The First Respondent, BOE Bank, was the holder of a general notarial bond over Woodlam Industries CC (“Woodlam”) which was placed into final liquidation in October 1999 and as a result, BOE Bank applied to the Eastern Cape High Court for an order that the liquidation and distribution account be amended to include the general notarial bond.
Ikea Trading and Design AG (“Ikea”), the third respondent in the court a quo, registered a special notarial bond in 1998 over the assets listed in the schedule to the notarial bond (“the Schedule”).
BOE Bank disputed the special notarial bond on the basis that the bond did not comply with the requirements of section 1 (1) of the Security by Means of Movable Property Act 57 of 1993 (“the Act”), insofar as that the notarial bond did not describe the assets in such a manner that the assets were “readily recognisable” and as such did not confer a real security right to Ikea.
Court a quo:
The court a quo held that the assets were not “readily recognisable” from the descriptions of the assets in the Schedule and that the liquidation and distribution account be redrawn to indicate that the notarial bond registered in favour of BOE Bank had conferred preference and that BOE Bank’s claim ranked preferent to that of Ikea.
Ikea appealed against the court a quo’s ruling on the basis that the bond was registered pursuant to section 1 of the Act and that the property listed in the Schedule could be identified without need for extrinsic evidence, in accordance with the provisions of the Act. Ikea argued that as a result of the above the special notarial bond constitutes a deemed pledge and that Ikea rank as a secured creditor in the estate of Woodlam.
The court held that the test to determine whether an asset is “readily recognisable” in accordance with Section 1(1) of the Act is whether a third party can determine the identity of each asset secured under the bond without the use of extrinsic evidence. In this regard it is essential that there be no room for conflict.
The court further held that Ikea’s notarial bond over the movable assets of Woodlam did not meet the requirements of Section 1(1) of the Act and the appeal was dismissed with costs.
When hypothecating assets under a special notarial bond, the movable assets need to be described in such a manner that the assets are “readily recognisable” and that a third party be able to identify the assets without the use of any extrinsic evidence.
Should the assets not be “readily recognisable”, the notarial bond will not confer the bondholder as a secured creditor as it will not be considered to be a deemed pledge.
Written by Simone Jansen van Rensburg and supervised by Pierre van der Merwe, 7 August 2018