Commonly, creditors need to decide on the method in which to obtain the best security for the due and proper performance by the debtor of its obligations under, for example, a loan agreement.
Often, creditors decide on a special and general notarial bond which provides the best possible security in one document without incurring any additional costs of registering both a special notarial bond and general notarial bond.
Briefly, a general notarial bond (“GNB”) is a notarial bond that secures all the debtor’s general movable property, including all corporeal and incorporeal movable property of every nature.
A special notarial bond (“SNB”) is a notarial bond registered over movable property that is described in the notarial bond in such a manner that it renders the movable property “readily recognisable” in accordance with the requirements of section 1(1) of the Security by Means of Movable Property Act No. 57 of 1993 (“SMMPA”).
A SNB is a ‘deemed pledge’ and creates a real security right in favour of the Mortgagee (creditor). It is important to note that the Mortgagee (creditor) in a SNB will have a preferent claim against the Mortgagor (creditor) in insolvency proceedings where the mortgaged property is sold in execution, in accordance with section 95 of the Insolvency Act No. 24 of 1963.
MOVABLE PROPERTY COMMONLY SECURED UNDER GNB OR SNB
A notarial bond can be registered over corporeal movable property (e.g. furniture, vehicles, jewellery, art, Krugerrands, goods or equipment of a business, animals and even the future accrual of offspring of animals and stock in trade on the shelves of a retailer, including the subsequent replacements thereof and additional stock etc.) and incorporeal movable property (e.g. unregistered long lease or sublease of immovable property, liquor licence, water use license, site permit, shares in a company, book debt, goodwill of a business, etc.).
OTHER MOVABLE PROPERTY CAPABLE OF BEING SECURED UNDER A GNB OR SNB
In addition to the moveable property listed above, a notarial bond may also be registered over the following movable property:
- Mineral stockpiles
While one may think that mineral stockpiles (mine dumps or tailing dumps) fall within the classification of ‘immovable property’, the case of Beers Consolidated Mines Ltd v Ataqua Mining Pty Ltd and others (3215/06)  ZAFSHC 74) held that in order to determine whether stockpiles are movable or immovable (and whether same has acceded to the immovable property) the following needs to be considered: (1) the nature of the stockpiles (2) the manner of the annexation and (3) the intention of the owner of the movables at the time of annexation.
The court held that the Mineral and Petroleum Resources Development Act 28 of 2002 (“MPRDA”) does not apply to stockpiles where (1) the stockpiles are movable and the minerals (diamonds in this case) occurring in them do not occur “naturally” in or on the earth (2) the stockpiles do not occur naturally, but are formed by the placement of processed and partly processed materials and (3) the stockpiles had been owned by de Beers since 1973 (in this case) as an undisputed fact. As such, it was held that the stockpiles were movable and de Beers (the owner of the stockpiles) could deal with/transfer same in terms of the common law (i.e by agreement).
For a SNB to be registered over a mineral stockpile, it is required that the stockpile be described in a manner which renders the stockpile ‘readily recognisable’ as per section 1(1) of the SMMPA. In order to comply with the requirement of being ‘readily recognisable’ it is recommended that the description of the stockpile includes a description of the mineral type, grade (quality) and quantity, and, if possible, the GPS coordinates as well as aerial photograph(s) of the stockpile. The mineral stockpile should also be clearly demarcated with suitable signage.
- Processing plants (mineral or other)/factory equipment
It is possible to register a notarial bond over processing plants (mineral or other)/factory equipment.
Importantly, the plant and machinery must not have acceded to the immovable property (land). (Briefly, accession takes place where an accessory thing (movable property) merges with the principal thing (immovable property) and in so doing loses its independence.) In this regard, and once it has been determined that accession has not taken place, for the registration of a SNB over the processing plant/factory equipment, the movable property must be described in a manner which renders it ‘readily recognisable’.
Examples of ways in which to describe the movable property are to make use of a detailed description of the mechanical equipment (e.g. conveyors, piping, valves), structural components, electrical and instrumental tools and any other parts which comprise the processing plants /factory equipment. However, and since the foresaid description may be highly complex, it is beneficial to including schematic drawings and high-resolution photographs of the processing plant/factory equipment which clearly indicates the different components comprising same.
- Mining equipment
It is also possible to register a notarial bond over mining equipment used for the extraction of the minerals from the earth, for example, dumpers, lifts, drilling rigs and earth moving equipment (“Mining Equipment”).
For a SNB to be registered over the Mining Equipment, the Mining Equipment needs to be described in a manner which renders it ‘readily recognisable’. In this regard, it is recommended that the description of the Mining Equipment includes information such as serial numbers, year of manufacture and a detailed description of the relevant piece of equipment. In addition, and for the sake of certainty, it is also recommended to include high resolution photographs of the mining equipment.
- Movable property that the Mortgagor will own in the future
It is also possible to secure movable property which is not yet owned by the Mortgagor (debtor) or which does not yet exist at the time of the registration of the notarial bond (“future things”). In this regard, in order to register a SNB over future things, the future things will need to be described in the SNB in such a manner that it renders the future things ‘readily recognisable’, as indicated hereinabove. It is advisable that the SNB records that the future things are not currently owned by the Mortgagor (debtor), but that they will be owned by the Mortgagor (debtor) in the foreseeable future.
The security right in respect of the future things will only be established when the future thing comes into existence and when the Mortgagor (debtor) becomes the owner of same.
An important consideration in respect of securing trading stock under a notarial bond is that one needs to determine the extent to which the trade-in-stock is identifiable. In this regard, if a notarial bond is registered over the trade-in-stock, it must disclose what the property is, the type and sort of each and the sum of each (i.e. similar to a stock list).
Importantly, one may secure not only the original trade-in-stock, but also the subsequent replacement/s thereof.
MOVABLE PROPERTY WHICH CANNOT BE SECURED UNDER A NOTARIAL BOND
A ship and aircraft cannot be secured under a notarial bond in terms of the Ship Registration Act No. 58 of 1998 and the International Recognition of Rights in Aircraft Act No. 59 of 1993 (“IRRAA”).
The IRRAA does not, however, apply to hand gliders, para gliders, captive balloons, kites, model aircrafts, foreign registered aircrafts, parachutes, powered paragliders, hot-air balloons and unmanned radio-controlled aircrafts.
Creditors should consider registering notarial bonds to obtain security for the proper performance of the debtor’s obligations. Creditors are encouraged to seek legal advice to determine whether a debtor’s movable property is capable of being secured under a notarial bond.
Written by Pierre van der Merwe and Simone Jansen van Rensburg
6 November 2019