What is a pledge and cession of shares or movables?
Is a pledge and cession of shares or movables enforceable in South Africa?
“‘… even if the option of an alternative form of cession in securitatem debiti were held to be open to the parties, their intention to do so would have to be clearly expressed. Absent such clear expression of intention, the pledge construction must prevail … which means that the default position will be that the pledge theory will apply.’”
“‘It is different with movables held in pledge: a term in an agreement of pledge, which provides for the private sale of the pledged article and in the possession of the creditor, is valid …’ (confirming the validity of parate executie over pledged movables).”
“‘… the truth probably is that the cedent by way of security retains his reversionary right, that is to say his right to enforce the ceded right of action after the secured debt has been discharged.’”
When you need a Pledge & Cession of Shares or Movables
- A bank or financier extends a loan, overdraft or acquisition facility and requires the company’s shares (or the shares of a borrower’s subsidiary) to be pledged and ceded as security for repayment.
- A business raises working capital and offers its movable assets — book debts and trade receivables, stock, plant and equipment, or a key insurance policy — as security rather than (or alongside) immovable property.
- A shareholder or director gives personal security for the company’s debt by pledging and ceding their shareholding, loan account claims, or investment and policy proceeds.
- A seller in a deferred-payment business or share sale wants security for the outstanding purchase price, taking a pledge and cession over the very shares or assets being sold until the price is paid in full.
- A group puts in place a security package (often with a general or special notarial bond) and needs the pledge and cession deed to dovetail with the rest of the secured-lending documents.
What a Pledge & Cession of Shares or Movables should contain
Identification of the secured asset
Precisely describe what is pledged and ceded — the specific shares (with share numbers and certificate details), the claims or book debts, the policy, or the corporeal movables. Vague or shifting descriptions undermine perfection and make enforcement difficult, especially for a pool of present and future rights.
Delivery / perfection mechanics
Spell out how the security is perfected: physical delivery of corporeal movables to the pledgee; delivery of share certificates plus a signed transfer form left blank as to transferee; or, for dematerialised shares, the electronic entry in the securities account under the Financial Markets Act. Without effective perfection there is no real security against third parties.
The secured obligations (principal debt)
Define exactly which debt or obligations the security covers — a specific facility, or all present and future indebtedness. Because the security is accessory, it can only validly secure an existing or future ascertainable debt, and the reversionary interest revives the moment that debt is discharged.
Choice of security-cession theory and reversionary interest
State that the cession is in securitatem debiti (security, not an out-and-out transfer) and that the cedent retains a reversionary interest. Under Grobler v Oosthuizen the pledge theory applies by default unless the parties clearly express a different intention — so make the intended construction explicit to avoid argument later.
Voting, dividends and control during the security period
For pledged or ceded shares, regulate who exercises voting rights, who receives dividends and distributions, and what the pledgor may and may not do with the company while the security subsists. Lenders typically take dividend rights and impose negative covenants; this clause is often the commercial heart of a share-security deal.
Realisation on default (parate executie)
Set out the creditor’s remedies if the debtor defaults — including a parate executie clause permitting sale of the pledged movables without prior court order, which Bock v Duburoro confirms is valid for movables in the creditor’s possession (subject to the debtor’s right to approach a court if the creditor acts unfairly). The debtor remains protected against abuse.
No pactum commissorium / forfeiture
Avoid any term under which the creditor simply keeps the asset in satisfaction of the debt on default (a pactum commissorium), which is impermissible. The deed should provide for a proper sale or court-supervised realisation and accounting for any surplus, not automatic forfeiture of the secured asset.
Notice to the debtor of the ceded claim
Although a cession is valid between cedent and cessionary without notifying the underlying debtor, giving notice to that debtor (for example the company or the account debtor) prevents them from validly paying the cedent and is often essential to protect the creditor’s priority and collect the ceded claim.
Pledge vs cession vs notarial bond as movable security in South Africa
| Feature | Pledge (corporeal) | Cession in securitatem debiti | Notarial bond |
|---|---|---|---|
| Type of asset secured | Physical movables (equipment, stock, share certificates) | Personal rights (shares, claims, book debts, policies) | Movable assets of the debtor (specific or all) |
| How it is perfected | Delivery of the asset to the creditor | The cession agreement itself (no delivery possible) | Registration in the Deeds Registry (special bond needs no delivery) |
| Debtor keeps possession? | No — the creditor holds the asset | Cedent retains a reversionary interest only | Yes — debtor keeps and uses the assets |
| Default theory if unclear | Real right of pledge on delivery | Pledge theory (Grobler v Oosthuizen) | Real right ranks from registration |
| Enforcement on default | Parate executie possible (Bock v Duburoro) | Creditor collects/realises the ceded right | Perfection (taking possession) usually via court |
Common South African pitfalls
- Leaving the asset with the debtor. A “pledge” where the corporeal movable is never delivered to the creditor generally creates no valid real security — the publicity principle requires the asset to leave the debtor’s control. If you need the debtor to keep using the assets, a notarial bond, not a pledge, is the right tool.
- Not perfecting share security correctly. For certificated shares the creditor should hold the share certificate together with a signed transfer form blank as to transferee; for dematerialised shares the pledge or cession must be entered in the securities account under the Financial Markets Act. Skipping these steps leaves the “security” unenforceable against third parties.
- Treating a security cession as an outright transfer. Because the pledge theory applies by default (Grobler v Oosthuizen), the cedent keeps a reversionary interest and the right reverts when the debt is paid. Drafting that wrongly transfers the right out-and-out — or fails to say which theory applies — invites disputes about who owns and may enforce the claim.
- Including a forfeiture (pactum commissorium) clause. A term letting the creditor simply keep the asset on default in satisfaction of the debt is impermissible; the deed must provide for a proper sale and accounting for any surplus. A defective parate executie clause can also be challenged if the creditor realises the asset unfairly.
- Forgetting notice to the underlying debtor. A security cession of a claim is valid without notifying the account debtor, but without notice that debtor can still validly pay the cedent — and the creditor’s priority and ability to collect can be prejudiced. Notice is also often needed to defeat a later competing cession.
- Ignoring the National Credit Act and insolvency ranking. Pledges of movables can fall within the National Credit Act where the underlying agreement is a regulated credit agreement, and on insolvency the secured creditor’s preference depends on valid, perfected security existing before sequestration or liquidation.
Frequently asked questions
What is the difference between a pledge and a cession in South African law?
A pledge is real security over corporeal (physical) movables — such as equipment or a share certificate — and is created by delivering the asset to the creditor. A cession in securitatem debiti is the equivalent for incorporeal movables — personal rights such as shares, claims, book debts or policies — which cannot be physically delivered and are instead transferred to the creditor by agreement as security. Share-security deeds usually use both together.
Is delivery required for a valid pledge of movables in South Africa?
Yes. A pledge of corporeal movables is only perfected once the asset is delivered to, and held by, the creditor (the pledgee). This is the publicity principle: a real right over movables must be visible by the creditor taking the asset out of the debtor’s control. A pledge where the asset stays with the debtor generally creates no valid real security — a notarial bond is then the appropriate alternative.
How do you pledge or cede shares as security in South Africa?
For certificated shares, the creditor takes delivery of the original share certificate together with a securities transfer form signed by the shareholder and left blank as to transferee, and the underlying rights are ceded in security. For uncertificated (dematerialised) shares, the pledge or cession is effected by electronic entry in the securities account under the Financial Markets Act 19 of 2012. Both create real security over the shares.
What is a cession in securitatem debiti?
It is a cession (transfer) of a personal right — such as a claim, book debt, shareholding or policy — to a creditor as security for a debt, rather than as an outright sale. On the leading South African authority the “pledge theory” applies by default: the cedent retains a reversionary interest, so once the secured debt is paid the right automatically reverts to the cedent without needing a re-cession.
What does the “pledge theory” mean for a security cession?
In Grobler v Oosthuizen [2009] ZASCA 51 the Supreme Court of Appeal held that, unless the parties clearly express a different intention, a cession in securitatem debiti is governed by the pledge theory. The claim is “pledged” to the cessionary while the cedent keeps the bare dominium or reversionary interest, which revives on payment of the secured debt. The default is therefore security, not a permanent transfer of ownership of the right.
Can a creditor sell pledged shares or movables without going to court?
Potentially yes, if the deed contains a valid parate executie clause. In Bock v Duburoro Investments [2003] ZASCA 94 the SCA confirmed that a term allowing private sale of a pledged movable already in the creditor’s possession is valid. The debtor remains protected: a court can intervene if the creditor enforces unfairly, and the creditor must account for any surplus over the debt.
Is notice to the debtor needed for a security cession to be valid?
No — a cession is valid between the cedent and the creditor (cessionary) without notifying the underlying debtor (for example the company or the account debtor). However, without notice that debtor can still validly pay the cedent, and notice helps protect the creditor’s priority against a later competing cession. In practice, giving notice is strongly advisable and sometimes essential to collect the ceded claim.
Does the National Credit Act apply to a pledge of movables?
It can. Where the pledge secures a credit agreement regulated by the National Credit Act 34 of 2005 — such as a regulated loan or pawn transaction — the Act’s requirements apply to that underlying agreement and affect how the security may be enforced. Whether the Act applies depends on the nature of the principal credit agreement the pledge and cession secures.
Sources & authority
- Grobler v Oosthuizen (299/2008) [2009] ZASCA 51; 2009 (5) SA 500 (SCA) (pledge theory; reversionary interest)
- Bock and Others v Duburoro Investments (Pty) Ltd (228/2002) [2003] ZASCA 94; 2004 (2) SA 242 (SCA) (parate executie; pledge of shares)
- Batteson NO and Others v Joubert NO and Another (42/2024) [2025] ZASCA 129; 2025 (6) SA 386 (SCA) (security cession; reversionary right)
- Financial Markets Act 19 of 2012, s 39 (pledge or cession of uncertificated securities in securitatem debiti) read with s 40 (ranking of interests)
- Companies Act 71 of 2008, ss 49–53 (certificated and uncertificated securities; transfer)
This guide is general information, not legal advice. It reflects the law as at June 2026.