Movable property as a form of security
The most common manner of securing an obligation, such as the repayment of money lent, is by way of a mortgage bond which is registered over the immovable property of a debtor in favour of a creditor. But what happens if a person or business does not have any immovable property registered in their name? That is where the notarial bond as a form of security comes into consideration. This article gives a brief overview of what a notarial bond is and the requirements thereof.
A notarial bond is a special or general bond where the movable assets of a debtor are used as security for a debt. A debtor undertakes to pay their debt towards a creditor, failing which the creditor will be entitled to sell the movable property and to utilise the proceeds thereof to satisfy its claim against the debtor. In terms of the Deeds Registries Act, 47 of 1937, a notarial bond must be signed by the debtor in favour of a creditor, attested by a Notary Public, and registered by the Registrar of Deeds in the appropriate Deeds Registry within 3 months.
There are two types of notarial bonds: special and general notarial bonds.
- Special notarial bond
Specific movable property of a debtor as specified, identified and described in the bond serves as security.
The Security by Means of Movable Property Act, 57 of 1993 (“the Act”), regulates special notarial bonds. In terms of section 1(1) of the Act, the movable property under a special notarial bond shall be deemed to have been pledged to the creditor as effectually as if it had expressly been pledged and delivered to creditor.
The effect of the registration of a special notarial bond is as follows:
- A creditor, upon registration of the notarial bond in the Deeds Registry, acquires a real right of security in the movable property specified in the bond.
- Should a debtor fail to pay their debt, the creditor may have the property sold without having to approach a court for an order to that effect.
- The creditor is regarded as a secured creditor which means that no other creditor may attach the property serving as security specially.
- Should property not be properly identified, the creditor will rank as a concurrent creditor on the insolvency of the debtor.
- The creditor’s right to claim from the debtor does not prescribe within the normal 3-year period. The Supreme Court of Appeal, in the matter of Factaprops 1052 CC and Another v Land and Agricultural Development Bank of South Africa t/a Land Bank (353/2016) [2017] ZASCA 45, held that the prescription period of a debt secured by a special notarial bond is 30 years.
- General notarial bond
All movable property of the debtor serves as security for the debt of the debtor.
The effect of the registration of a general notarial bond is as follows:
- A creditor does not acquire a real right of security in the movable property serving as security but is regarded as a preferent creditor over the concurrent creditors should the debtor become insolvent.
- The only manner a creditor may acquire a real right of security in the movable property is by perfecting their security by taking possession of the property.
- Should the debtor not voluntarily transfer the property, the creditor will have to obtain a High Court order to that effect.
- A bond registered first enjoys priority over a bond registered thereafter.
The subject matter of a notarial bond
The subject matter of a notarial bond may be either corporeal or incorporeal. Corporeal property includes, amongst others, furniture, vehicles, jewellery, goods, equipment of a business or stock-in-trade on the shelves (including the subsequent replacement thereof). Incorporeal property, on the other hand, includes unregistered long leases or subleases over immovable property, a liquor licence, a water use licence, a site permit, shares in a company, book debt or the goodwill of a company.
Conclusion
The registration of notarial bond is an effective, recognised and practical manner of securing a debt or obligation. This type of bond is beneficial to creditors and debtors in commercial practice as most businesses only have movable property registered in their names.
It is important to note that a Notary Public must be approached to assist with the drafting and registration of a notarial bond.
Author: Monique Botha
