Pledge

In South Africa, security over financial instruments is typically established through a pledge, cession in security, or a combination of both.

A pledge involves a debtor (pledgor) providing tangible movable property as security to a creditor (pledgee). This is formalized through an agreement and perfected when the property is delivered to the pledgee or their agent. While the pledgor retains ownership, the pledge grants the creditor a security interest in the asset.

A cession in security, on the other hand, involves the debtor (cedent) ceding intangible (incorporeal) movable property rights to a creditor (cessionary). This is often structured as a cession in securitatem debiti, where the cedent retains bare ownership while the creditor holds the security. Common assets secured in this way include book debts, bank account funds, insurance policies, or shares. In some cases, the cession may be an out-and-out cession, where ownership transfers to the cessionary until the secured debt is repaid.

For certificated financial instruments, security is typically perfected through the delivery of the certificate and transfer forms. For uncertificated instruments, security is noted on the relevant securities account.

South African law imposes duties on cessionaries to safeguard the cedent’s interests in the ceded rights, with their obligations shaped by the terms of the agreement between the cedent and cessionary.

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