A cession of rights as security may include rights which only come into existence in future as in the cession of future book debts. The agreement to cede such rights requires no further action on the part of the cedent at the future time when those rights come into existence. They automatically form part of the rights ceded under that cession.
In BP Southern Africa v Intertrans Oil SA, a company in business rescue alleged that the future book debts ceded under an agreement, were capable of being suspended by the business rescue practitioner under section 136(2) of the Companies Act.
In terms of section 136(2) the business rescue practitioner may suspend any obligation of the company that arises under an agreement to which the company was a party at the commencement of the business rescue proceedings which would otherwise become due during those proceedings.
The Gauteng High Court held that there was no obligation on the part of the company that was capable of being suspended.
The cession in security of rights by a company that exist or arise in future, does not constitute an obligation which falls due for performance and which is therefore capable of being suspended during business rescue. The cedent acquires the rights without any further performance due by either party.
In the court’s words, ‘a security cession of future book debts is, by our law, complete and effective by mere initial agreement’.
Cessions in security should therefore not inadvertently be drafted to include any action required to be performed by the cedent in relation to rights which may come into existence in future. The cession agreement should be drafted in such a way as to automatically transfer those future rights.