Special Notarial Bonds remain key tool for asset-backed lending in South Africa

Special Notarial Bonds (SNBs) continue to play an important role in South Africa’s secured lending framework, allowing creditors to take security over specified movable assets without requiring physical possession. The mechanism is governed by the Security by Means of Movable Property Act 57 of 1993, which sets out the legal basis for registering such rights.

An SNB enables a creditor to secure obligations against clearly identified movable property, including tangible assets such as machinery, vehicles and equipment, as well as certain intangible rights like shares or lease interests. The defining feature is that the debtor retains use of the asset, while the creditor benefits from a registered security interest.

For the bond to be valid, the assets must be described with sufficient precision to ensure they can be easily identified. The instrument must be executed before a notary public and registered with the Deeds Registry. Once completed, the bond creates a real right that is enforceable against third parties, strengthening the creditor’s position in the event of default.

In an enforcement scenario, SNB holders benefit from a preferential claim over the secured assets. Under the Insolvency Act 24 of 1936, proceeds from the sale of the encumbered assets, after costs, may be applied toward settling the creditor’s claim. This feature has made SNBs a widely used instrument in asset-based financing structures.

However, the scope of assets that can be secured under an SNB is not unlimited. Certain categories of movable property fall outside the regime due to separate regulatory frameworks. These include ships and aircraft, which are subject to dedicated registration systems. For example, security over vessels is governed by the Ship Registration Act 58 of 1998, while aircraft-related interests are addressed through international conventions incorporated into domestic law, including the Convention on International Interests in Mobile Equipment Act 4 of 2007.

These parallel systems are designed to ensure consistency with international standards and avoid duplication with the Deeds Registry. As a result, assets such as aircraft, drones or ships must be secured through their respective registries rather than through an SNB.

For businesses and lenders, the distinction is material when structuring secured transactions. Ensuring that assets fall within the scope of the applicable legislation, are properly identified, and are correctly registered is essential to maintaining enforceability.

SNBs remain a practical and effective financing tool in the South African market, but their reliability ultimately depends on strict adherence to statutory requirements and a clear understanding of the assets that qualify for this form of security.

Source: CMS