Although the distinction between an outright cession and a cession in securitatem debiti (as a security) is well established in principle, its practical consequences, particularly in insolvency and liquidation contexts, are often misunderstood. The Supreme Court of Appeal’s (SCA) decision in Bonatla Property Holdings Ltd (in liquidation) v Ruitersvlei Holdings (Pty) Ltd and Another (770/2024) [2026] ZASCA 26 (11 March 2026) provides important clarification on the legal effect of cession as security and the extent to which a cedent retains enforceable rights. It specifically discusses the principles applicable to the legal standing of a creditor seeking to liquidate a debtor where that creditor ceded its rights to the debt owed by the debtor, to a third party. The court in Bonatla was not called upon to address a number of other salient issues regarding the cession in securitatem debiti of personal rights that were raised in other judgments over time, including whether (i) a cedent’s reversionary interests in a ceded claim can itself be ceded; (ii) reversionary interests may have a monetary value; and (iii) a cedent has any residual (reversionary) legal standing arising from its reversionary interests in respect of the ceded claim. These matters fall beyond the scope of this article.  

An outright cession involves the complete transfer of a personal right from the cedent to the cessionary. Once such a cession is concluded, the cessionary becomes the sole holder of the right and the only party entitled to enforce it against the debtor. The cedent retains no residual claim, interest, or right of action, and the debtor, having knowledge of the cession, is obliged to perform exclusively to the cessionary. This form of cession is typically used in transactions where rights are sold or permanently transferred and results in a full substitution of creditors.

By contrast, a cession in securitatem debiti is concluded for the purpose of securing the fulfilment of an existing or future obligation owed by the cedent or a third party to the cessionary. While the commercial intention is to provide security rather than to effect a permanent transfer, the law has consistently held that the right to enforce the ceded claim passes from the cedent to the cessionary for as long as the security subsists. Following the adoption of the pledge theory as the default legal position should the parties not adopt the alternative outright cession theory (also known as the pactum fiduciae theory), as articulated in Grobler v Oosthuizen [2009] ZASCA 51, a security cession is treated as analogous to the pledge. The cedent retains only a reversionary interest in the claim, sometimes described as the bare dominium, which according to the Grobler judgment entitles the cedent to automatic restitution or reversion of the right only once the secured debt has been discharged. The reversionary interest has been described in academic writing and case law as the cedent’s interest in the performance owing by its debtor in respect of the principal debt (the debt owed by the debtor to the cedent) and not the cedent’s right to re-claim the ceded right from the cessionary once the secured debt is repaid. Importantly, during the subsistence of the cession, the cedent is deprived of the right to sue the debtor. However, in finance transactions, parties often agree that for so long as the cedent is not in default of the underlying legal obligations, the cedent may enforce the ceded claim against the debtor at its own cost (in which case a recession by the cessionary to the cedent of the ceded claim is needed to vest the cedent with legal standing, coupled with the cedent ceding in security to the cessionary the rights to any proceeds arising from such intended enforcement action – this secures the cessionary’s interests in the ceded claim) and appropriate such amounts for its own use. Such an arrangement would typically come to an end if the cedent is in default of its obligations.

The Bonatla case’s effect on legal standing

The facts in the Bonatla case illustrate the effect of a cession in securitatem debiti on creditor standing. Bonatla advanced a R49 million loan to Ruitersvlei and ceded its loan claim to Merchant Commercial Finance as security for Ruitersvlei’s indebtedness. After Bonatla was placed in liquidation, its liquidators sought to wind up Ruitersvlei, contending that Bonatla remained a creditor of Ruitersvlei by virtue of its reversionary interest.

The SCA rejected this argument, holding that legal standing in liquidation proceedings depends on an enforceable claim. Once the claim was ceded, Bonatla lost the right to enforce it against Ruitersvlei. Under a security cession, the cedent retains only a reversionary interest, which entitles it to the automatic reversion of the right of action once the secured debt has been discharged. Until then, no legal bond exists between the cedent and the debtor, and the cedent is neither a creditor nor a contingent or prospective creditor. However, it remains to be explained by our courts what then is the status in law of the agreement between the cedent and the debtor.

Importantly, the SCA held that while the cession subsists, there is no practical difference between a security cession and an outright cession: in both cases the debtor must perform to the cessionary and the cedent is deprived of the right to sue. The distinction becomes relevant only after the secured debt is paid, when, applying the pledge theory, a security cession allows the right of action to automatically revert to the cedent, unlike an outright cession.

The decision in Bonatla also serves as a reminder that standing must be established on the cause of action pleaded in the founding papers. Where an applicant advances its case on the basis of an enforceable debt, reliance on a reversionary interest arising from a security cession cannot be introduced belatedly in reply to remedy a lack of legal standing.

Lessons learnt

In the Bonatla case, the SCA clarified and effectively tightened the law on locus standi in liquidation proceedings by holding that a cedent under a cession in securitatem debiti is not a creditor – present, contingent or prospective – while the cession subsists, because the cession temporarily divests the cedent of the enforceable right against the debtor and thereby extinguishes any vinculum juris for so long as the secured debt remains unpaid.

Creditors with unpaid claims should therefore be mindful of ceding such claims in security to third parties for their legal obligations given that they would, depending on the terms of the cession and in light of the Bonatla judgment, give up any enforceable rights against their third party debtor and will likely be unable to successfully apply for the liquidation of such third party.