalities. Below we address a few of the most frequent questions we encounter and the answers thereto.

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Summary

Law Update : Issue 5

HOME BUILDING, YOUR BUILDER AND THE NHBRC

NHBRC is the acronym for the National Home Builders Registration Council created in terms of the Housing Consumers Protection Measures Act (‘The Act’). The Act obliges home builders to register with the Council as part of a regulatory system aimed at protecting consumers from poor building work. Homes to be erected must also be enrolled with the Council. How can you ensure you are protected and that your builder complies?

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Summary

ONLY THE LEASE (‘HUUR’) ‘GAAT VOOR KOOP’, NOTHING MORE

The maxim ‘huur gaat voor koop’ is generally familiar to all property law practitioners, and probably equally well-known amongst landlords and tenants alike. The exact content of the protection afforded by this rule of our law can, however, still leave a tenant (or other party relying on the maxim) on his back foot because the exact content of this rule is not always correctly understood. Translated loosely, it means that a lease trumps a later sale.

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Summary

Law Update : Issue 4

INSOLVENCY AFTER SELLING PROPERTY

The persistently challenging economic climate has led to a number of insolvencies, both that of high profile and man-in-the-street property owners, developers and occupiers. In property sale transactions, this is especially challenging where the seller is declared insolvent after the agreement was entered into but before transfer, the more so where the purchaser has paid part of the purchase price. This is because at common law, where a seller is declared insolvent after the sale of a property, but before transfer thereof, the property vests in the liquidator of the insolvent estate and the purchaser becomes a concurrent creditor of the insolvent estate.

The recent judgment in Relebipi Properties CC v De Wet N.O. and Others (36209/2012) [2014] ZAGPPHC 87 (17 January 2014) explains how the rules of insolvency law works in such a scenario.

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Summary

NATIONAL CREDIT ACT – RECENT AMENDMENTS ARE ABOUT MUCH MORE THAN JUST A CREDIT INFORMATION AMNESTY

Apart from the much commented regulations setting out the details of the credit information amnesty passed at the end of March this year, other amendments to the National Credit Act 34 of 2005 (‘the current Act’) were assented to on the 16th of May 2014. These are equally important to the credit arena and we highlight the additional changes here.

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Summary

Law Update : Issue 3

CONSUMERS’ CREDIT AMNESTY: NOT AN AMNESTY ON THE DEBT YOU OWE

The latest amendments to the National Credit Act have caused great confusion, with some consumers believing that the introduction of what has been termed a “credit amnesty” means they do not have to repay existing debts. Credit providers, on the other hand, are becoming increasingly concerned that they will have less information to assess their risks in providing credit.

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Summary

RESPONSIBILITY OF HOME SECURITY SERVICES TO VET STRANGERS

This month the Constitutional Court overturned a Supreme Court of Appeal judgment that related to whether a (high end) security company can be held liable for damages suffered by the home owner after robbers, dressed as policemen, gained access to his house and stole many valuables. In South Africa where many businesses and private individuals employ forms of security in an endeavor to safeguard against robbery and assault, the outcome is valuable, very relevant and shows an appreciation on the side of the highest Court of the reasonable expectations that clients of such companies may hold.

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Summary

Law Update : Issue 2

SURETYSHIPS: AN UNAVOIDABLE NECESSITY

People often do not read documents to which they append their signatures! If, for example, you apply to the bank for a credit card, or for financing of a vehicle your business is acquiring, you assume a basic understanding of the gist of the documents being handed to you for signature, and sign it on the assumption that it would contain ‘standard’ provisions. Whether or not certain provisions in some types of agreements are ‘standard’ and expected, it is undoubtedly risky to sign any legal document without ascertaining the implications thereof. More so when you bind yourself as surety for someone else’s debts. Find out why.

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Summary

FINALLY – CLARIFICATION FOR LENDERS ON REQUIRED STEPS TO ACT AGAINST DEFAULTERS

Recent case law has all but clarified what steps lenders must follow in order to validly commence legal proceedings against defaulting borrowers. It is so that the National Credit Act 34 of 2005 (‘the NCA’) requires a lender to send a ‘section 129 Notice’ to a consumer before enforcement steps may be initiated, but must this letter actually reach the debtor? In other words, does the Act require the lender to ensure that the debtor received the notice personally? Or is it adequate compliance with the NCA’s consumer protection aims, if the notice was sent to the debtor at the address indicated in the loan agreement per registered post? What if the debtor never collects the notice from the Post Office?

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Summary

Law Update : Issue 1

ON BREACH OF DEBT RESTRUCTURING ORDER, LENDERS’ RIGHTS TRUMP

With the coming into operation of the National Credit Act, many lenders felt that (too) much leniency is afforded to borrowers when they default on their repayments. The good and necessary aims of the Act aside, there are instances where borrowers appear to abuse the relief options afforded by the Act. There is, however, always a point of no return, where the money must be repaid or the asset is lost.

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Summary

DEFAULTING DEBTOR CAN TAKE THE STING OUT OF AN EXISTING DEFAULT JUDGMENT BY REINSTATING A CREDIT AGREEMENT

The NCA has a mechanism whereby a defaulting debtor can, in certain circumstances and by operation of law, reinstate a credit agreement by paying the full outstanding amount and whatever related enforcement costs which may exist at the time. The effect hereof is to render an existing default judgment useless in the hands of the judgment creditor, obliging him to obtain a new judgment should the creditor again default.

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Summary

Law Update : Issue 9

PREVENTION OF CRUELTY TO ANIMALS: LATEST DEVELOPMENTS

The fact that the National Council of Societies for the Prevention of Cruelty to Animals (‘the NSPCA’) is a juristic person has become an obstacle in its proper functioning. This is because, in terms of the Criminal Procedure Act, only private persons (as opposed to entities/‘juristic persons’) may pursue private prosecutions in any case where the police or other enforcement agency (via the office of the Director of Public Prosecutions) declines to prosecute an alleged offence. In other words, only private people can become private prosecutors and the NSPCA cannot do so itself.

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Summary

BE AWARE OF THE IMPORT OF ADJUDICATION IN BUILDING AGREEMENTS

Adjudication is a very specific method of dispute resolution and, judging from the issues raised in the recent judgment in Steffanutti Stocks (Pty) Ltd v S8 Property (Pty) Ltd (October 2013), is a mechanism that parties to JBCC contracts need to understand – whether to save unnecessary litigation costs or to enable informed partaking in the adjudication process.

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Summary

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