Creditors should consider securing their claims with Notarial Bonds.
A Notarial Bond is a bond registered over movable property under certain terms and conditions to secure a debt and to ensure that the bondholder has preference over other creditors in the event of the debtor’s sequestration or liquidation.
A Notarial Bond is drafted by and executed before a Notary Public and is then registered at the Deeds Office within 3 months of execution (signature) in order for it to be enforceable against third parties.
The basis for the Notarial Bond is usually an agreement between the creditor and the debtor with additional terms and conditions being reflected in the Notarial Bond itself.
There are two types of Notarial Bonds – special and general. There can also be a combination of both:-
A General Notarial Bond is a bond over all movable property belonging to the debtor including, inter alia, business licenses. The problem is that even though the Notarial Bond is registered, there is nothing preventing the debtor from alienating the movables and there is no recourse against the third party who acquires it. For the movables to be attached, the bond must be “perfected” which means that the Court grants an Order authorizing the bondholder to attach and take possession of the movables. A General Notarial Bond must have “perfection” clauses. The bondholder must perfect the Bond before liquidation or sequestration of the debtor otherwise he will not have preference.
A Special Notarial Bond is a bond over specific tangible items which must be described clearly and in such a way that a third party will be able to easily identify them from the bond alone. Once the bond is registered, the bondholder is deemed to have taken possession and delivery of the items and therefore the debtor cannot alienate them. The bondholder’s claim will rank first but he will not be able to take possession of the items as soon as the debtor becomes insolvent. The Bond must be perfected first.
It is important for the creditor to ascertain that the movables are actually owned by the person or company granting the Notarial Bond. If the Notarial Bond is granted by the holding company but the movables are owned by the subsidiaries, the Notarial Bond will be worthless and the creditor will suffer damages.
For any queries regarding securing your investments and debts and advice on how to structure Notarial Bonds, contact Myers Attorneys on 011 346 2422 or gamore@myersattorneys.co.za
You can also visit our website www.myersattorneys.co.za
