South African law operates a secured transactions regime similar in some ways to that of England.
Categories of security interest
Pledge. Much like an English law pledge, a South African law pledge is a security interest created by delivery of property to the security taker, pursuant to an agreement between parties. A pledgee is entitled to possession of the property, but is not entitled to use or alienate the property without the consent of the pledgor.
General notarial bond. A general notarial bond is a form of security interest under which security over all the tangible moveable property of the debtor is granted to the creditor.
In order to be perfected, a general notarial bond must be prepared by a notary public and executed either by the owner of the security assets, or by the notary public under a power of attorney granted by the owner.
A creditor with a general notarial bond obtains a limited statutory preference above the claims of other creditors; in order to enjoy a right of recourse to the asset, he must take possession of the relevant property.
Special notarial bond. A special notarial bond is a form of mortgage. It may be created over tangible moveable property.
In order to be perfected, a special notarial bond must meet the formality requirements under the Security by Means of Moveable Property Act 1993, and the registration requirements under the Deeds Registries Act 1937. Property must be specifically identified. Therefore, a special notarial bond cannot be used to create security over a shifting pool of assets.
Cession in security. A cession in security is a method for granting security in intangible property. The debtor/ cedant grants a right in the property to the creditor/ cessionary.
This can be created in two ways. First, as a cession in securitatem debiti, under which the cedant retains title. Second, as a out-and-out cession where the cessionary obtains title, subject to the cedant’s right to re-transfer of the property.
Financial instruments evidenced by a certificate are generally delivered with a transfer form, whereas security over those without certificates is usually created by recording a transfer on the appropriate registry. There are otherwise no formalities.
Hypothecation. Hypothecation is a type of security interest generally used in South African law to provide security over intellectual property. It can be used for patents (Patents Act 1978), trademarks (Trade Marks Act 1993), and designs (Designs Act 1993).
Security over copyrights is generally created using a cession in security.
If the hypothecation is registered, then the granting of licences and transfers of IP are not permitted. Otherwise, if the hypothecation is not registered, transfers are permitted.
Limitations of South African secured transactions law
‘Floating’ security. It is challenging to create security interest akin to the floating charge in English law, under which there is a present security interest in a shifting pool of assets. Under a special notarial bond, the property must be identified, precluding its use over a shifting pool of assets. Under a general notarial bond, there is no present security interest.
There are important benefits of ‘floating’ security, in terms of providing greater flexibility, lower transaction costs, and ultimately access to credit to debtors. Accordingly, the present inability to create such security interests could potentially be a point for reform.
Ulrike Naumann, ‘Lending and taking security in South Africa: overview’ (Practical Law, 1 March 2015) <http://global.practicallaw.com/2-384-6156> accessed 5 November 2016.