FILE: 001

FROM: Enock Kiptoo

TO: L.I.T. Breweries & Vineyard Group Proprietary LTD.
DATE: Tuesday, January 23, 2024
SUBJECT: Re: The L.I.T. Group Asset Financing Risk Assessment

Background
This memorandum addresses your questions in relation to the above matter, specifically
identifying classes of assets that may qualify as security to secure L.I.T. Group’s obligations,
laying out the legal requirements that allow the lender (ABC Bank) to take security over the
relevant asset, and any risks and concerns that L.I.T. Group must be aware of in respect of the
assets provided as security.
Facts
The advice set out in this memo is given in relation to the facts of L.I.T. Group’s ownership
structure that you have presented to us. L.I.T. Group wholly owns Serenity MMC and
Casablanca Breweries, which are fully incorporated in South Africa. Serenity MCC owns Serenity
Vineyard and a mini-factory, while Casablanca Breweries owns five beer factories in various
locations in South Africa. L.I.T. Group owns 50% shares of Taboo Vineyards alongside a
Portuguese Company, Loco SA. Taboo Vineyards wholly owns a vineyard and a factory in
Portugal.

Issues
Issue 1: Identifying Asset Classes: L.I.T. Group owns two classes of property. Real
estate/immovable property in Serenity Vineyard, the mini-factory and the beer factories owned
by Serenity MCC and Casablanca Breweries respectively. In order to use L.I.T. Group’s real
estate as security, a mortgage bond will be registered with ABC Bank before the Registrar of
Deeds where the real estate involved in the loan transaction was registered in line with Section
16 of the Deeds Registries Act 1937.
The second class of property owned by L.I.T. Group is intangible movable property. This refers
to the company’s financial instruments, claims and receivables and intellectual property. Both
these classes of property can be used as security. To utilize this class of property as security
would require perfection of a pledge or a cession in security by way of a notarial bond (either
general or special) between L.I.T. Group and ABC Bank. There is no registration requirement for
a pledge, unlike notarial bonds which must be registered within three (3) months after their
date of execution.
Issue 2: Legal Requirement for Taking Over Security: In the event of a breach or default of the
obligations set out in the contracts between L.I.T. Group and ABC Bank, the secured creditor is
entitled by law to enforce its security against the asset over which the creditor holds a security
interest. However, in the case of mortgage bonds and notarial bonds, the secured creditor must
take possession of the secured assets through attachment by the Sheriff of the High Court of
South Africa, and be granted a court order to that effect. After fulfilling this obligation, the bank
can sell the property and apply the proceeds to the discharge of the obligation owed.
Issue 3: Risks/Concerns: The risks that you need to be aware of will be discussed as follows.
(i) Real estate – Mortgage bond – The risk of offering real estate/immovable
property as security is it confers a limited real right to the lender. Even
though this right does not affect title to the property, it entitles the lender to
have the property sold in execution, and the proceeds applied to settle or
reduce the debt secured by the mortgage bond where debt obligations are
not met.

(ii) Intangible movable property – Pledge – The risk of offering movable through
a pledge lies in the availability of no requirement for registration or
notification. As a result, where obligations are breached or defaulted by the
borrower, the lender is not required by law to ensure notification of his
intention to sell the property in execution of the debt secured.

(iii) Real estate & Intangible Movable Property - Mortgage bonds & Notarial
bonds (general & special) – The risk with mortgage bonds and notarial bonds
is that they present further formalities once the debt obligation has been
discharged. Normally, one a borrower has fulfilled his principal duty to pay
debt, the security is automatically released. However, mortgage bonds and
notarial bonds require a further process of cancellation of the bonds at the
deeds registry. This may be a concern.
Analysis
L.I.T. Group has real estate and intangible movable property that may be used as security when
entering into an asset financing agreement with ABC Bank Ltd. – Corporate Finance Division.
The variety of assets is spread over land, share capital, financial instruments and intellectual
property. Depending on the type property, a mortgage bond, pledge or notarial bonds may be
used to perfect the security for the asset finance transaction. The Insolvency Act provides
business rescue options that may be sought in the event of default of obligations to save the
company, or to aid in the discharge of the debt obligation without negatively affecting the
company.
Conclusion
Based on the above memorandum on whether you have viable security, we advise that you are
qualified to borrow from ABC Bank Ltd to cushion your company from the special COVID-19
circumstances. From here, we recommend that you make an appointment with our offices to
discuss these matters and to discuss your subsequent contract with ABC Bank Limited.

Thank you for contacting us with this inquiry. Please do not hesitate to contact us if you have
further questions about this matter.
Kind regards,
Enock Kiptoo.