Some good news for creditors here – the SCA (Supreme Court of Appeal) has just held that a 30 year prescription period applies to special notarial bonds.
That’s important because it’s always prudent when making a loan or extending credit to take as much security from the debtor as you can. And whilst a mortgage bond over immovable property is usually going to be first prize here, movables can also provide strong security.
If possible, hold the debtor’s movables yourself and take a pledge over them. Where however your debtor cannot give you actual possession (which is likely to be the case with substantial business assets such as machinery in a factory), consider registering a “special notarial bond” over them.
That will give you the same strong security (in law, not necessarily in practical terms) as you would have with a pledge, even though you don’t have actual possession. Just make sure that each asset is listed in such a way that it is, as required by law for validity, “…specified and described in the bond in a manner which renders it readily recognisable…”, so give full descriptions with any available serial numbers and the like.
What about prescription?
You will know that most debts prescribe after 3 years, but some only after 6 (cheques for example), some after 15 (most State debts), and some after 30 – judgment debts, tax debts, some State debts and “any debt secured by a mortgage bond”.
A creditor’s R500k victory
- A bank’s loan to a close corporation was secured by a special notarial bond over specified movables. The sole member also signed a personal suretyship.
- Having failed to pay per the loan agreement, both the close corporation and the member were sued by the bank for just under R500k. They defended the action on the basis that the claim had prescribed after either 3 or 6 years.
- Agreeing with the High Court that the term “mortgage bond” was wide enough to encompass a special notarial bond, which in consequence won’t prescribe for 30 years, the SCA handed victory to the bank.
If your debtor has significant movable assets, ask your lawyer about registering a special notarial bond over them. Not only will it give you security for your claim, but it will also protect you from a “3 year prescription” defence.