Hypothecation under Section 41: Using Registered Trade Marks as Security
In times of financial uncertainty, or business rescue, businesses often seek innovative ways to secure funding and maintain stability. Hypothecation also known as a pledging, allows trade mark owners to leverage the value of their intellectual property, by providing a means to secure loans or other financial support.
Turning to the South Africa's Trade Marks Act 194 of 1993, Section 41, a registered trade mark can be hypothecated, meaning it can be pledged as security for a debt or obligation.
A registered trade mark will serve as a valuable financial asset as part of a financial transaction and not merely retain its position to expand market reach as a brand identification tool.
What is Hypothecation?
- Hypothecation involves using a registered trade mark as collateral to secure financing or fulfil other obligations. This process is governed by Section 41 of the Trade Marks Act 194 of 1993.
How Does It Work?
- Deed of Security: The proprietor of the trade mark must sign a written instrument known as a deed of security.
- Lodging and Endorsement: This deed is then lodged with the Registrar of trade marks, who will endorse the register to reflect the hypothecation, i.e. to grant a preferential ownership right and title to the creditor. The creditor will enjoy the proceeds of the registered commodity until the obligation is met.
Why is This Important?
Hypothecation allows trade mark owners to leverage the value of their intellectual property, providing a means to secure loans or other financial support. This enhances the utility of trade marks beyond mere brand identification, turning them into powerful financial tools. The business retains control and can continue to use the trade mark while benefiting from the loan. During business rescue a trade mark can even be sold as a separate asset, which might be attractive to buyers who does not want to be involved with lengthy unwinding procedures.
By understanding and utilising hypothecation, businesses can unlock new opportunities for growth and stability, making their trade marks work harder for them.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
