What transpires to mortgage bonds registered in favour of a company that becomes deregistered?
by Kristijan Madjarevic
Introduction
A legal challenge that faces many Legal Practitioners, and in particular Conveyancers, is where a mortgage bond is registered in favour of a company that ends up becoming deregistered. In law the legal term for such a situation is where a mortgage bond is deemed ‘Bona Vacantia’. The doctrine deals with ownerless property, normally, undistributed assets of dissolved companies that are forfeited to the state. It has its origins in Roman law, specifically in the context of intestate succession where no intestate heirs exist. Similarly, in English law, assets of a person who dies intestate without any intestate heirs, passes to the Crown.
Effect of deregistration of companies on a Conveyancing matter
The hardship that is caused by a property that is deemed Bona Vacantia, is that where such a property is transferred several challenges may arise. The effect of a deregistration of a Company or Close Corporation is that its legal standing and authenticity comes into question. Whereby a Company or Close Corporation is deregistered and a mortgage bond was registered in its favour, the said legal entity may no longer trade in its name, or enter into binding business transactions due to the entity being deprived of its legal existence. The assets of such a deregistered Company or Close Corporation automatically pass to the State as Bona Vacantia. In Barclays National Bank Ltd v Kalk 1981(4) SA 291 (W) the court held that a debt that is due to a creditor of a Company or Close Corporation that has been deregistered is not extinguished, but unenforceable.
In the case of Rainbow Diamonds (Edms) Bpk en Andere v Suid-Afrikaanse Nasionale Lewensassuransiemaatskappy 1984 (3) SA 1(A) it was held that a company’s assets which were not transferred prior to the dissolution of such company are vested in the State as Bona Vacantia.
Furthermore, it was held that where an application is brought to set aside the dissolution of a company, notice must be given to the Department of Finance in the event of the assets being claims or money. The Treasury will accordingly relinquish any claims, which accrued to the State as Bona Vacantia to persons entitled to such claims before dissolution.
How the Rainbow Diamonds Case affects Conveyancing transactions?
Firstly, where a restrictive condition is registered over a property (such as a servitude) in favour of a company and such company is liquidated, the question that arises is how this condition should be dealt with on the transfer of the property. Section 68(1) of the Deeds Registries Act (hereinafter referred to as “the Act”), provides that the title deed of the burdened property can be endorsed on the lapse of the condition, upon application by the owner or a proxy, provided that proof is lodged upon the lapse of the condition. Proof which a registrar of deeds will require for the lapse of a personal servitude or restrictive condition is simply proof that the company has been fully wound up in terms of Section 419 of the Companies Act. This should be in the form of documentary evidence from the registrar of companies.
Secondly, where a mortgage bond has been passed in favour of a company which has been liquidated and its affairs wound up in terms of Section 419 of the Companies Act, the Conveyancer is encountered with the problem of how to cancel the bond registered in favour of such company when the registered owner wishes to deal with the land. In terms of section 56 of the Deeds Registries Act 47 of 1937, no transfer of mortgaged land shall be verified or executed by the registrar unless the mortgage bond is disposed of. It has become a well-known practice that an order of court should be obtained for such cancellation. In terms of the Rainbow Diamonds case, a registrar of deeds may accept a consent for the cancellation of a bond signed by the head of the National Treasury of the Republic of South Africa, provided the indebtedness secured by the bond has been paid in full.
Lastly, an immovable property that is still registered in the name of a liquidated company is dealt with if the company’s matters have been fully wound up in terms of Section 419 of the Companies Act in the following manner:
- Section 16 of the Deeds Registries Act provides that the ownership of immovable property may be transferred from one person to another only by way of a deed of transfer.
- Furthermore, Section 33 of the Act provides that any person who has attained immovable property, other than by expropriation, and who is unable to secure the registration in his or her name in the usual manner, must apply to court for an order authorizing the registration of the property in his or her name.
The options available to legal practitioners in dealing with a bona vacantia mortgage bond
The three options available to practitioners include:
- Approaching the court to cancel the bond;
- Having the mortgagee reinstated;
- Approaching National Treasury to sign the consent to cancellation.
The last option is the most cost-effective option given the fact that in most cases the value of the property does not warrant the costs of having the mortgagee re-instated, or to approach court for the cancellation of the bond. Therefore, no legal impediment exists prohibiting or preventing National Treasury from consenting to the cancellation of such bonds.
Conclusion
The decided case of Rainbow Diamonds has brought assistance in terms of mortgage bonds, however in terms of immovable property, application and the lengthy pathway to the courts must be followed.