Ghana s Legal Framework for Secured Transactions

Transcription

1 Ghana s Legal Framework for Secured Transactions M A R E K D U B O V E C M D U B O V E N A T L A W.C O M

2 Organization of the Presentation 1) Current Substantive Legal Framework 2) Assessment against International Standards 3) The Collateral Registry 4) Assessment against International Standards 5) Way Forward

3 Ghana s Economy Doing Business Report ranking 63, and in Getting Credit indicator 48 Economic growth of 14% in 2011 led by industry, services and agriculture Lenders: 26 (Class 1) banks, 136 Rural and Community Banks, and 53 NBFI Borrowers: from micro-entrepreneurs to large exporters Credit market is concentrated and relatively small to the size of the GDP (50%)

4 Credit Market Conditions in Ghana Cost of Credit 40% Interest rate 3-9 months duration Slow approval process

5 Current Substantive Legal Framework Customary law possessory pledge 1952 Chattels Transfer Ordinance chattel security 1960 Contracts Act assignment of rights 1962 Incorporated Private Partnerships Act charge 1963 Companies Act charge 1974 Hire-Purchase Decree retention of title 1993 Finance Lease Act retention of title 2008 Borrowers & Lenders Act charge

6 International Perspective Multiplicity of laws: Borrower type specific the U.K. systems where laws apply to particular borrowers (e.g., company charges) Transaction type specific European systems where laws apply to particular transactions (e.g., factoring and leases) Asset type specific Latin American systems where laws apply to particular assets (e.g., agricultural pledges) Multiplicity of devices: Ownership type finance lease, hire-purchase, factoring Security right type charge, pledge, security interest

7 How to Deal with Multiplicity? What should be done: Enact a law and abrogate/supersede pre-existing laws as in Albania, Australia, Canada, Honduras, New Zealand and U.S. Adopt a functional approach subjecting all security devices to registration What should not be done: Enact a law that does not address pre-existing laws as in Ghana, Slovakia and Peru Retain pre-existing devices and don t provide a priority rule

8 Legal Reform Approach Compare existing legislation/practices against the models Set out the objective of the reform Determine public policies underlying priorities Determining the type of registry Determine the type of enforcement mechanisms Determining the necessary substantive changes to the legal framework Determine whether to introduce new secured transactions legislation or to amend existing laws

9 Ghana B&L Act: Scope Issues Sections 1 and 2 B&L Act applies to credit agreements that include credit facility, credit transaction, credit guarantee or any combination of these Section 38 defines property as movable, immovabe property and choses in action Section 38 defines charge as charge, mortgage, security, interest, lien,, lease, covenant, restriction, title defect any other liens arising by operation of law

10 International Perspective: Scope Issues Modern laws define scope simply and broadly: Any agreement that secures the payment or other performance of an obligation, regardless of the form of the transaction Modern laws define property with some exclusions: All types of movable asset, tangible and intangible, present or future Modern laws define security interest functionally: A property right in a movable asset that is created by agreement whether the parties have denominated it as a security right

11 Ghana B&L Act: Structure It does not include any priority rules among competing claims It does not address the rights of third parties such as buyers and transferees It does not provide for alternatives to registration Relies on the unclear concept of charge It does not include expeditious judicial enforcement mechanisms No transitional rules have been included

12 International Perspective: Structure Modern ST laws are logically organized: 1) creation, 2) perfection, 3) registration, 4) priority and 5) enforcement General and special priority rules are provided Possession, control and automatic are alternatives Security interest is a concept that replaces preexisting devices General and special enforcement mechanisms Clear transitional rules recognizing pre-existing devices and requiring re-registration

13 Ghana Collateral Registry: General Features Sections 22 and 23 established the Collateral Registry to register charges and collaterals Section 25(2) requires double registration for companies and Section 26(2) other acts remain unaffected B&L Act does not address many fundamental functions of the Collateral Registry Until June 4, 2012 operated without regulations

14 International Perspective: General Features Modern registries do not register collaterals but notices of security interests One registration is sufficient to perfect a charge irrespective of the type of asset and borrower Relationships with other registries clearly defined by effectiveness and priority rules Laws address fundamental registry functions such as indexing of records and amendments Registries don t operate without supporting regulations

15 Ghana Collateral Registry: Procedures Section 25(1) requires registration of a certified copy of a charge Registration must be done within 28 days of creation of a charge Section 26(1) specifies registration information including nature of the charge and any restrictions Functions of the registrar are administrative Issuance of a certificate of registration Initially, access was limited and not web-based Flat low fees for registrations and searches

16 International Perspective: Procedures A standardized form instead of the agreement must be submitted for registration Registration may be effected anytime Registration information is minimal to provide notice to searchers Registrars do not perform any legal/review functions Issue certificates & allow users to print information Accessible by anybody in various forms Flat low fees set independently of the loaned amount

17 Ghana Collateral Registry: Utilization In ,582 charges registered which is an increase of 21% from % of registrations cover inventory and A/Rs and 18% investment property Users: Borrowers: 70% individuals and 16% SMEs Lenders: 75 institutions registered a charge in 2011, rural and community banks and other NBFI don t use the Registry Searches 5,391 searches were requested in 2011

18 International Perspective: Utilization Annual volumes: Guatemala 566 Slovakia California B.C. (Canada) Modern systems do not keep track of collateral types Users: Borrowers: about 50% are sole proprietors Lenders: banks, dealers, lessors, sellers, tax authorities, etc. Searchers: lenders, buyers, service companies, etc.

19 Where Ghana Stands Today First in country in Africa to have established a Collateral Registry Registry is as efficient as the substantive law (B&L Act) which remains inadequate Multiplicity of laws and security devices Unclear relationships with other laws and registries The Collateral Registry is used primarily by microlenders Cost of credit remains high

20 Transition from Micro to SME Loans In Ghana, traditional microloan model that relies on guarantees being replaced with secured loans Secured cash-flow based loans necessary for growth Typical collateral is stock in trade and household assets Little difference in the cost of secured and unsecured microloans Judicial enforcement is not worth the cost of enforcing microloans

21 Ghana Secured Transactions: Way Forward Amend the B&L Act and clarify the relationships with other laws Modify Registry Regulations and the Collateral Registry functions Public awareness and training to the stakeholders

22 How to Move Forward Amendments to the B&L Act have been drafted with the BoG and submitted to the Ministry of Finance The new Collateral Registry has been designed to accommodate future changes General stakeholder forums have been held and will be organized Special stakeholder meetings with commercial judges, rural, commercial banks and microlenders Public awareness and training will be conducted

23 Complementary Areas: Way Forward Enact a modern statute on corporate insolvency that facilitates reorganization Modernize the land title system to facilitate mortgages Ease the regulatory framework for calculating provisions against non-collection of debts Make the credit bureaus more efficient to also provide positive credit information Encourage lenders to employ risk management tools for loans secured with movables