This blog was co-authored by Adriaan Lourens, Candidate Attorney.
In May 2025, the high court confirmed a lender’s right to enforce a pledge and cession agreement over a member’s interest in a close corporation (the debtor), despite the debtor having entered business rescue.
The lender had advanced two loans to the debtor. To secure the debtor’s obligations, the debtor’s sole member entered into a pledge and cession agreement, in terms of which the member pledged and ceded his entire member’s interest and loan accounts in the debtor as security. The agreement permitted the lender to register the member’s interest in its own name, or that of a nominee, without a court order, upon default by either the debtor or the member. Furthermore, the agreement prohibited the initiation of business rescue proceedings without the lender’s prior written consent.
Following the debtor’s failure to meet its repayment obligations, the member passed a resolution to place the debtor into business rescue without first obtaining the lender’s approval. After a written demand to remedy the breaches, the lender exercised its right to perfect the pledge by registering the member’s interest in its own name. However, the Companies and Intellectual Property Commission (CIPC) refused to give effect to the transfer in the absence of the member’s consent or a court order.
The lender approached the court for declaratory relief. The member opposed the relief, alleging that the lender had failed to fulfil its further funding obligations, and that the lender’s participation in the business rescue plan constituted a waiver of its rights under the pledge and cession agreement.
The court rejected the member’s arguments. It found no basis for the contention that the lender had been required to advance further funding, particularly since such advances were conditional upon the provision of acceptable security and the financial feasibility of the loan, both of which were absent. In light of the debtor’s unremedied breaches and the member’s unilateral and unauthorised resolution to commence business rescue, the court held that the lender had a valid right to perfect the pledge. The pledge and cession agreement clearly dispensed with the need for a court order to affect the transfer.
Importantly, the court emphasised that the lender’s right to take transfer of the member’s interest had accrued prior to the adoption of any business rescue plan, and that the enforcement of such pre-existing rights could not be overridden by business rescue proceedings. Accordingly, the court granted an order authorising the lender to register the member’s interest in its own name, or in the name of a nominee, to sell the interest, and to apply the proceeds towards the debtor’s outstanding indebtedness.
This judgment reinforces the principle that secured creditors may enforce their rights in accordance with the terms of their security instruments, despite the commencement of business rescue proceedings, provided such rights accrued prior to the commencement of the proceedings. Moreover, if allowed on the terms of a security agreement, one’s rights under a cession and pledge may be enforced without the cedent’s consent (the party who transfers or cedes their rights or interests to another) and without a court order.
The full judgment can be accessed here:
Blue House Investments (Pty) Ltd v Uys and Others (20261/2024) [2025] ZAWCHC 205 (16 May 2025)