At a meeting held in Lomé from 13 to 15 December 2010, the OHADA council of Ministers adopted the new OHADA Uniform Act Organizing Securities (the “Uniform Act”) which brings major changes to the existing legislation dated April 17, 1997. The Uniform Act was published in the OHADA’s official journal on15 February 2011 and will take effect on 16 May 2011.
The Uniform Act creates a favorable and innovative legal framework for security interests in the OHADA member states (Benin, Burkina Faso, Cameroon, Central African Republic, Chad, Comoros, Congo, Ivory Coast, Gabon, Guinea, Guinea Bissau, Equatorial Guinea, Mali, Niger, Senegal and Togo – DRC will soon become a member) and makes secured lending in Francophone Africa more “creditor friendly”.
The reform was encouraged by the World Bank and is heavily influenced by French law governing security interests as it was reshaped in 2006 (albeit with significant improvements). It aims at facilitating the creation and enforcement of security in the OHADA member states, in particular by improving the existing security and creating new securities with a view to enhance the availability of international project financing and promote direct investments in such countries.
The main features of the reform include:
- a major overhaul of the legal framework applicable to security ;
- a reform of the commercial registry (RCCM) and new security registration rules ; and
- the creation of a security agent.
- Major overhaul of the legal framework applicable to security
New regime for pledges
Following the pattern of the new French law on security, the reform establishes a clear and simple distinction between pledges over tangible movable assets (which are named gages) and pledges over intangible assets – such as receivables (which are named nantissements). Prior to the reform the difference between gages and nantissements related mainly to the type of the asset being charged.
Under the existing system, only possessory pledges were available (i.e the possession of the pledged assets by the creditor or a third party was required as a matter of validity of the pledge) which proved impractical and restricted a borrowers’ ability to raise credit. The reform creates non-possessory pledges (gages sans dépossession) which do not require dispossession of the pledged assets from the pledgor in order to be valid. These non-possessory pledges are now fully perfected upon registration at the RCCM (see below).
The regime of the pledge over receivables is substantially amended and simplified: it no longer requires formal notification of the assignment to the debtor by bailiff and is enforceable against the debtor upon a mere notification (e.g. by letter) of the pledge.
By contrast to the French legal framework, all non possessory pledges (including pledges over receivables) must now be registered with the commercial registry in order to be enforceable against third parties, which evidences the World Bank’s influence over the reform.
Introduction of new security interests
The reform introduces a simplified form of pledge over a securities account (i.e pledge over shares taking the form of securities (titres)) by a mere statement of pledge by the pledgor.
It also creates an assignment of receivables by way of security which is similar to what is known under French law as a “Dailly assignment”. Such assignment is only available to secure a loan made by a national or foreign credit institution to the assignor. This is a major innovation as this will allow a borrower to raise financing on the basis of its account receivables by assigning to the lender full title to such receivables, thereby protecting them from the borrower’s insolvency. The Uniform Act further introduces the concept of acceptance of the assignment of receivables, which is also found in the French rules governing “Dailly” assignments of receivables: if the assigned debtor formally accepts the assignment, then it cannot raise against the assignee (lender) the counterclaims and set offs (e.g. late delivery or defective product) which it would have been able to raise against the assignor to resist payment.
The concept of cash collateral is introduced in the form of a fiduciary transfer of cash (transfert fuduciaire de sommes d’argent) where cash is handed over to a creditor by way of security for an obligation.
Minor changes have been brought to the rules governing suretyships (cautionnement) and independent guarantees (garantie autonome). The regime applicable to independent guarantees has been developed and is inspired by the ICC Uniform Rules for Demand Guarantees (URDG 758) published in July 2010.
Increased efficiency of enforcement procedures
Following the example of the French reform of 2006, the amended OHADA Uniform Act now allows selfappropriation of the secured asset (a concept known as pacte commissoire which allows the secured lender to take possession of the asset and sell it even without a court order). This will be regarded as a major improvement of the efficiency of security under OHADA law and brings the legal framework closer to anglo-saxon rules governing security interests.
It is to be noted that restrictions (to the self appropriation right) apply if the debtor granting the security is a non professional.
- Reform of the Commercial Registry (RCCM) and new security registration rules
Prior to the reform, only few security interests were registered with the local commercial registries (Registre du Commerce et du Crédit Mobilier - RCCM) and no national centralized registry existed.
The reform creates a public, centralized and computerized record for all security interests at various levels (local, national, regional).
All non-possessory pledges (gage sans dépossession) or other types of security (retention of title, assignment by way of security) must now be registered with the RCCM in order to be enforceable against third parties A major consequence of registration with the RCCM is that it allows different priority rankings on the same asset (which dispossession did not permit). The security can be filed by any of the creditor, the security agent (see below) or the debtor. The filing of a security with the RCCM no longer requires that the documents evidencing the secured claim be translated into French and that such translation be filed.
It should be noted that registration of the security with the local tax authorities is no longer required (this should significantly reduce the amount of stamp duties which are generally calculated on the basis of the secured amount).
- Creation of a security agent
Another major improvement brought by the reform is the creation of a security agent (agent des sûretés). OHADA law does not recognize the concept of trust ( fiducie) so the equivalent of the English or US law security trustee could not be used. Accordingly, a specific regime was designed, vesting the security agent with extensive powers, including the creation, registration and enforcement of any type of security and undertaking judicial actions on behalf of secured creditors. The security agent must be a local or foreign credit institution or a bank (accordingly, it cannot be a fund or a special purpose vehicle). The authors of the Uniform Act obviously tried to bring the security agent as close as possible to the anglo saxon security trustee since the act creates a security estate (comprising the security interests granted to the security agent) which is separate from the agent’s estate and is not affected by the bankruptcy of the security agent or the debtor.