Have you considered a Notarial Bond?



In these trying times, the security that a creditor will hold will be of importance. Generally, Debtors have already encumbered their immovable property with mortgage bonds and ceded as security various rights in favour of creditors.


A form of security that is often overlooked is notarial bonds. There are several benefits to registering a notarial bond –

  • Debtors generally have easier access to movable property, as opposed to immovable property, and are likely in a better position to provide security over their movable assets

  • The Debtor remains in possession of the movable property (notwithstanding that the asset has been bonded)

  • With a special notarial bond, the Creditor gets a limited real right in respect of the moveable property specified and described in the bond (see s. 95 of the Insolvency Act, 1936)

  • The prescription period under a special notarial bond is 30 years

  • Notarial bonds may also include the fruits of the moveable property


1. TYPE OF NOTARIAL BONDS

  • Ordinary notarial bond (secures existing obligations)

  • Notarial covering bond (provision for the covering of future debt is made)

  • Collateral notarial bond (a bond in addition to a principal bond as additional security for the principal debt over different movable property)

  • Notarial surety bond (registered by a third party (the surety) over movable property, on behalf of the principal Debtor, in favour of the Creditor.)

  • Notarial indemnity bond (similar to a surety bond. The obligations under the notarial indemnity bond are however primary)



2. GENERAL VS SPECIAL NOTARIAL BONDS

GENERAL NOTARIAL BONDS


A general notarial bond does not confer a real right on the Creditor in respect of the moveable property encumbered by the bond. Only once the general notarial bond is perfected will a limited real right be created in favour of Creditor in respect of the moveable property encumbered by the bond.


The perfecting of a general notarial bond requires the taking of possession of the movable property under the bond pursuant to a Court order.


It is important to remember that a Debtor can register more than one general notarial bond over his or her movable property and that the date of perfection will determine the ranking of the Creditor’s claim (not the sequence of the registration of general notarial bonds).


Where a creditor of a general notarial bond perfects his or her claim before sequestration/liquidation of the Debtor, the Creditor will enjoy a secured claim against the insolvent estate. If the general notarial bond is unperfected at the time of liquidation/sequestration, then despite the general notarial bond having been successfully registered, the Creditor will not have a limited real right and therefore no secured claim against the insolvent estate (Development Bank of Southern Africa v Van Rensberg 2002 (5) 425 (SCA)).


After the sequestration/liquidation of the Debtor, the Creditor can no longer perfect the bond and the Creditor will rank as a concurrent creditor with a preferential claim against the free residue of the insolvent estate. (Trisilino v De Vries 1994 (4) SA 514 (O)).



SPECIAL NOTARIAL BONDS


With the registration of the special notarial bond, the Creditor gets a limited real right over the movable property encumbered by the special notarial bond. Unlike a general notarial bond, there is no need to take possession of the movable property under the special notarial bond to create the limited real right (see s.1 of the Security by Means of Movable Property Act, 1993).


The ranking of claims when it comes to special notarial bonds also differ from general notarial bonds. When there is more than one special notarial bond registered over a particular movable asset, the special notarial bond registered first will have priority.

Another advantage of a special notarial bond is that it will rank above a landlord’s tacit hypothec if the landlord’s tacit hypothec is unperfected at the registration date of the special notarial bond.



3. A NOTARIAL BOND HYPOTHECATING MOVABLES SPECIALLY OR GENERALLY


In Reeskens v Registrar of Deeds 1964 (4) SA 369 (N), the Court held that the extending meaning “and/or” is to be given to “or” in the definition of “notarial bond” in section 102 of the Deed Registries Act, 1937, and that therefore special movables plus movables generally (excluding the special movables) may serve as security in one notarial bond.


If in the notarial bond assets are generally bonded, and provision has been made therefor, the Creditor may attach the mortgagor’s movable goods in order to perfect his/her security. If the bond does not make provision for such an attachment, the Court will not grant an order in favour of the Creditor (Boland Bank Ltd v Vermeulen 1993 (2) SA 241 (E)).



4. WHAT CAN SERVE AS SECURITY

Security serving under a notarial bond may be corporeal movable things, such as furniture, the goods of a business, animals and even future increase of progeny of animals, e.g. calves and lambs, etc., and/or incorporeal things such as e.g. an unregistered lease, a short term lease of immovable property, a liquor license, shares in a company, etc. (see RCR 15 of 2004).


If a merchant’s stock-in-trade is mortgaged under a special notarial bond, not only the original articles will be covered (if unsold), but also subsequent replacements and additional stocks will serve as security. Similarly, accessions to original articles will be hypothecated, e.g. a radio set fitted into a car.