In South African property law, Special Notarial Bonds ("SNBs") provide creditors with an effective way to secure debts over specific movable assets. Governed by the Security by Means of Movable Property Act 57 of 1993 ("MPA"), a SNB allows a creditor to register a bond over clearly identified corporeal movable property such as machinery, vehicles, or equipment without taking possession of it and incorporeal movable property such as shares in a company, short term lease or sublease of immovable property or liquor licenses, to name a few.
Requirements and legal consequences
To be valid and enforceable, the assets must be specifically described so they are easily recognisable. The bond must be executed before a notary public and then registered at the relevant Deeds Registry Office. Once registered, the SNB creates a real right of security enforceable against third parties. This makes it especially valuable in asset-based financing, where businesses use movable assets as collateral to secure funding. A bondholder enjoys a preferential claim should the movable assets be sold in execution and in terms of the Insolvency Act 24 of 1936 the proceeds of the moveable assets less the costs may be used to satisfy the bondholder’s claim.
Limitations on hypothecation
However, not all movable property qualifies for hypothecation under a SNB registered at the Deeds Registry Office. Certain assets are excluded because they are regulated under separate legal frameworks or international conventions. These exclusions include ships, aircraft, hot-air balloons, paragliders, drones, and foreign-registered aircraft.
Ships and aircraft, for instance, fall under their own security regimes. The Ship Registration Act 58 of 1998 provides for ship mortgage bonds, registered in the South African Ships Register, which grant creditors preferential security over vessels. Similarly, the Convention on the International Recognition of Rights in Aircraft Act 59 of 1993 and the Convention on International Interests in Mobile Equipment Act 4 of 2007 establish dedicated registries for aircraft interests, ensuring international recognition and transparency. These specialised frameworks prevent overlap with the MPA and ensure compliance with industry-specific standards.
While aircraft may have unique identifiers such as tail numbers, their registration and publicity requirements are better served by aviation registries rather than the Deeds Registry Office. This underscores the importance of determining whether an asset falls within the scope of the MPA before registering a SNB.
Practical considerations and conclusion
For businesses, understanding these distinctions is vital when structuring security for loans or transactions. Creditors must ensure that the movable assets listed in a SNB are eligible, accurately described, and properly registered to avoid disputes or unenforceability. It remains the responsibility of a notary public to ensure that these parameters are complied with.
In conclusion, SNBs remain a key financing and security tool in South Africa. However, their effectiveness depends on compliance with statutory requirements and awareness of excluded assets.
If you require assistance or have any questions about registering or enforcing a SNB, please feel free to contact us for tailored legal advice.
