Protecting Your Interests with General Notarial Bonds

In the world of finance and business, ensuring that debts are secured is crucial for both lenders and borrowers. One of the legal tools available in South Africa to secure debts is a General Notarial Bond (GNB). This bond provides creditors with security over a debtor's movable assets without taking physical possession. For businesses looking to secure financing or for lenders wanting to protect their interests, a general notarial bond offers a flexible and powerful solution.

At Barter McKellar, we specialize in assisting clients with the drafting, registration and enforcement of general notarial bonds, helping both creditors and debtors secure their financial interests. This guide will explain what a general notarial bond is, how it works and when it should be used.

What is a General Notarial Bond?

A General Notarial Bond (GNB) is a legal agreement that allows a creditor to secure a loan against all of a debtor’s movable assets, including equipment, inventory, vehicles, and other property that isn’t physically attached to the land. The debtor retains possession of the assets, but the creditor has a preferential claim on them in case of default.

Unlike a Special Notarial Bond, which is registered over specific movable assets, a general notarial bond covers all of the debtor’s movable property. It does not provide immediate ownership or possession to the creditor, but it does offer a degree of security if the debtor defaults or becomes insolvent.

Key Features of General Notarial Bonds

• Covers All Movable Property: A general notarial bond provides security over all of the debtor’s movable assets, such as machinery, stock and vehicles.

• No Physical Possession: The debtor continues to possess and use the secured assets, making it a practical solution for businesses that need their assets to operate.

• Preferential Claim: In the event of insolvency or default, the creditor has a preferential right over the debtor’s movable property, giving them priority over unsecured creditors.

• Registration with the Deeds Office: For a general notarial bond to be legally enforceable, it must be registered at the Deeds Office, which provides public notice of the bond.

How Does a General Notarial Bond Work?

A general notarial bond works as a form of security for creditors. While the debtor maintains ownership and possession of the movable assets, the bond gives the creditor a legal claim over those assets if the debtor fails to meet their obligations. This allows the creditor to seize and sell the assets to recover the outstanding debt in the event of default.

1. Securing a Loan

When a debtor needs financing, they can offer a general notarial bond as security for the loan. This gives the lender assurance that they can recover the debt if the debtor defaults, even though the debtor retains possession of the assets.

2. Registration of the Bond

The bond must be drafted by a notary public and registered with the Deeds Office. Once registered, the bond provides the creditor with a legally binding security interest in the debtor’s movable assets.

3. Enforcing the Bond in Case of Default

If the debtor defaults on the loan, the creditor can apply to the court for an order to seize and sell the movable assets covered by the bond. This helps the creditor recover the debt without having to go through lengthy legal processes.

Advantages of Using General Notarial Bonds

General notarial bonds provide several benefits for both lenders and borrowers:

1. For Creditors: Enhanced Security

Creditors benefit from general notarial bonds because they provide security over a wide range of assets. This reduces the risk of financial loss in case of default, as the creditor has a preferential claim over the debtor’s movable property.

• Priority Over Unsecured Creditors: In the event of insolvency, the creditor holding a general notarial bond will have priority over unsecured creditors when claiming the debtor’s movable assets.

• Protection in Default: The creditor can seize the debtor’s movable property to recover the debt if the debtor defaults on their obligations.

2. For Debtors: Access to Financing Without Losing Assets

For businesses, general notarial bonds provide access to financing without the need to hand over physical possession of their assets. This is particularly valuable for companies that need their machinery, stock, or vehicles to continue operating.

• Retain Use of Business Assets: Businesses can continue using their movable assets while securing the necessary funds for growth or expansion.

• Flexible Security: Businesses can leverage a wide range of movable property, from inventory to equipment, as security for loans.

3. Cost-Effective Security Solution

General notarial bonds provide a cost-effective way to secure a loan compared to other types of collateral, such as mortgages on immovable property. The process of registering a general notarial bond is straightforward and typically involves fewer legal costs.

When Should You Consider a General Notarial Bond?

A general notarial bond is a flexible and powerful tool that can be used in various situations. Here are some common scenarios where a GNB is beneficial:

1. Business Financing

If your business needs to raise capital for expansion, purchasing equipment, or improving cash flow, a general notarial bond allows you to secure financing while keeping possession of your movable assets. This is particularly useful for industries such as manufacturing, agriculture, and retail, where access to inventory and machinery is essential.

2. Lending to High-Risk Debtors

Creditors lending to higher-risk clients may require additional security to reduce the risk of non-payment. A general notarial bond provides the lender with an extra layer of protection by giving them a preferential claim over the debtor’s movable assets.

3. Securing Large Loans

For large loans, lenders may require a general notarial bond to ensure that they have sufficient security in the event of default. This allows businesses to access more substantial lines of credit while providing lenders with the necessary protection.

Registration Process for General Notarial Bonds

The registration process for a general notarial bond must be completed correctly to ensure its legal enforceability. Below are the steps involved in registering a general notarial bond:

1. Drafting the Bond

The bond must be drafted by a qualified notary public. It will describe the movable property covered by the bond and outline the terms of the agreement between the creditor and debtor.

2. Execution of the Bond

Once drafted, the bond is signed by the debtor and creditor in the presence of the notary public. The bond must be executed in accordance with legal formalities to ensure its validity.

3. Registration with the Deeds Office

After execution, the bond is lodged with the Deeds Office for registration. Once registered, the bond becomes legally enforceable, giving the creditor a preferential claim over the debtor’s movable property.

Legal Considerations for General Notarial Bonds

While general notarial bonds offer significant benefits, there are important legal considerations to keep in mind:

• Registration is Crucial: The bond must be registered with the Deeds Office to be valid. Failure to register the bond can render it unenforceable, leaving the creditor unsecured.

• Description of Assets: While general notarial bonds cover all movable property, it is still essential to clearly define the types of assets being secured to avoid legal disputes.

• Preferential Rights: Creditors with general notarial bonds have priority over unsecured creditors, but may still need to compete with other secured creditors if multiple bonds are registered over the same assets.

How Barter McKellar Can Assist

At Barter McKellar, we have extensive experience in drafting and registering general notarial bonds. Our team of expert notaries and conveyancers is committed to helping you navigate the complexities of securing or lending with general notarial bonds. Here’s how we can assist:

1. Expert Legal Advice

We provide tailored legal advice to ensure that a general notarial bond is the right option for your needs. Whether you are a creditor looking to protect your interests or a business seeking to secure financing, we’ll guide you through the process.

2. Drafting and Registration

Our experienced notary publics will draft a legally sound bond that meets all requirements, ensuring it is enforceable. We also handle the entire registration process with the Deeds Office.

3. Enforcement and Recovery

If a debtor defaults, we can assist creditors with enforcing the bond and recovering their assets. Our team provides expert representation in court to protect your rights.

Contact Us

If you’re interested in securing a loan with a general notarial bond or need assistance with drafting and registration, contact us at Barter McKellar. Our experienced team is here to help you protect your financial interests.