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Cession of Book Debts Agreement Template South Africa
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Cession of Book Debts Agreement Template South Africa
A legal agreement allowing the transfer of book debts to creditors.
- Enhanced debt recovery process.
- Provides additional security.
- Increased creditworthiness for the cedent.
CESSION OF BOOK DEBTS AGREEMENT SOUTH AFRICA
Summary A contract for the Cession of Book Debts may be used where a debt is owed or may in the future be owed by a debtor, and additional security is required. By signing a cession contract, the debtor agrees to transfer to the creditor the right to claim money owed to the debtor by others.
Why do I need a Cession of Debts? A Cession of Book Debts contract can provide a creditor with additional security. If the debtor defaults in their payments, you may use the cession contract to claim money that is owing to the debtor, eg. by the debtor’s customers. A Cession of Debts agreement is often used as an additional security requirement when a customer applies for a credit facility, before any goods or services are delivered. It can also be used to obtain additional security before lending someone money or goods and equipment.
Also view: Cession and Pledge of Goods
What type of business should use a Cession of Debts Agreement? If your business has debtors that owe money, or there is a high likelihood that they will in the future owe money, then a Cession of Book Debts undertaking may be considered to reduce your risk in the debtor defaulting.
What does the Contract of Cession look like? The cession template can be printed onto two pages.
What do you need to do to use a Cession of Book Debts?
- Read the template cession agreement document to ensure that it suits your requirements. Make changes as required.
- Complete the relevant details, and get the debtor to sign.
- A Cession of Book Debts contract is usually obtained at the beginning of the business relationship, or during the application stage, and before any goods / services / loan is delivered. But it can also be used to obtain additional security from a debtor who owes money.
If the transaction is subject to the National Credit Act 34 of 2005 then we recommend that specialist advice be obtained.
Cession of Book Debts Agreement Template South Africa [Microsoft Word Doc]
Cession of book debts agreement: An Overview
A Cession of Book Debts Agreement is a legal document commonly utilized in South African law, particularly in the context of loan agreements. It involves the transfer of book debts or monies owed by a borrower’s debtors to a secured creditor as security for a loan.
In this agreement, the borrower, who owes a debt to the secured creditor, agrees to cede or transfer their rights to claim the monies owed by their debtors to the creditor. By doing so, the borrower provides the creditor with a form of security, ensuring that if the borrower defaults on their loan repayments, the creditor can recover the outstanding amount from the borrower’s debtors.
The cession of book debts agreement establishes a security interest in favor of the secured creditor. It is a legal act that transfers the ownership of the ceded debt or the right to claim the monies owed from the borrower’s debtors. The secured creditor, often a financial institution like Absa Bank Limited or Standard Bank, obtains the ceded claim as collateral for the borrower’s debt.
The agreement typically includes explanatory notes to clarify the rights and obligations of both parties. It outlines the terms and conditions under which the cession of book debts takes place, including the due date for repayment and the process for handling any future debts collected by the borrower.
The cession of book debts agreement is a security undertaking that is generally utilised where one entity (for example a bank or a company) (“ the Lender ”) lends and advances money (“ the Loan ”) to another entity (” the Borrower ”), or which may in future lend and advance money to such Borrower. The facility agreement is generally utilized to provide additional security for the lender. It allows the lender to have a reversionary interest in the debts owed by the borrower’s debtors, ensuring that any future monies (advances money) collected by the borrower will be used to cover debts . (the outstanding debts.)
It’s important to note that the cession of book debts differs from an outright cession (out and out cession), which is a transfer of ownership without any security interest. The cession of book debts is a form of security cession, where the cedent (the borrower) transfers the rights to the ceded debt but retains certain personal rights. The cedent retains the ability to re-cede the debts to the borrower once the loan is repaid.
The cession of book debts agreement is based on the pledge theory, which allows for the creation of a security interest in intangible assets, such as the borrower’s debts. It is a common law concept that has been recognized and enforced by the South African courts, including the Supreme Court.
The Cession of Book Debts Agreement offers several benefits to both the secured creditor and the borrower.
- Security Interest: The agreement allows the secured creditor to establish a security interest in the borrower’s book debts. This provides the creditor with additional assurance that they have recourse to the borrower’s future debt collections if the borrower defaults on their loan repayments.
- Claim Monies Owed: By ceding the book debts, the borrower enables the secured creditor to claim monies owed by the borrower’s debtors directly. This streamlines the process of debt collection and ensures that the creditor has a direct avenue to recover the outstanding amounts.
- Loan Repayments: The cessionagreement strengthens the borrower’s commitment to making timely loan repayments. Since the borrower’s future lend payments from their debtors are ceded to the creditor, the borrower is incentivized to fulfill their repayment obligations to avoid default.
- Cover Debts: The agreement provides a mechanism to cover the borrower’s debts. In case of default, the secured creditor can use the ceded debt collections to cover the outstanding loan amount, reducing the risk for the creditor and potentially minimizing any financial losses.
- Security Cession: The agreement utilizes a security cession, which is a common method in our law for providing security to creditors. It offers a legal framework that protects the interests of both the creditor and the borrower, ensuring clarity and enforceability of the rights and obligations outlined in the agreement.
- Transfer Ownership: Through a security undertaking such as the cession of book debts, the ownership of the ceded debts is transferred from such borrower to the secured creditor. This transfer grants the creditor greater control over the debts and provides a legal basis for the creditor to collect the outstanding amounts directly from the debtor.
- Future Advances: The cession agreement also caters to future advances. If the borrower requires additional funds, the agreement can be structured to allow for the cession of future debt collections, offering flexibility for both parties.
- Explanatory Notes: The inclusion of explanatory notes in the agreement ensures that both parties have a clear understanding of their rights and obligations. These notes serve as a helpful guide, providing additional context and clarity to avoid any potential misunderstandings.
The Agreement offers benefits such as enhanced security for the creditor, streamlined debt collection, incentivized loan repayments, coverage for outstanding debts, and flexibility for future advances. It provides a legal framework that protects the interests of both parties and ensures the enforceability of the agreement under South African law.
In summary, a cession of book debts agreement is a legal instrument that enables a borrower to provide additional security to a lender by transferring the ceded rights to claim the monies owed by their debtors. It is a mechanism used to secure a debt and ensure that the lender has recourse to the borrower’s upcoming debt collections in the event of default.
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