by Gugu Nkosi
In South Africa, notarial bonds are commonly used to secure debts or obligations by pledging movable property as collateral.
These bonds are classified into two types: special notarial bonds and general notarial bonds.
Both have their legal applications, but special notarial bonds offer distinct advantages in terms of security for creditors, while general notarial bonds require specific steps for perfection.
A special notarial bond is a type of bond that secures a specific asset or group of assets. It has several key advantages:
The main advantage of a special notarial bond is that it creates a preferential claim over the pledged assets.
In the event of a debtor’s insolvency or liquidation, creditors holding special notarial bonds are entitled to claim the specific asset(s) pledged as collateral before other creditors.
This offers a higher level of security compared to general bonds.
Special notarial bonds require that the collateral (e.g., a specific vehicle, equipment, or stock) be clearly identified in the bond agreement.
This reduces ambiguity and enhances the creditor’s ability to seize and sell the pledged assets in case of default.
Since the collateral is specifically identified, enforcing the bond in the event of a default is simpler. The creditor can directly seize the asset without the need to determine which assets are subject to the bond and without a perfection application to the court.
A general notarial bond, on the other hand, is used to secure a broader range of assets. It does not specify particular items but rather includes all of the debtor’s movable property.
However, the creditor’s security interest in these assets is less clear unless the bond is perfected. Perfection takes place by way of a court application.
Without proper perfection, the general notarial bond is not enforceable against other creditors or third parties.
This makes the perfection process critical for ensuring that the bond provides the creditor with legal security.
While both special and general notarial bonds are effective tools for securing debt in South Africa, the special notarial bond offers significant advantages in terms of priority, security, and ease of enforcement.
In contrast, general notarial bonds, though versatile in their coverage of various assets, require the additional step of perfection to ensure they provide a valid and enforceable claim.
Whilst a special notarial bond is always advisable, it is common commercial practice to have both these bonds in place for maximum security.
Please note that the content provided above is for informational purposes only and should not be considered as legal advice. For comprehensive guidance and to ensure that you are fully compliant with the law, it is advisable to consult with a legal professional. For more detailed information or legal support, please reach out to our team.
