What is a security cession (cession in securitatem debiti)?
Is a security cession enforceable in South Africa, and what formalities apply?
“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 … The main object of making the cession was to provide the Bank with security (in securitatem debiti) in respect of the contractor’s bank account with it.”
When you need a Security Cession
- A bank or financier extends an overdraft, term loan or facility and takes a cession of the company’s book debts, bank-account balances or loan claims as security for repayment.
- A business raises finance against the proceeds of its life or key-person insurance policies, or a shareholder cedes a policy or loan-account claim to back the company’s borrowing.
- You are putting together a group security package — for example a holding company or related entity ceding its claims on loan account, rental income or inter-company debts to a lender.
- A creditor wants additional security alongside a suretyship or mortgage bond and asks for a cession of specific or general receivables until the principal debt is settled.
What a Security Cession should contain
Identification of the secured debt (causa)
State precisely which debt or obligation the cession secures — e.g. “all amounts owing under facility letter X” or “all present and future indebtedness to the cessionary”. The cession must have a valid underlying cause (justa causa); an agreement to provide security is itself adequate causa, but the secured obligation must be ascertainable so the cession can be released once it is paid.
Description of the ceded rights
Define the personal rights transferred — book debts, named debtors, a specific bank account, identified insurance policies, rental streams, loan-account or shareholder claims. The deed should be wide enough to capture present and future rights of the relevant class, while being specific enough that the subject matter is determinable.
Pledge construction vs out-and-out (fiduciary) construction
The most important commercial choice. Under the pledge construction the cedent retains the right (and its reversionary interest) and merely pledges it, so on the cedent’s insolvency the cessionary ranks as a secured creditor over the proceeds. Under the out-and-out / pactum fiduciae construction the right vests in the cessionary subject to a duty to re-cede on payment. If intention is unclear, South African courts lean towards the pledge construction — but the deed should say which is intended.
Reversionary interest and re-cession on discharge
Record that, once the secured debt is paid in full, the ceded rights revert to (or are re-ceded to) the cedent. Confirming the cedent’s reversionary interest is what lets the cedent use any surplus value as further security to another creditor and protects the cedent against being over-secured.
Notice to and dealings with the underlying debtor
Although notice is not needed for validity, deal with it expressly: who may notify the debtors, when, and what the cedent may continue to collect in the ordinary course until default. Until the debtor has notice, payment by the debtor to the cedent discharges the debt, so the deed should regulate collection and the trigger for the cessionary to take over.
Warranties, undisclosed cessions and ranking
The cedent should warrant that the rights are unencumbered, freely cessionable, and not already ceded elsewhere. Because there is no register for cessions, a second cession of the same right is a real risk — include warranties against prior cessions, an undertaking not to cede again, and provisions on ranking and priority between competing cessionaries.
Default, enforcement and collection mandate
Set out what the cessionary may do on default: notify debtors, collect directly, apply proceeds to the secured debt, and account for any surplus. Where the construction is a pledge, spell out the right to realise the ceded claims and the order in which proceeds are applied.
Anti-cession clauses and cessionability
Confirm that the underlying contracts do not prohibit cession (a pactum de non cedendo can render an attempted cession ineffective), and that the right is not so personal in nature (delectus personae) that it cannot be ceded. Where consents are needed, make obtaining them a condition.
Security cession (in securitatem debiti) vs out-and-out cession in South African law
| Feature | Security cession (in securitatem debiti) | Out-and-out cession |
|---|---|---|
| Purpose | Transfers a right as security for a debt | Transfers a right permanently (e.g. sale, factoring, assignment) |
| Cedent’s residual interest | Retains a reversionary interest; right reverts on payment | None — the cedent is fully divested of the right |
| On full payment of the secured debt | Right reverts to or is re-ceded to the cedent | Nothing reverts; the cession stands |
| Typical default construction | Pledge construction where intention is unclear (cedent retains the right) | Outright transfer of ownership of the right |
| Effect on cedent’s insolvency | Cessionary ranks as a secured creditor over the proceeds (pledge) | The right is simply no longer in the cedent’s estate |
| Notice to underlying debtor | Not required for validity, but protects the cessionary | Not required for validity, but protects the cessionary |
Common South African pitfalls
- Leaving the construction (pledge vs out-and-out) unstated. The two constructions produce very different outcomes on insolvency and on the cedent’s ability to use surplus value as further security. A silent deed is read by the courts as a pledge, which may not be what a lender intended — say which construction applies.
- Assuming a future or non-existent right is transferred at signature. A security cession can cover future book debts, but FNB v Lynn confirms a non-existent debt cannot be ceded until it comes into existence — so the cessionary’s real security only attaches as each future claim accrues, which matters if the cedent is sequestrated in the meantime.
- Forgetting that notice to the debtor protects the cessionary. Notice is not needed for validity, but until the debtor knows of the cession, payment to the cedent discharges the debt and a fraudulent cedent can collect or re-cede — so a cessionary who delays giving notice carries real risk.
- Over-securing the cedent or double-ceding the same right. Because there is no cession register, the same book debts can be ceded twice; without warranties against prior cessions and clear ranking, competing cessionaries end up in a priority fight.
- Ignoring anti-cession clauses (pactum de non cedendo) or delectus personae. If the underlying contract prohibits cession, or the right is too personal to be ceded, the security cession may be ineffective despite a perfectly drafted deed.
Frequently asked questions
What does “in securitatem debiti” mean?
It is Latin for “as security for a debt”. A cession in securitatem debiti is a security cession — a right (such as book debts or a policy) is transferred to a creditor to secure repayment of a debt, rather than sold or given away permanently. Once the debt is paid, the right reverts to the cedent.
Does a security cession have to be in writing in South Africa?
No. There is no statute requiring a cession to be in writing, and a cession transfers the right on the mere agreement of cedent and cessionary. In practice, however, security cessions are always reduced to a written deed — writing proves the terms, identifies the rights and the secured debt, and avoids disputes, even though it is not a validity requirement.
Do you have to notify the debtor for a cession to be valid?
No. As the SCA confirmed in Lynn & Main v Brits, notice to the debtor is not a prerequisite for the validity of a cession — the transfer happens by agreement between cedent and cessionary. Notice is a precaution: until the debtor knows of the cession, a payment made by the debtor to the cedent validly discharges the debt.
What is the difference between a security cession and an out-and-out cession?
A security cession (in securitatem debiti) transfers a right only as security, and the right reverts to the cedent once the secured debt is paid. An out-and-out cession transfers the right permanently — for example when debts are sold or assigned in a factoring deal — and nothing reverts to the cedent.
What is the difference between the pledge and the out-and-out construction of a security cession?
Both secure a debt, but they allocate the right differently. Under the pledge construction the cedent retains the right and its reversionary interest and merely pledges it; under the out-and-out (pactum fiduciae) construction the right vests in the cessionary, who must re-cede it on payment. Where the parties’ intention is unclear, South African courts default to the pledge construction.
Can you cede future debts as security in South Africa?
Yes — a security cession can cover present and future debts, and a deed worded to include debts “now or hereafter” owing is enforceable. But under FNB v Lynn a non-existent debt cannot actually be transferred until it comes into existence, so the cessionary’s security over each future claim only attaches once that claim accrues.
What happens to a security cession if the cedent is liquidated or sequestrated?
It depends on the construction. Under the pledge construction the cessionary ranks as a secured creditor and is paid from the proceeds of the ceded rights ahead of concurrent creditors. Under the out-and-out construction the rights are treated as having vested in the cessionary. This is exactly why the chosen construction must be made clear in the deed.
Can a right be ceded if the contract says it may not be ceded?
Generally not. A pactum de non cedendo — a clause in the underlying contract prohibiting cession — can render an attempted cession ineffective, and some rights are too personal in nature (delectus personae) to be ceded at all. Before taking a security cession, check the underlying contracts for anti-cession clauses and obtain any required consents.
Sources & authority
- Lynn & Main Inc v Brits Community Sandworks CC (348/2007) [2008] ZASCA 100; 2009 (1) SA 308 (SCA)
- First National Bank of SA Ltd v Lynn NO and Others (405/94) [1995] ZASCA 158; 1996 (2) SA 339 (SCA)
This guide is general information, not legal advice. It reflects the law as at June 2026.