General Finance: Security in a loan facility

1. The two classes of assets owned by L.I.T group are immovable property and tangible
movable property. The immovable property being the 2 adjacent properties in the Western
Cape, Serenity’s vineyard and mini factory. The tangible movable property being the
machinery in the five factories across the country.

The legal requirements for the lender to be able to take security over the relevant assets is a
pledge, general notarial bond and a special notarial bond. Security over immovable property
can only be obtained by a special mortgage of immovable property as set out in the Deeds
Registries Act 1937 (DRA). It doesn’t transfer title in the mortgaged immovable property to
the lender. However, it confers a limited real right on the lender to have the immovable
property sold in execution and for the proceeds of the sale to be applied to either settle or
reduce the debt secured by the mortgage bond.

A pledge is an agreement between between the lender and the borrower together with the
delivery of the pledged movable property to the lender (or it’s agent). Title to the movable
property remains with the borrower subject to the lenders security interest.
A notarial bond must be executed by a notary and is executed by the owner of the property
subject to the bond. It contains an acknowledgment of debt by the borrower for the amount
of the bond which binds the borrowers property in favour of the lender as security for the
debt acknowledged.

There are risks we need to be aware of in respect of each property/asset provided as

security. Tangible movable property may succumb to damage or deteriorate in value to a
point where it won’t be possible for it to satisfy the debt. When it comes to real estate,
immovable property, interest rates may affect the price causing it to drop to a point
whereby it won’t satisfy the debt.