Anders' translation of Sande Cession of Actions (African Book Company Limited, 1906) Sigman & Smith 'An Analysis of the UN. HC Sigman & E.E. Smith 'Towards Facilitating Cross-Border Secured Finance and Securitization: An Analysis of the United Nations Convention on the Assignment of Claims in International Trade, Business Advocate 727.
The context
More recently, in South Africa and elsewhere, private equity firms, insurance companies, health assistance schemes and pension funds have begun to compete with, and sometimes combine with, banks to become lenders in the debt market.10. The international growth of loan markets over the past 20 years has acted as a catalyst for loan markets to form voluntary associations of lenders and to standardize loan documentation.11 In the United Kingdom, the Loan Markets Association (LMA) was established in 1996 as a voluntary association to, among other things, produce standard loan documentation for the syndicated market.12 These and other factors have contributed to the abundance of literature on collateralized loan transactions, including in the UK and the US.
The background
21 A distinction must be made between the concept of a 'claim against assets' in the legal sense and in the informal sense. In the colloquial sense, a "claim against assets" means a charge on an asset or assets that is provided as security for the settlement of a debt.
The research question
Under South African law, lenders can use various forms of security, including the registration of mortgage bonds on immovable property, the registration of notarial bonds on movable property, a lien on movable property, a lien and transfer in securitatem debiti on intangible or personal rights26 and quasi-certainty such as sureties and guarantees. In particular, the transfer of rights in securitatem debiti is a form of security regularly used in South Africa to secure borrowers' obligations to repay loans.27 This type of transfer is the basis on which in South Africa annual millions of rands are lent.
Structure of the thesis
However, the law on security rights, especially the pledge and cession in securitatem debiti of personal rights, is fraught with doctrinal controversy and systemic deficiencies. The proposals made will improve the current law, and specifically the law on cession in securitatem debiti of personal rights, will provide greater legal certainty to market participants, and will align South African law with international trends to standardize the law on security interests .
Concluding remarks
The South African Consumer Loans Act forms the basis for bilateral lending and syndicated lending. This chapter describes the nature and genesis of loan agreements in South African law.
Background to the South African law of loans
The nature and genesis of loans in South African law
The essentialia of a loan is the intention to lend and borrow, and the lender giving the title in the matter to the borrower. The borrower's obligations include repaying an amount equal to the amount of the loan on an agreed date, with or without interest.
Legal title to money and the role of the banker–customer relationship
When the ownership is transferred to the bank, the bank simultaneously undertakes an obligation to pay the amount on credit to the payee in accordance with the account holder's instructions. Malan claims that the loan from the account holder to the bank is not decisive for whether the relationship is mutual.
Foreign lenders
Concluding remarks
Classification of loan forms
- Availability of the loan
- The lender's credit decision
- The purpose of the loan
- The number of lenders: Bilateral loans and syndicated loans
Therefore, the purpose clause defines the commercial purpose for which the borrower seeks the loan. This type of financing is used by the borrower to bridge a gap between his immediate.
Syndicated loans in South African law
- Introductory remarks
- Bilateral loans and syndicated loans: Advantages and disadvantages
- Issues arising from syndicated loans
- The nature of syndication
- The parties to a syndicate and their functions
- The phases of syndication
- The contractual and economic relationship between the syndicate lenders
- Insolvency considerations
- Tranche wars among syndicate lenders
- The origins of mezzanine finance
Penn, ‘Promoting Liquidity in the Secondary Loan Market: Does Subparticipation Still Fit for Purpose Journal of International Banking Law and Regulation 85–102. A bilateral loan can be structured in the loan agreement so that it can be turned into a syndicated loan by the lender later selling portions of the loan to new, up-and-coming lenders.
The Loan Market Association standard-form loan documents and English law lessons
English case law lessons regarding acceleration notices and the priority of claims
The nature of the remedy that South African courts provide to lenders will be determined by, inter alia, the terms of the agreement between the creditors and considerations of fairness and public policy. The defendants disputed the effectiveness of the acceleration notice as it was expressed to take effect at a future date, whereas the acceleration clause required the outstanding amount to become due immediately.
The consequences of an event of default
A brief discussion of the position in English law and the position in South African law follows. Millar, the holder of the senior debt and the second lien debt, argued that the senior facility agreement required the consent of only two-thirds of the lenders.
Concluding remarks
An acceleration notice must be issued when the debtor fails to pay a debt that is actually due. In other words, an acceleration notice should not be issued in anticipation or assumption that the borrower will be in breach of its loan obligations.
General remarks
Principles of security
Dendy 'Mortgage and Pledge' LAWSA vol 29 3 ed (2020) para 323 states that in the case of real guarantee, the asset constituting the object of the guarantee belongs to the debtor or someone acting on behalf of the debtor. The parties' intentions to secure all debts must be clearly stated in the relevant security document.
Debt
The meaning of 'security' in the Insolvency Act
The borrower or third party owner, so long as it does not default or become insolvent, continues to enjoy the economic benefit, use and enjoyment of the asset, subject to the lender's rights arising from the assignment in securitatem debiti. A secured party is therefore not a secured creditor under the Insolvency Act444, although it is widely accepted in the South African market as a form of security.
Personal and real security, and the registration of security rights
Personal and real security
The registration of security rights
348 The lender's term sheet and relief agreement typically state that the subordination of the debtor's claims to the borrower is a condition precedent, and its fulfillment is typically confirmed in the enforceability legal opinion issued by the lender's legal counsel, which provides opinion on the applicability of financial documents. Bonds must be registered under the Registration of Deeds Act 47 of 1937 in order to create security rights.
The accessorial principle
Second, its purpose means that the amount of the obligation it secures determines the amount of the security interest. 552 Regarding the application of the accessory principle in the lessor's silent mortgage, the real security right is created ex lege.
The effect of indebtedness on continuing covering security
Pari passu ranking of security
Interestingly, the definition of 'security' in the Insolvency Act does not include cession in securitatem debiti or guarantees. 443 In earlier versions of the Insolvency Act, namely the Insolvency Act 32 of 1916 and the Insolvency Amendment Act 29 of 1926, the definition of security also did not include a guarantee.
The realisation of security
Parate executie
A clause in a mortgage that allows the mortgagee to perform without recourse to the mortgagor or the court by taking possession of the property and selling it is void. 694 The real lien is created as soon as the lender is in possession of the pledged movable property.
Perfection
In 2003, in Contract Forwarding (Pty) Ltd v Chesterfin (Pty) Ltd and Others,717 the Supreme Court of Appeal held that in a bond document “[a] perfection clause entitles the holder of the bond to take possession of the chattel as the bond However, a possible perfection clause gives the bond owner the right to take the movable property over which the bond is registered.
A lender’s common-law obligation to realise fair value for the security
Pacta commissoria and conditional sales
Security structure and security rights of syndicate lenders
General remarks
763 See section 4.5 Personal and real security, and the registration of security rights for an analysis of the nature of real security rights. Similarly, the claims of the mezzanine lender, including its claims to its security rights, are equivalent to the claims of any other mezzanine lenders holding security.
The security structure
The LMA states that the Security SPV is (i) segregated to ensure that it operates only as a special purpose vehicle within the relevant transaction;778 and (ii) tax neutral. The shares in the Security SPV are owned and held by a fund established under the Trustee Property Control Act780 known as the Equity Fund.
The security rights
The payment waterfall or priority order of payments is contractually regulated in the intercreditor agreement.820 Through this process, the senior lender's claims are settled before the mezzanine lender's claims. Once the senior lender's claim is settled, the mezzanine lender's claim is settled from the balance of the realized security proceeds.
Does cession of a principal debt automatically transfer security given for the principal
However, the debtor must be notified of the assignment so that the debtor fulfills his performance to the party who is entitled to receive performance based on the assignment. 838 See Section 5.1.3 Notice of Assignment to Principal Debtor and Performance, including Set-off.
Concluding remarks
Since the new Security SPV owns all security interests, ranking of security interests is not a problem for the Security SPV, as it is the only party holding security interests. The general principles applicable to security interests have been examined and the theoretical basis for an analysis of assignment and assignment in securitatem debiti has been laid.
The legal nature of cession
Cession as a bilateral juristic act of transfer
Cession in security versus out-and-out cession
Notice of the cession to the principal debtor and performance including set-off
Registration of cession
Legal requirements for a valid cession in securitatem debiti
Second, compensation may operate after the assignment in securitatem debiti of personal rights, but before the principal debtor receives notice of the assignment. Third, set-off may operate after the assignment in securitatem debiti of personal rights and after the principal debtor receives notice of the assignment.
Classification of cession in securitatem debiti: The law of obligations or the law of
Partial cession: Splitting the claim
An assignment in securitatem debiti is the transfer by the assignor (i) under the construction of pledge884 of part of a personal right, namely the right to enforce the debt owed to the assignor; or (ii) pursuant to the pactum fiduciae construction885 of the assignee's entire personal right to secure the secured debt. 914 In section 6.6 The pledge theory I discuss the application of the standard theory to an assignment in securitatem debiti as set out in Grobler.
The cession of future rights
Agreements prohibiting or restricting cession (pacta de non cedendo)
Notification of the waiver to the principal debtor, however, is typically done in such a way that the debtor provides performance to the party entitled to performance in accordance with the waiver. The abstract theory would not, under these circumstances, apply to the assignment in securitatem debiti, because the validity of the assignment agreement is not in doubt, but the principal debt is.
The fruits of a ceded right
Rights as security for a debt
The discussion of rights as security for the obligation to repay a debt is in fact a discussion of the object of cession in securitatem debiti. Describing the cession in securitatem debiti of personal rights in very broad terms, as happens in practice, can also lead to the parties to the cession disputing the scope of the cession.
Notice to the principal debtor and performance
The fact that the right to execute the principal debt (on the construction of the mortgage), or that the entire right (on the construction pactum fiduciae) has been by assignment in securitatem debti, passed to the assignee, does not affect or excuse the principal debtor. from performing its obligations. In the construction of a lien, the principal debtor must give performance to the assignor according to the terms of his contract with the assignor, unless he receives a notice of default from the assignee, in which case the principal debtor must give performance to the assignor.
The competing theories of cession in securitatem debiti: The pactum fiduciae theory
On the pactum fiduciae construction, the principal debtor must give performance to the assignee, as the effect of this construction is to transfer the contract between the assignor and the principal debtor to the assignee, so that the assignee assumes the position of the assignor as creditor.1098.
A review of the case law
The pactum fiduciae theory
The pledge theory
It is inherent in the security agreement that the security is automatically returned to the security provider in settlement of the secured debt. 629 Ibid clause 22.7 (Bankruptcy and business rescue procedures); as provided in Chapter 6 (Rescue of business and compromise with creditors) of the Companies Act 2008.
Theoretical issues arising from the pledge theory
The divisibility of personal rights
Therefore, the court held that an assignment in securitatem debiti takes the dominion out of the cedent completely and transfers it to the assignee, coupled with the said agreement. The effects of the pactum fiduciae theory on the assignor are potentially harmful if the assignee becomes insolvent.
Real rights over personal rights
Based on this construction, real law classically operates against something, namely the proceeds of the right to payment of the principal debt. Thus, both the senior lender and the mezzanine lender have real rights (their security interests) to the same proceeds from the principal debt, and not to the assignor's personal right to require its debtor to honor the principal debt.
The reversionary interest and the right of action: Security under the Insolvency Act
Enforcing the ceded rights: Locus standi
Whether the assignor is completely divested of all his rights against his principal debtor by reason of cession in securitatem debiti by acquiring locus standi on the assignee. Davis AJ considered the effect of the assignor's transfer of the right to recover the principal debt to the assignee.
Commercial considerations
Concluding remarks
International instruments
The UNCITRAL Model Law on Secured Transactions, 2019
The UNCITRAL Legislative Guide on Secured Transactions, New York, 2010
The United Nations Convention on the Assignment of Receivables in International
The Convention on International Interests in Mobile Equipment Act 4 of 2007
English law on charges
The law on charges
Reforming the English law on security interests
South African law on cession in securitatem debiti and the English law on charges 220
Summary
The reform of South African Law
The foundation of the lien theory is Cohen's Trustee, which held that the authority remained with the assignor while the right to sue for security was transferred to the assignee. The assignee's interest in the outcome of the litigation is the fulfillment of the stated obligation.
Introductory remarks
The law on loans for consumption
The law on security rights
Objectives, principles, international instruments and harmonisation
The reform of the South African law on secured lending
