Pledge

09/09/2022 - By Stella Van Loggenberg

A pledge is a limited real right to corporeal or incorporeal movable property, of which is put in the possession of the creditor to secure a principal debt.

1.Requirements for a pledge
There must be a pledge agreement, a principal obligation to be fulfilled, secured by a specific movable property. All parties to the agreement must have the necessary capacity to enter into the contract. The pledgor must have the necessary power to deal with the specific property.

2.Enforcement of a pledge
With the exception of estoppels, if the pledgor was not the true owner of the specific property being pledged, the pledge is not enforceable against the true owner and he/she can claim his property back. The pledge would however still remain enforceable against the “so called” pledgor.
A pledge can only be enforced between the pledge and the pledgor who is the true owner and has necessary authorisation to pledge the property. A pledge cannot be enforced if an unauthorised person pledges the property.

3.Realisation of security on default
The pledged object can be sold in execution/at a public auction after the pledgee has applied and received a judgement order for the outstanding debt.
In the case of a possessory pledge, an attachment order is not necessary, but the pledgee must obtain the court’s permission in order to sell the property at a public auction.
In the case of a statutory pledge, a non-possessory pledge, an attachment order is necessary if the pledgee is not in possession of the property, the sheriff then needs to take possession of the property.
On sale of the property, the difference must be paid to the pledgor if the property is sold for a higher price than what is owing between the pledgor and the pledgee. If the price is not enough to cover the debt, the pledgee will be a concurrent creditor for the balance owing.

4.Realisation of debt if the debtor is insolvent
In terms of section 95 of the Insolvency Act, the pledgee has a preferential claim to the proceeds of the pledged object. If the property is sold in execution and the purchase price is not enough to cover the debt, the pledgee then becomes a concurrent creditor with regards to the balance owing.