The Democratic Republic of the Congo (the «DRC») has ratified the founding treaty of the Organization for the Harmonization of Business Law in Africa (hereinafter «OHADA1») dated July 12, 2012, which entered into force on September 12, 2012. The DRC has become, since then, the seventeenth member state of OHADA2. Consequently, all the OHADA Uniform Acts are part of the Congolese law and are directly applicable and binding within its territory without any further legal steps internally3.
The OHADA Uniform Acts include the revised Uniform Act on security interests (hereinafter “UAS”), adopted on December 15, 2010. The UAS came into force in the DRC on September 12, 2012, along with the entire OHADA law as mentioned above. It introduced an important innovation in the OHADA law by creating the mechanism of «security agent». This security mechanism is inspired by the French law “Fiducie”4 (or Trust), established by the Law of February 19, 2007 establishing Fiducie5, which is inspired by (or derived from?) the common law mechanism of “security agent”6 or “security trustee”.
Under the article 5 of the UAS, only financial or credit institution, domestic or foreign, may act as security agent. However, in OHADA law there is no Uniform Act relating to banks or financial institutions. As a result, financial or credit institutions are governed by national laws enacted by the OHADA member States. It is worth noting that the majority of OHADA member States have a common economic, monetary and financial regulation because of their membership in an area of economic integration. Indeed, eight OHADA member States are also members of the UEMOA7 and six are CEMAC8 member. Only DRC and Guinea have maintained an independent and autonomous financial and banking system.
In this context, the question that arises is whether a foreign financial or credit institution may operate as a security agent within the jurisdiction of the DRC (an OHADA member State) in accordance with the DRC banking laws.
1 The Organization for the Harmonization of Business Law in Africa was created on October 17, 1993 in Port Louis, Mauritius. The OHADA Treaty was revised in Quebec on October 17, 2008. It is hereinafter referred as the “OHADA Treaty” or “Port Louis Treaty”.
2 Benin, Burkina Faso, Cameroon, Central African Republic, Côte d’Ivoire, Congo, Comoros, Gabon, Guinea, Guinea- Bissau, Equatorial Guinea, Mali, Niger, Republic Democratic Republic of Congo (DRC), Senegal, Chad and Togo.
3 The article 10 of the OHADA Treaty provides that : «the Uniform Acts are directly applicable and mandatory in the Member States notwithstanding any contrary provision of domestic law, prior or subsequent». See the OHADA Treaty in ISSA-SAYEGH (J.), POUGOUE (P.-G.), SAWADOGO (F. M.), (dir.), OHADA. Traité et Actes uniformes Commentés et annotés, Paris, Juriscope, 2011, pp. 17-62.
4 See the definition of Fiducie in the article 2011 of the French Civil Code.
5 See the website: http://www.legifrance.gouv.fr/
6 A person or firm that holds or administers property or assets for the benefit of a third party. See the definition in: http://www.investopedia.com/terms/t/trustee.asp
7 The UEMOA member States are Benin, Burkina Faso, Cote d’Ivoire, Guinea, Mali, Niger, Senegal and Togo.
8 Central African Economic and Monetary Community
In this study (or paper), we will try to answer the question raised above. In the event of a negative answer to this question, we will try to determine the means by which a foreign financial or credit institution can manage, as security agent, a portfolio of securities in the DRC. To better answer these questions, we will first briefly present the mechanism of security agent in the OHADA law (I), then analyze the banking law and practice in the DRC regarding the exercise of banking and related activities (II), and finally consider the question of the possibility for a foreign financial or credit institution to act as security agent in the DRC (III).
I. The security agent in the OHADA law
The Article 5 of the UAS defines the role of the security agent as follows:
“any security or other guarantee of the performance of an obligation may be constituted, registered, managed and enforced by a financial or credit institution, domestic or foreign, acting on its behalf and in its capacity of security agent, for the benefit of the secured creditors which appointed the security agent for that purpose”.
In other words, it is a mechanism by which one or more creditors entrust the management of their security or guarantee to a financial or credit institution, domestic or foreign, acting as security agent. The security interests held by the security agent are segregated from its own assets. The security agent may also enforce these security interests for the benefit of the secured creditors9.
In a zone of steady economic development such as the OHADA, the security agent was introduced to meet the needs of financial law practitioners involved in syndicated loan transactions. This institution was created to facilitate the creation, registration, management and enforcement of security in favor of a group of lenders each one holding a share of the debt repayment of the funding provided. Legal certainty offered to lenders by the security agent can promote more investment to boost economic development within the OHADA Member States.
Further, as noted above, the article 5 of the UAS requires that a security agent be a financial or credit institution. Yet, the UAS does not provide the requirements to qualify as financial or credit institution nor does it establish the requirements necessary to act as security agent within the jurisdiction of a member State. Therefore, both requirements to qualify as financial or credit institution and to act as security agent within the jurisdiction of a member State are established by the particular member State laws. In other words, member States’ appropriate laws and regulations apply on financial or credit institution acting within their jurisdiction.
9 See the UAS in ISSA-SAYEGH (J.), POUGOUE (P.-G.), SAWADOGO (F. M.), (dir.), OHADA. Traité et Actes uniformes Commentés et annotés, op. cit., pp. 100-101.
Emery Mukendi Wafwana & Associates
African-International Law Firm
01 décembre, 2014
May a foreign financial institution act as security interests
agent in the Democratic Republic of Congo
Arnaud Tshibangu Mukendi *
Arnaud TSHIBANGU M.
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The financial and banking sector is not yet subject to a Uniform Act and, therefore, is not governed by the OHADA law. This is confirmed by the article 916 of the Uniform Act on the right of Commercial Companies and Economic Interest Group (hereinafter «UAC») which provides that:
«This Uniform Act does not repeal the laws applicable to companies subject to special rules (or regime). [...]10».
It ensues that some corporations such as banks remain subject to their particular domestic laws11. In addition, the jurisdiction of the Member States with respect to regulation of financial and credit institutions states is also confirmed to some extent by the article 4, section 4, with the UAS which states that
“securities used as guarantee of the performance of contracts entered into exclusively between financing institutions, are subject to particular laws”.
We will briefly present in the next section the banking law and practice in the DRC.
II. The banking law and practice on banking and related operations (or activities) in the DRC
In the DRC, the accreditation requirements and activities of financial or credit institutions are subject to the Law of February 2, 2002 on the activities and supervision of credit institutions12 (hereinafter «Banking Law») whose article 10 provides that:
“The Credit Institutions, under this Law shall, before exercising their activity in the country, get the approval of the Central Bank”.
Therefore, even if the UAS provides that any foreign financial or credit institution may act as security agent in one of the OHADA Member States, the Congolese banking regulations could restrict this possibility and provide that only domestic financial or credit institutions may act as security agent in the DRC - assuming that such activity is expressly permitted in the DRC. This would be an apparent contradiction that could only be resolved through harmonization of the DRC legislation with the provisions of the UAS.
However, before we go further in our analysis, it is appropriate to give a brief overview of credit institutions authorized to carry on business in the DRC (i) banking operations and related operations allowed (ii) the accreditation requirements to effectuate these operations (iii) and the particular issue of security agent operations (iv).
i. Credit institutions
In the DRC, the activities of credit institutions are governed by the Banking Law and the Instructions of the Central Bank of Congo (hereinafter «BCC»).
The article 1 of the Banking Law states that credit institutions covered are legal entities that effectuate banking operations as a principal occupation.
The article 2 groups together under the term credit institutions, companies identified below and not limited to: (1) banks; (2) Savings and credit cooperatives; (3) savings banks; (4) specialized financial institutions; (5) financial companies.
The article 5 states that are not considered as credit institutions: insurance companies; the pension funds; currency exchange agencies
10 See the UAC in ISSA-SAYEGH (J.), POUGOUE (P.-G.), SAWADOGO (F. M.), (dir.), OHADA. Traité et Actes uniformes Commentés et annotés, op. cit., p. 580.
11 Ibid.; See also: CCJA, Avis No. 001/2001/EP du 30 avril 2001, 4e question 4e branche (4-d): Ohada.com/Ohadata J-02-04.
12 Law N° 003/2002 of February 2, 2002 on the activities and supervision of credit institutions, Journal Officiel de la RDC – Numéro Spécial – January 20, 2011.and/or offices; lotteries and collecting companies for social purposes that are subject to the prior approval of public authorities; financial messaging; other financial intermediaries.
ii. Banking operations and related operations
The banking operations are divided into three categories, namely: the receipt of funds from the public13, credit transactions14 and payment transactions and managing means of payment15.
The article 3 of the Banking Law provides that only credit institutions16 may effectuate banking operations. It also provides protection against the misuse of the words bank, savings and credit cooperative, savings bank, financial company, a specialized financial institution.
Under the article 9 of the Banking Law, credit institutions may also carry out transactions related to their activities such as placement, purchase, management, custody and sale of securities and of any financial product (3); advice and assistance in financial management, financial engineering and generally all services designed to facilitate the creation and development of businesses, companies [...] (6). It should be noted here that the related transactions are not exhaustively listed in the article 9 of the Banking Law.
iii. The approval (or accreditation) of the Central Bank
The article 10 of the Banking Law provides that credit institutions must, before exercising their activity on the national territory, obtain the BCC’s approval.
The approval procurement is subject to certain conditions whose satisfaction are controlled by the BCC during the investigation of the application for approval. These conditions are legal and economic 17including the obligation to be constituted as a legal entity18 or the ability of the credit institution to achieve its development goals19.
The article 13 provides that when approval is sought by a credit institution which is a subsidiary of a credit institution authorized in a foreign country, the BCC will consult, before granting approval, the banking supervision authorities in the country of origin in order to verify in particular the credibility of the credit Institution.
iv. The particular issue of the security agent activities
The question that arises here is whether the Banking Law includes the activities of security agent among the banking operations and related operations that can be performed by a financial or a credit institution within the jurisdiction of the DRC. As a matter of fact, the activity of security agent is not explicitly mentioned by the Banking Law as a banking or related operations that a financial or credit institution can perform in the DRC. However, as mentioned in the preamble of the Banking Law, the related transactions are not exhaustively listed in Article 9 of the Banking Law. Therefore, the activities of security agent, as provided by the UAS can be included among the related operations listed in the article 9 of the Banking Law, including, management, custody and sale of securities and any financial product and generally all services that facilitate the creation and development of enterprises.
13 The article 6 of the Banking Law: shall be considered as funds received from the public, funds that a person collects from a third party, including deposits, with the right to dispose of the funds for the person’s own benefit, but on condition that the person returns the funds.
14 The article 7 of the Banking Law: a credit transaction is any act by which a person acting for consideration sets or promises to make funds available to another or take, for the benefit of the other person, a commitment by signing such as surety or guarantee.
15 The article 8 of the Banking Law: shall be considered as means of payment, all the instruments that, whatever the medium or technical process used, enable any person to transfer funds.
16 The articles 20 and 21 of the Banking Law define, however, the scope of activities reserved for credit Institutions.
17 Article 11 to 16 of the Banking Law.
18 Article 11 of the Banking Law.
19 Article 12, al. 4 of the Banking Law.
It clearly appears that legal certainty and confidence offered to investors or creditors by the services of the security agent are likely to promote greater investment by investors in development sectors with high added value in basic infrastructure such as public markets or public-private partnerships.
If we can agree to say that the activities of security agent are admitted in the DRC by the Banking Law, however, it is unclear whether a foreign financial or a credit institution under foreign law may exercise such activities in the DRC. We will discuss this question in the next section.
III. The admission of a bank or a foreign financial institution as security agent in the DRC
A preliminary matter that we would like to address in this section is the question of the significance of the term “foreign” used by the UAS. Particularly, the question is how the UAS defines “foreign” when it states that “a financial or credit institution, foreign or domestic”, [may act as a security agent]. Does it mean a financial institution or a credit institution holding the nationality of a Member State of the OHADA? In other words, may all foreign financial and credit institutions, licensed and practicing or not their activities within the OHADA jurisdiction, act as security agent in the DRC. Concretely, the question is to determine whether a South African, Cameroonian or American bank may act as security agent in the DRC.
Answering this question requires interpreting a Uniform Act to the extent that the answer is not obvious from a reading of the article 5 of the UAS. Some may restrictively argue that “Foreign” only includes financial and credit institutions recognized and operating in one of the OHADA Member States. Others may have a broad interpretation and argue otherwise that “Foreign” includes all financial and credit institution, whether licensed within the OHADA Member States or not. What is critical is to determine whether a foreign financial or credit institution, originating in or outside the OHADA zone, may, under the Congolese banking law, act as security agent in the DRC.
Once the security agent mechanism can be considered as one of the permitted activities by banking regulations for financial or credit institutions under Congolese law20, it remains to determine whether a foreign financial or credit institution may conduct such activities in the DRC without obtaining the approval of the BCC. Before answering this question, we will first say a few words about the banking practice in the DRC which was similar to the security agent mechanism before the entry into force of the UAS (a), then about the situation of a financial or credit institution of foreign law (b), and at last about the particular substitution mechanism provided by the UAS that allows a third party to substitute the initial security agent to act in its stead (c).
a. Existing mechanism in the DRC before the entry into force of the UAS: Syndicated Financing
The mechanism of the security agent was commonly used in the context of so-called syndicated financing granted by a banking pools, that is to say groups of credit institutions, to support a common client for an operation considered more or less risky21 and requiring large funds that exceed the financial capacity of a single bank. The management of the risk systematically led these credit providers to require collateral and other guarantees to the borrower. However, the fact that each member of the banking syndicate (or pool) has its own claim on the borrower can complicate the issue of security22. Hence the need to appoint a security agent as the sole representative of the community creditors both with the common debtor and with third parties23. It should be noted that each bank participating in a pool must comply
20 Supra, Section 25.
21 Guy-Auguste LIKILLIMBA, « L’agent des sûretés OHADA », Revue de l’ERSUMA: Droit des affaires - Pratique Professionnelle, Numéro Spécial - November/December 2011, Pratique Professionnelle.
23 Ibid.with the prudential management rules24 regarding its funding.
Further, it appears that the Congolese banks have acted as hybrid or sui generis security agent for their own debtors without having a legal security agent status as provided by the UAS. In this respect, they operated under the provisions of the law of July 18, 1980 on [...] security25 (hereinafter «Security Law») pertaining to the creation, management and enforcement of security whose provisions for the most part were repealed following the accession of the DRC to the OHADA Treaty with the exception of provisions regarding, among other things, registration of securities. Specifically, banks held collateral for their loan, managed these collateral, and enforced them, in case of their debtor’s failure, pursuant to the Security Law.
b. Situation of a credit institution or financial institution of foreign law
As established above in section 25, the activities of security agent provided by the UAS can be conducted in the DRC as related operations by domestic financial or credit institutions under Congolese law. However, foreign financial or credit institutions are subject to stricter conditions to carry out activities of security agent in the DRC.
In effect, the quality of security agent is reserved by the UAS to financial or credit institutions, that is, creditors whose activity is subject to a state approval and control26. It follows that a foreign financial or credit institution may not act in the DRC as security agent without first obtaining the approval of the BBC in accordance with the article 10 of the Banking Law. This is also the case in France where the services of trustee agent (agent fiduciaire) is restricted to persons whose status implies state control and whose activities are subject to certain strict conditions27. We will see in the next section an alternative to circumvent this obstacle.
c. Substitution in the third mission collateral agent
In theory, a foreign financial or credit institution may have subsidiary in the DRC who obtained the necessary approval of the BCC to conduct banking operations and related operations. In such case, the subsidiary would be allowed to effectuate banking operations and related operations including activities of security agent pursuant to the article 9 of the Banking Law.
If this Congolese subsidiary or any other domestic financial or credit institution has been designated as security agent by creditors to manage a portfolio of securities, the designated institution can substitute a third party that may or may not be approved and based within a OHADA Member State to accomplish this mission. In such situation, the article 10 of the UAS provides that:
“the act designating the security agent may provide the conditions in which the security agent may, under its responsibility, substitute a third party to complete its mission. In this case, the creditors of the secured obligations may act directly against the third party that has replaced the security agent”28.
Under the article 10 of the UAS, the substituted third party should act under the responsibility of the security agent initially and primarily appointed. Moreover, in order to be consistent with the spirit of the UAS’ provisions on the security agent, this person must necessarily be a financial or credit institution.
24 It is mainly the Instruction n°14 of the BCC to private banks.
25 Law N° 80-008 of July 18, 1980 modifying and completing the Law n° 73-021 of July 20, 1973 on moveable assets, real property, land and securities.
26 See Bérenger MEUKE, La garantie de financement en OHADA: L’Agent de sûreté, Le Blog de Me Bérenger MEUKE, 2011.
27 See the article 13 of the Law of February 19, 2007 establishing Fiducie.
28 See UAS in ISSA-SAYEGH (J.), POUGOUE (P.-G.), SAWADOGO (F. M.), (dir.), OHADA. Traité et Actes uniformes Commentés et annotés, op. cit., pp. 100-101
In practice, two successive steps shall be followed: First, the foreign financial or credit institution will demand creditors to appoint a domestic financial or credit institution to act as security agent. In this act of designation, creditors must provide the conditions in which the security agent may, under its responsibility, be substituted by a third party to accomplish its mission. In a second step, the designated domestic financial or credit institution will establish a substitution agreement in which it will substitute a foreign financial or credit institution to fulfill its mission. It is important to note that the creditors of the secured obligations may act directly against the person that has replaced the security agent as well as against the security agent initially designated.
Therefore, the substitution would offer the possibility to foreign financial or credit institution with or without a local subsidiary in the DRC to circumvent the requirement for approval of the BCC. It would also allow creditors to have remedy against the security agent they initially designated as well as against the substituted third party.
To conclude, the mechanism of security agent within the meaning of the UAS is one of the related operations contemplated by the article 9 of the Banking Law. The domestic financial or credit institutions may act as a security agent within the jurisdiction of the DRC.
Regarding foreign financial or credit institutions, they may not act as a security agent unless they obtain the approval of the BCC in accordance with the article 10 of the Banking Law.
The only possibility to circumvent the requirement of obtaining approval of the BCC is to substitute a Congolese local bank as described in paragraph 37 above. Therefore, by using the mechanism of substitution, the purpose of security agent will be achieved, that is to provide legal certainty to investors and promote investment in important development project.
Admitted to the Bar of Brussels (2014) and while pending to be admitted to the Bar of New York, Me Arnaud Tshibangu is a lawyer practising in the Law Firm emery Mukendi Wafwana of New York, which he joined in 2014. His areas of practice are : law on hydrocarbons, international law of investments, banking law, OHADA law (particularly corporate and surety law), arbitration and Finance Project. Me Arnaud completed also a Master degree in Business law at Boston university (2013). He speaks French, English, Dutch and Lingala.
DISCLAIMER: Any information contained in the present document is only for informational purposes and may not be considered as legal opinion. To receive proper advices on the matters discussed in the present document, please contact our lawyers at www.cabemery.org