Resilient and regulator at odds

• Company’s staff loans prompt NCR to question its failure to register

Property company Resilient will need to prove that there are specific reasons why it does not have to register as a credit provider if it wishes to continue to offer its staff interest-carrying loans to buy its shares, otherwise it will be in contravention of the National Credit Act.

Property company Resilient will need to prove that there are specific reasons why it does not have to register as a credit provider if it wishes to continue to offer its staff interest-carrying loans to buy its shares, otherwise it will be found in contravention of the National Credit Act (NCA).

It had always been the view of the National Credit Regulator (NCR) “that staff loans, if interest or fees are charged, are credit agreements between parties dealing at arm’s-length, which fall within the ambit of the National Credit Act and … the employer has to register as a credit provider”, said Lizelle Squirra, NCR legal adviser: registrations and compliance.

This followed CEO Des de Beer’s repeated comments that his company had thoroughly checked if registration as a credit provider was necessary before concluding it was not.

“No, Resilient does not need to be registered and we obtained senior counsel opinion confirming this,” he said.

Manager for registrations at the NCR Zolile Mngqundaniso said: “Section 40 was amended and the regulations were published in May 2016 stating that the registration threshold in terms of section 42(1) is now nil”. Everyone who issued credit irrespective of the loan size and number of loans had to register.

Resilient’s long-term share incentive scheme allows it to lend an employee up to 20 times that employee’s gross remuneration to buy shares in the group, at a weighted average cost of funding, which was 8.87% at the end of 2017.

Some fund managers have said certain Resilient employees who borrowed millions may have defaulted on interest payments on loans they took to buy shares, even if the company’s policy was that staff had 10 years to pay off each loan.

Garreth Elston, a research analyst, said all loans taken from 2015 were likely to be under water, meaning the amounts owed on the loans were higher than the value of shares held.

Mngqundaniso said that in terms of section 4 the NCA was not applicable if parties were not dealing at arm’s-length.

Stanley Miller, CEO of shortterm loan provider Spectrifin Capital, said “what arm’s-length refers to has not been tested in courts and a legal precedent is missing”.