.png)
Lessons from Bonatla v Ruitersvlei
Cessions in security (otherwise known as cessions in securitatem debiti) have long been used by lenders to secure the performance of borrowers, offering what appears to be a straightforward collateral mechanism. However, the recent judgment out of the Supreme Court of Appeal (“SCA”) in Bonatla Property Holdings v Ruitersvlei Holdings & Another (770/2024) [2026] ZASCA 26 (11 March 2026) (“Bonatla”) has illustrated hidden risks of this form of security, in particular where liquidation proceedings are commenced. The Bonatla case serves as a stark warning which is that if you have ceded your rights and interest as security, you may find yourself with no legal standing whatsoever, even where the principal debtor owes you substantial sums.
The Bonatla case
The case involved Bonatla Property Holdings Limited which was already in liquidation (“BPH”), and which had ceded a R49 million loan account claim it had in Ruitersvlei Holdings Proprietary Limited (“Ruitersvlei”) to Merchant Commercial Finance 1 Proprietary Limited (“Merchant”) as security for Ruitersvlei’s debt obligations to Merchants. When BPH’s liquidators tried to wind up Ruitersvlei, as a result of the unpaid loan account claim, which resulted in Ruitersvlei being unable to pay its debts, BPH argued that BPH was a creditor of Ruitersvlei on account of the “reversionary interest” which it alleged to have retained consequent to its claim against Ruitersvlei that it had ceded to Merchant. In other words, they argued that BPH still had a "reversionary interest" or "bare dominium" in the loan, making it at least a contingent or prospective creditor.
Both the High Court and the SCA rejected this argument, and the following effects of cessions in security became clearer:
1. No creditor status until the debt is discharged
The SCA held that an applicant company having ceded its loan account as security lacks standing as a creditor to seek winding-up of the ultimate debtor, and that the concept of reversionary interest does not confer creditor status prior to the discharge of the secured debt.
In Bonatla the SCA emphasised that when the right of action to a debt has been ceded, the cedent can no longer be referred to as a creditor but is a holder of a reversionary interest which can be exercised only once the debt owed to the cessionary has been paid.
2. The concept of “reversionary interest” is a mirage
The SCA has reiterated that any reversionary interest a cedent may have in and to ceded loan claims (debt) is only capable of being exercised once the secured debt is discharged.
The liquidators of BPH maintained that although BPH had ceded the R49 million loan to Merchant, it retained a residual interest or bare dominium in the loan account which renders it a 'contingent' or 'prospective' creditor of Ruitersvlei. As noted, the High Court and subsequently the SCA firmly rejected this position.
The "reversionary interest" that cedents may believe they retain is worthless for practical purposes until the secured debt is paid. This means that one cannot commence proceedings to recover the debt; seek liquidation of the debtor; claim creditor status in insolvency proceedings; or exercise any rights over the ceded claim whilst the secured debt remains outstanding.
Practical Implications
The Bonatla case exposes the harsh reality of cessions in security being that the cedent's reversionary interest is legally meaningless until the secured debt is fully discharged. What seems like a simple pledge of collateral actually constitutes a complete transfer of rights, and in some cases leaves the cedent in a legal vacuum. Once you cede a claim in security, the cessionary holds complete rights vis-à-vis third parties.
If you are a borrower considering ceding claims as security, it is important to understand the legal ramifications. For borrowers considering security arrangements or packages with lenders, there may be options better suited to your transaction and group structure, and these should be carefully considered and may include a pledge of shares or other assets, suretyships with a different or separate security underlying the suretyship itself and guarantees. Should you need assistance with security instruments, please get in touch with our team at Thomson Wilks.
