Imagine you lend money to someone, securing this loan with a bond on their property. But what if the borrower can’t repay and becomes insolvent? This is when Section 88 of South Africa’s Insolvency Act (Act 24 of 1936) becomes crucial.
Bond registration acts like a legal safeguard for your loan, establishing a formal record that links your debt to a specific property. This linkage is vital, especially if the borrower faces insolvency.
Understanding the Hardening Period
The hardening period is akin to a “drying time” for this legal safeguard. Here’s how it unfolds:
- Two Months: If the bond secures a debt that existed for more than two months before its registration, you could face complications under Section 88.
- Six Months: Should the borrower’s estate be liquidated within six months after registering the bond, and the original debt exceeded two months before registration, your preferential claim on the property may be contested.
Implications for Your Claim
- Registered Bond with Met Hardening Period: If the debt originated less than two months before the bond registration, or if the insolvency occurs after six months, your legal position is strong. Your bond holds preferential status, increasing your likelihood of recovering your money when the property is sold.
- Registered Bond with Missed Hardening Period: Conversely, if the debt predates the registration by over two months, and insolvency occurs within six months, your preferential claim could be challenged by other creditors and your claim will be concurrent.
The Significance of Timing
The hardening period is critical for securing your loan’s protection. Ideally, register the bond within two months of incurring the debt to enhance your legal position in the event of the borrower’s insolvency.
Section 88 addresses intricate legal considerations. To utilise these effectively and maximise your protection, it’s advisable to consult with an experienced expert specialising in commercial or property law. The team at Barnard can provide tailored advice on meeting the specific requirements and timelines pertinent to your situation.
Article by Koos Benadie | Director
