Securing Assets with Notarial Bonds: A Guide for Businesses and Lenders

Notarial bonds are a critical legal tool for businesses and individuals looking to secure loans and protect their assets. In South Africa, notarial bonds offer a way for creditors to secure their interests against the movable property of a debtor, offering a layer of protection without physical possession of the assets. Whether you're a business owner seeking to secure financing or a lender looking to protect your interests, understanding how notarial bonds work is essential.

At Barter McKellar, we specialize in drafting and registering notarial bonds to help clients protect their financial interests. This guide will explain what notarial bonds are, the different types, and why they are a valuable legal mechanism in South Africa.

What is a Notarial Bond?

A notarial bond is a form of security over a debtor’s movable property, registered in favour of a creditor. Unlike a pledge, where the creditor takes physical possession of the movable property, a notarial bond allows the debtor to retain possession while giving the creditor a legal claim over the assets if the debtor defaults on repayment.

Once a notarial bond is registered, the creditor gains a preferential right to the secured assets in the event of default or insolvency. This offers protection against other creditors and strengthens the lender's ability to recover their funds.

Types of Notarial Bonds in South Africa

There are two main types of notarial bonds used in South Africa:

1. General Notarial Bond

A General Notarial Bond (GNB) is a bond that provides security over all of the debtor's movable assets, whether those assets are specified or not. This includes everything from equipment and machinery to inventory and intellectual property. Importantly, the debtor retains possession of the assets, but the creditor has a claim over them if the debtor defaults.

• Use: Typically used by businesses to secure large loans or financing.

• Benefit: Provides creditors with security over a wide range of movable assets.

• Limitation: If the debtor becomes insolvent, a GNB only gives the creditor a preferential claim, not ownership of the assets.

2. Special Notarial Bond

A Special Notarial Bond (SNB) is a more specific form of security that is registered over particular items of movable property, which must be clearly described in the bond. The assets remain in the debtor’s possession, but the creditor’s security is tied to these specified items.

• Use: Commonly used for specific high-value movable assets, such as vehicles, machinery, or equipment.

• Benefit: Provides creditors with a higher degree of security, similar to a mortgage bond, because the bond is tied to specific, identifiable assets.

• Legal Protection: Under the Notarial Bonds (Natal) Act, a properly registered SNB grants the creditor real rights over the assets, giving them preference over other unsecured creditors.

Benefits of Using Notarial Bonds

Notarial bonds offer several key benefits for both lenders and borrowers, making them a valuable security option in South Africa:

1. Enhanced Security for Lenders

Notarial bonds provide creditors with a preferential claim over the debtor's movable property, allowing them to recover the loan in the event of default or insolvency. This security encourages lending by reducing the risk for the creditor.

2. Access to Financing for Borrowers

For businesses, notarial bonds can be used to secure financing without having to hand over physical possession of valuable assets. This is particularly useful for companies that rely on machinery, equipment or inventory to run their operations.

3. Retention of Control Over Assets

Unlike pledging movable assets, which involves physically handing them over to the creditor, a notarial bond allows the debtor to continue using the assets while securing a loan. This is especially beneficial for businesses that need to use their machinery or inventory to generate revenue.

4. Flexibility in Securing Loans

Notarial bonds can be registered over a wide range of movable property, including stock, machinery, equipment, and intellectual property. This flexibility allows businesses to leverage a variety of assets to secure financing.

When Should You Consider a Notarial Bond?

A notarial bond is an excellent option in several situations, including:

• Business Financing: When your company needs to secure financing for expansion, working capital or equipment purchases without tying up immovable property.

• Securing High-Value Loans: When a creditor is lending a large amount and needs enhanced security to minimize risk.

• Protection of Creditor’s Interests: For lenders who want to secure their interests in a borrower’s movable property while allowing them to maintain control and possession.

Registration Process for Notarial Bonds

Registering a notarial bond requires the involvement of a notary public and follows a specific legal process. Here’s an overview of the steps involved:

1. Drafting the Bond

The notarial bond must be drafted by a qualified notary public. The bond document details the loan agreement, describes the secured assets (for SNBs), and outlines the rights of both the creditor and debtor.

2. Execution of the Bond

Once the bond is drafted, it must be executed (signed) in the presence of a notary public. This adds legal weight to the agreement and ensures it can be registered.

3. Registration at the Deeds Office

After execution, the notarial bond is lodged with the Deeds Office for registration. Once registered, the bond becomes legally binding and enforceable, giving the creditor a real right over the debtor’s movable assets.

4. Enforcement in Case of Default

If the debtor defaults on the loan, the creditor can enforce the bond by applying for a court order to seize the secured assets. The assets can then be sold to recover the debt.

Legal Considerations for Notarial Bonds

There are several important legal considerations when registering a notarial bond in South Africa:

• Enforceability: A notarial bond must be properly registered at the Deeds Office to be enforceable. Unregistered bonds may not provide the creditor with the necessary security.

• Preferential Rights: In the event of insolvency, a registered notarial bond gives the creditor a preferential right to claim the secured assets before other unsecured creditors.

• Description of Assets: For a Special Notarial Bond, the description of the secured assets must be specific and detailed, as vague descriptions may render the bond unenforceable.

How Barter McKellar Can Help

At Barter McKellar, we have extensive experience in drafting and registering notarial bonds to protect our clients’ interests. Our team of expert notaries and conveyancers can guide you through the entire process, ensuring that your notarial bond is properly executed and registered.

1. Expert Legal Advice

We provide tailored legal advice on whether a notarial bond is the best security option for your needs, and help you understand the implications of both General and Special Notarial Bonds.

2. Drafting and Registration

Our team of notary publics will draft your notarial bond with precision, ensuring that all legal requirements are met, and handle the registration process with the Deeds Office to ensure enforceability.

3. Enforcement and Dispute Resolution

In the event of a default, we can assist with enforcing your notarial bond, representing your interests in court, and ensuring you recover the maximum value from the secured assets.

Contact Us

Whether you’re a lender seeking to secure your interests or a business looking to leverage your assets, our team at Barter McKellar is ready to help with your notarial bond needs. Contact us today to schedule a consultation and learn how we can assist with all aspects of notarial bond registration and enforcement.