Parliament recently passed a new Borrowers and Lenders Act 2020 (Act 1052) (“The Act”). The Act is a re-enactment of the 2008 Borrowers and Lenders Act. The new Act addresses some limitations of the old law like the use of a manual registry, the lack of express provisions on priority rules and proceeds for realisations, and inadequate enforcement provisions.
The Act, which was assented to on the 29 of December, 2020, re-establishes the Collateral Registry, provides a legal framework for the registration and enforcement of security interests in collateral, establishes an order of priority of security interests, and provides for credit agreements which regulate transactions between borrowers and lenders.
The Act also increases the threshold of lending transactions that fall under its purview from GHS 100 to GHS 500 or any other amount determined by the Bank of Ghana. Although the Act maintains the requirement to register charges created with the Collateral Registry, the effect of non-registration has been varied. Security interests created by a credit agreement are enforceable between the parties to the agreement without registration under the Act except that the right of the lender to enforce the security interest is subject to the rights of any other lender or person entitled to priority under the Act. Although the Act does not dispense with the requirement of concurrent registration under other registries, a security interest that covers a right to property which is registered in another registry is effective against third parties only if the lender satisfies the requirements of the Act. Registration of a security with the Collateral Registry however remains the safest means for effective enforcement of any such security. Interestingly, the Act provides that a lender may at any time in writing, subordinate its priority under the Act in favour of any existing or future lender or other creditor without the need for the borrower to be a party to the subordination, on condition that the rights of a person who is not a party to the agreement are not adversely affected.
It is expected that the Act will serve as an appropriate vehicle to change the legal rights of parties to credit agreements and bring the Ghanaian regulatory regime in line with global best practice.