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The answer to your pledging woes

One of the biggest downfalls of pledging movable assets to secure loan funding is that the debtor must give up possession of the pledged assets. This can be inconvenient, impractical and often defeats the purpose of owning the movable assets. For example, where the pledged asset is machinery used in the operation of one’s business or a motor vehicle that the debtor needs to drive to and from work every day.

What movable asset, then, can a debtor consider giving up as security to obtain a loan, that will cause the least disruption? Our answer: a registered trade mark.

One of the many benefits of registering a trade mark is that a registered trade mark is considered to be an intangible, movable asset belonging to a proprietor, which has value ascribed to it. Registered trademarks are therefore regularly hypothecated (securitised) to secure loan funding.

Section 41 of the Trade Marks Act No. 194 of 1993 provides that a registered trade mark may be hypothecated by means of a deed of security. The deed of security must be lodged with the Registrar of trade marks, and the Registrar shall endorse the register to this effect. Such endorsement shall record the name and address of the person in whose favour the deed of security has been granted and the nature and duration thereof. The endorsed deed of security shall then have the effect of a pledge of the trade mark.

The consequences of hypothecation of a trade mark in this manner are that the rights associated with the ownership of the registered trade mark are limited, and the debtor becomes obliged to renew and do all things necessary to maintain the trade mark and ensure that the trade mark does not lose its value in any way.

Once the debt or obligation for which the trade mark was put up for security for has been discharged, the proprietor of the registered trade mark may apply to the Registrar for the removal of the hypothecation endorsement over the trade mark, from the register.

Please contact us if you would like assistance with registering trade marks, alternatively raising finance by way of hypothecating your registered trade marks.