What is a cession of a loan account / claim?
Is a cession of a loan account valid and enforceable in South Africa, and do you need the company’s consent?
“It is trite that, in general, rights may be freely ceded. Thus, “any right arising out of a contract may be ceded by the party entitled thereto to a third party without the knowledge or consent of the party liable”.”
“The transfer of the right is effected by the mere agreement between the transferor (cedent) and the transferee (cessionary). Notice to the debtor is not a prerequisite for the validity of the cession but a precaution to pre-empt the debtor from dealing with the cedent to the detriment of the cessionary.”
“Logically speaking a non-existent right of action or a non-existent debt can never in law be transferred as the subject matter of a cession.”
When you need a Cession of Loan Account / Claims
- You are buying or selling shares in a private company and the seller has a credit loan account against the company — the loan account must be ceded to the buyer (or settled) alongside the share transfer, or the seller stays a creditor of the company you now own.
- A shareholder, director or holding company wants to transfer its loan-account claim to a trust, a family member or another group entity — for estate planning, restructuring, or to consolidate inter-company balances.
- A lender requires a cession of the borrower’s loan-account claims against a related company as security for a facility, overdraft or term loan.
- You are settling, novating or assigning inter-company loan accounts within a group as part of a reorganisation, unbundling or pre-sale clean-up of the balance sheet.
- A creditor wants to sell or factor a debt owed to it — including a loan-account claim — to a third party who will become the new holder of that claim and collect it.
What a Cession of Loan Account / Claims should contain
Identification of the loan-account claim being ceded
Describe the claim precisely — whose loan account, against which company, the Rand amount (or how it is determined), and the date to which the balance is fixed. A loan account fluctuates, so state whether you are ceding the balance as at a cut-off date or the full claim “as it stands from time to time”. A claim that cannot be identified cannot be ceded.
The cedent’s warranty that the loan account exists and is owed
The cedent should warrant the loan account is a genuine credit balance owed by the company, in the stated amount, unencumbered and not already ceded. Because a non-existent debt cannot be ceded (FNB v Lynn), confirm the balance against the company’s latest financials or a signed loan-account certificate — a buyer who pays for a loan account that is actually nil or a debit gets nothing.
Causa (the reason for the cession) and the price
Record why the claim is being transferred — sold for value as part of a sale of shares, ceded as security, donated, or settled against another debt. A cession needs a valid underlying cause (justa causa). Where the loan account is sold at a discount to face value (common where the company cannot repay in full), state the price clearly, as it drives the tax treatment for both parties.
Link to the share transfer (sale-of-shares deals)
In a sale of shares, tie the loan-account cession to the share transfer so the two move together — same effective date, same conditions precedent, same completion. Make it clear the purchase price covers both the shares and the loan account, and that completion of one is conditional on the other, so the buyer never ends up with the shares but not the loan account (or vice versa).
Repayment terms going forward
A loan account is often interest-free and repayable on demand, but state the position expressly after cession: is the ceded loan account interest-free or interest-bearing, repayable on demand or subordinated, and on what terms can the new creditor call it up? In a buy-out, parties frequently agree the loan account stays interest-free and is left in the company as working capital.
No anti-cession clause and no required consents
Confirm the underlying loan agreement does not contain a pactum de non cedendo or a clause requiring the company’s consent to cede. Although a loan account is rarely delectus personae, some loan or shareholders’ agreements restrict cession — where consent is needed, make obtaining it a condition of the cession.
Notice to and acknowledgement by the company
Although notice is not needed for validity, provide for the company to be notified and ideally to acknowledge the cession in writing. Until the company has notice, a repayment it makes to the original lender discharges the debt, so notice protects the new creditor and the acknowledgement records the balance the company accepts it owes.
Subordination interplay (if applicable)
If the loan account is subject to a subordination agreement (common where the company needs the loan account subordinated for solvency or audit purposes), the cession should preserve that subordination so the new creditor takes the claim subject to the same terms. The cessionary should know whether the claim it is acquiring is freely callable or subordinated behind other creditors.
Cession of a loan account vs transfer of shares in a sale of shares
| Feature | Loan account (cession) | Shares (transfer) |
|---|---|---|
| Legal nature | A debt — a personal right to be repaid money the company owes | Equity — a bundle of rights (dividends, voting, return of capital) |
| How it transfers | By cession — agreement between cedent and cessionary | By transfer of the shares and updating the securities register |
| Debtor / company consent | Not required to cede (unless an anti-cession clause applies) | Subject to the MOI / shareholders’ agreement (e.g. pre-emptive rights) |
| What the buyer receives | The right to be repaid the loan amount by the company | Ownership of the shares and the shareholder rights attached |
| Moves automatically with the other? | No — must be ceded separately and expressly | No — a share transfer does not carry the loan account |
| Typical pricing | At or below face value (often discounted if the company can’t repay) | Based on the value of the equity / business |
Common South African pitfalls
- Forgetting the loan account in a sale of shares. The loan account is a separate debt, not share capital — transferring the shares does not transfer it. If the cession is left out, the seller walks away still a creditor of the company the buyer now owns, and can later demand repayment of the loan account.
- Ceding a loan account that does not exist or is a debit balance. A non-existent debt cannot be ceded (FNB v Lynn). If the “credit” loan account has been repaid, or is actually a debit (money the shareholder owes the company), the cessionary acquires nothing — always verify the balance against the latest financials before pricing it.
- Treating the loan account as worth its face value. A loan account is only worth what the company can actually repay. Where the company is over-indebted, the claim may be worth far less than its book value, and a buyer who pays face value overpays — the price (and the discount) must reflect recoverability and the tax consequences.
- Ignoring an anti-cession clause or a subordination. Some loan or shareholders’ agreements prohibit cession (a pactum de non cedendo) or subordinate the loan account behind other creditors. A cession in breach of an anti-cession clause can be ineffective, and a cessionary who overlooks a subordination acquires a claim it cannot freely call up.
- Skipping notice to the company. Notice is not needed for the cession to be valid, but until the company knows of it, a repayment the company makes to the original lender validly discharges the debt — leaving the new creditor to chase the original lender for the money. Give written notice and obtain an acknowledgement of the balance.
Frequently asked questions
Can you cede a shareholder loan account in South Africa?
Yes. A shareholder loan account is a debt the company owes the shareholder — a personal right — and like any claim it can be transferred by cession. The claim passes on the agreement between the cedent (the lender) and the cessionary (the new creditor); the company’s consent is not required unless the loan agreement contains an anti-cession clause.
Do you need the company’s consent to cede a loan account?
Generally no. As the Constitutional Court confirmed in University of Johannesburg v Auckland Park, rights may be freely ceded without the debtor’s consent, subject only to a pactum de non cedendo (a no-cession clause) or rights too personal to be ceded. A claim to repayment of money is rarely too personal, so a loan account is normally freely cessionable.
In a sale of shares, does the buyer also take the loan account?
Almost always — and it must be done deliberately. The shares and the loan account are separate assets, so the share transfer does not carry the loan account with it. A sale-of-shares deal therefore both transfers the shares and cedes the seller’s loan-account claim to the buyer, usually for one combined price, so the buyer steps in as both owner and creditor.
What is the difference between a loan account and share capital?
Share capital is equity — money paid for shares, giving the shareholder rights to dividends, voting and a return of capital on winding-up. A loan account is debt — money lent to the company, which the company must repay. The shareholder who holds both is a shareholder and a creditor; the two are transferred by different mechanisms and must be dealt with separately.
Does the loan account have to be in writing to be ceded?
No statute requires a cession to be in writing, and the claim transfers on the mere agreement of the parties. In practice every loan-account cession is recorded in writing — to fix the amount ceded, prove the terms, record the warranty that the loan account exists, and provide notice to the company — even though writing is not a validity requirement.
Can you cede a loan account that has not been fully drawn or is uncertain in amount?
You can cede a present claim and future increases to it, but a non-existent debt cannot be transferred until it comes into existence (FNB v Lynn). A loan account that fluctuates should be ceded “as it stands from time to time” or fixed at a cut-off date, with a warranty of the balance, so the cessionary knows exactly what claim it is acquiring.
What happens if the company is insolvent — is the ceded loan account still worth anything?
The cessionary acquires the same claim the cedent had, ranking as a concurrent (unsecured) creditor unless the loan account was secured or subordinated. If the company cannot repay in full, the loan account is worth only what can be recovered, which is why such claims are often sold at a discount to face value — price it on recoverability, not book value.
Should the company be notified of the cession of its loan account?
Yes, even though notice is not required for validity. Until the company knows of the cession, a repayment it makes to the original lender discharges the debt — so the new creditor should give written notice and obtain the company’s written acknowledgement of the cession and of the balance it accepts it owes.
Sources & authority
- University of Johannesburg v Auckland Park Theological Seminary and Another (CCT 70/20) [2021] ZACC 13; 2021 (6) SA 1 (CC); 2021 (8) BCLR 807 (CC) (11 June 2021)
- Lynn & Main Inc v Brits Community Sandworks CC (348/2007) [2008] ZASCA 100; 2009 (1) SA 308 (SCA) (17 September 2008)
- First National Bank of SA Ltd v Lynn NO and Others (405/94) [1995] ZASCA 158; 1996 (2) SA 339 (SCA) (30 November 1995)
- Stevens R & Steyn L "Shareholders Loans: Fact or Fiction?" [2024] PER 28 (PER / PELJ)
This guide is general information, not legal advice. It reflects the law as at June 2026.