Credit & Consumer Law

Cession of Book Debts

An agreement by which a debtor pledges their outstanding book debts (amounts owed to them by their customers) to a creditor as security for a loan.

Legal Definition

In commercial lending, a bank or financier often requires a borrower to cede (assign) their book debts (outstanding debtors) as security. The cession can be outright (transferring title) or by way of security (pledge). A notarial special cession of book debts is registered in the Deeds Registry to protect priority against other creditors. On default, the financier collects the book debts directly from the borrower's customers.

📖 Constitutional / Statutory Basis: Section 25 (property rights)

Practical Example

A business borrows R1 million from a bank and cedes its R2 million debtor book as security. If the business defaults, the bank can collect directly from the business's customers.

Frequently Asked Questions

Does a cession of book debts need to be notarially executed in South Africa?

A general notarial cession of book debts must be registered to have a preference over other creditors in insolvency. A specific cession of a particular debt can be done by written agreement without notarial execution.

What happens to ceded book debts when a business is liquidated?

The financier's cession gives them a preference to collect from those book debts. The liquidator must account for the cession and cannot distribute ceded proceeds to general creditors before the cession holder is paid.

Related Terms

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