Through the Ministry of Economy and Finance, and with the support of the International Finance Corporation and the European Bank for Reconstruction and Development, the Kingdom of Morocco undertook preparatory works in 2013 on the reform of the legal framework on securities over movable assets.
Inspired by the best practices of OHADA law and of French law, this reform finally entered into force with the publication of the Law No. 21-18 relating to security over movable assets in the Official Gazette No. 6771 dated 22 April 2019 (the Law 21-18).
In order to increase the access to credit and secure investments, the new law has on one hand (1) rendered the security law more coherent and efficient and this by enshrining existing practices and, on the other hand, (2) introduced major innovations.
1. Enshrining existing practices
1.1 Clarifying the distinction between pledge with dispossession and pledge without dispossession
Under the former law, the main problem was the alternative use of the terms pledge (gage), guarantee (nantissement), privilege which was detrimental to clarity and caused legal uncertainty.
Law 21-28 introduced a clear distinction between pledge with dispossession (le gage) and pledge without dispossession (le nantissement). Indeed, the new law provides that "le gage" requires the dispossession of the pledged asset unlike "le nantissement" which does not require such dispossession.
1.2 Extension of the base of the pledges with and without dispossession
In order to make the pledge, with or without dispossession, more attractive, Law 21-28 allows the creation of a pledge on future receivables, whether these receivables are of a fixed or variable amount and guarantee a potential or conditional obligation.
If the new law has not enshrined a specific security over inventory, it will, however, facilitate the creation of pledges over inventory through the introduction of the pledge over future assets, which are not very compatible with dispossession and being a current asset often requires an undertaking on future receivables.
It is this same pragmatism that led the legislator to grant the possibility for the parties to make changes to the base of their security without that these changes affect the validity of this security.
1.3 Enforcement and partial release of the pledge with or without dispossession
Furthermore, the legislator introduced the possibility of a partial enforcement of the pledge with or without dispossession.
Similarly, the reform introduced the possibility for the secured creditor to agree with the debtor on a partial release of the security taking into consideration the executed part of the obligation. This reform will make it possible to create pledge with or without dispossession on the released part of these securities and increase the attractiveness of these securities for the beneficiaries and in particular credit institutions.
1.4 Pledge over receivables, bank accounts and securities accounts
Law 21-18 codified the legal framework of the pledges over receivables, bank accounts and securities accounts, which were previously set-up under the general framework of pledges, providing therefore a specific legal framework for an existing practice.
It should be noted that regarding the pledge over bank accounts, Law 21-18 grants the possibility for the secured creditor to block the balance of the secured account by simple instruction to the bank holding the secured account. This blocking is independent of any enforcement of the security and must be provided for in the pledge agreement.
1.5 Security Agent
The reform provides the possibility for the secured creditors to appoint a natural or legal person as security agent in order to take measures relating to the creation of security on their behalf, the registration of the security as well as the management and enforcement of the security. Under the former security law, the parties resorted to this practice by virtue of the general law of mandate.
This will codify an existing practice and facilitate the establishment, management and enforcement of the security over movable assets
2. Innovations brought on by Law 21-28
2.1 New methods of performance of the pledge
The most emblematic innovation of this new law is the introduction of new mechanisms for the enforcement of the pledge.
Under the former security law, and subject to some exceptions, public auction was the principal way to enforce security over movable assets. The disadvantage of this method of enforcement was especially the uncertainty regarding the amount resulting from the auction and the uncertainty of becoming the owner of the pledged asset if the beneficiary is not the highest bidder. This practice also generated high and sometimes disproportionate costs in relation to the value of the secured asset.
In this context, Law 21-18 established the validity of three new methods of enforcing security over movable assets and thus introduced:
- the private foreclosure (pacte commissoire) allowing the creditor to become the owner of the pledged asset in case of failure to execute the main obligation;
- voie parée granting the possibility for the creditor to sell the pledged asset and be granted the sale proceeds;
- the judicial allocation granting the possibility for the creditor to become the owner of the pledged asset following a Court decision.
This flexibility granted to the beneficiary of the pledges (through pacte commissoire or voie parée) will free the parties from any need for the intermediary of the Court if this is the will of the beneficiary and if this possibility has been contractually provided for in the security agreement, rendering therefore faster the enforcement of the pledge.
The judicial allocation or public auction does need to be initially provided for in the security agreement, the beneficiary may opt for one of the two methods of enforcement at the time of enforcement of its security.
Through this innovation, the legislator has sought to restore the attractiveness of pledges while not sacrificing the debtor's interests.
2.2 Establishment of a single registration regime for pledges
Another major innovation introduced by Law 21-18 is the establishment of a national electronic register of pledges administrated by the Ministry of the Economy and Finance. All pledges must be published in this register in order to be enforceable against third parties. This publication is not considered as a condition for the validity of the security agreement but simply for enforceability against third parties.
This register will allow the verification of the existence of any pledge that may encumber the assets of a person or a company. This will increase security and transparency.
By enshrining existing practices and setting up new mechanisms for the enforcement of security over movable assets, this new law will allow the possibility to create more legal certainty when setting up securities over movable assets, contributing therefore to the development of investments in Morocco and facilitating the access to credit.
However, despite an undeniable effort of clarification and the implementation of innovative measures, the reform introduced by Law 21-18 falls short of the expectations raised by the project reform published in March 2015.
