HB 147: Secured Transactions in Movable Assets Bill, 2015

Bill Analysis:

SHORT TITLE

Secured Transactions in Movable Assets Bill, 2015

OBJECTIVE OF THE BILL

The objectives of the Bill are:

1. to enhance financial inclusion in Nigeria;
2. to stimulate responsible lending to micro, small and medium enterprises;
3. to facilitate access to credit secured with movable assets;
4. to facilitate perfection of security interests in movable assets;
5. to facilitate realization of security interests in movable assets and
6. to establish a Collateral Registry and provide for its operations.

APPLICATION OF THE BILL

The Bill shall apply to:

• all security interests in movable assets created by an agreement that secures payment or the performance of an obligation;
• a person who is a creditor, borrower or grantor;
• all financing and operating leases entered into after this Bill is passed into law.

This Bill shall not apply to:

• any right of set-off;
• the creation or transfer of an interest in land other than account receivables, and
• any interest created by a transfer, assignment or mortgage in movable property governed by a law for which a registry has been established with regards to ships and aircrafts.

PARTS AND CLAUSES

The Bill has 9 parts including miscellaneous and 65 Clauses

IMPLICATIONS OF THE BILL

If the Bill is passed into law, the following shall occur: -

1. Establishment of National Collateral Registry in the Central Bank (CBN) where information on movable property shall be received, stored or registered;
2. A Registrar to be appointed by the CBN governor shall supervise and administer the operations of the Collateral Registry;
3. Security Agreement entered by a grantor and a creditor shall create a security interest;
4. A security interest shall extend to the identification or traceable proceeds of a Collateral, whether or not the Security Agreement contains a description of the proceeds; (Clause 7)
5. A security interest is perfected when a financing statement in respect of that security interest has been registered in the Collateral registry established under this Bill;
6. Mere possession by a secured creditor does not perfect the security interest, unless the proceeds are described in the financing statement or are in the form of money, account receivables, negotiable instruments or bank accounts (Clause 9);
7. Where the proceeds are not the kind listed under Clause 9, the security interest will remain perfected if the creditor registers an amendment adding a description of the asset within 15 days.
8. The legislation applicable to the creation, perfection and priority of a security interest in tangible property, when the tangible asset is located in Nigeria shall be this Bill (when it becomes law).

GENERAL PROVISIONS OF THE BILL

1.          Creation of Security Interest: -

Security interest is created by a security agreement between a grantor and a creditor (Clause 3). A security interest shall be created to the extent of the rights that the grantor has in the collateral. A transfer of security interest in an account receivable by a grantor is effective between the grantor and creditor and against the account debtor irrespective of any agreement limiting the account debtor’s right to create a security interest in or assign its account receivable (Clause 4(2)(b))

2.          Security Agreement: -

A security agreement shall reflect the intention of the grantor and creditor to create a security interest, identify the grantor and creditor, describe the secured obligation including maximum amount to which the security interest is enforceable, describe the collateral adequately, and indicate the tenor of the obligation secured.

3.          Collateral in a Security Agreement: -

A collateral is described by item, kind, type or category, year of manufacture or any other description that can identify the collateral. Any description short of this is considered inadequate under Clause 6. A secured creditor my take possession of the collateral, though mere possession does not perfect the security interest. It is perfected if the conditions stated above (no. 6 of the implications) are met.

4.          Establishment of the National Collateral Registry: -

A registry to be known as the National Collateral Registry shall be established at the Central Bank (CBN), to be headed by a Registrar to be appointed by the CBN governor. The Registry shall receive, register and store information about security interests in movable assets; provide access to persons who may seek information on security interests from the collateral registry; and perform such other functions as may be prescribed by regulations under this Bill (when passed into law).

5.          Registration of Financing Statements: -

Financing statements may be registered by or on behalf of a creditor at any time with the consent of the grantor. A financing statement is registered when a unique registration number, date and time are assigned to it by the collateral registry (Clause 12). The registration is followed by a confirmation statement to the creditor who files the financing statement for registration. Registration of an initial financing statement is ineffective unless the grantor consented to it in writing (Clause 13).

6.          Consent of the Grantor: -

A security agreement is sufficient to constitute consent by the grantor for the registration of an initial or amendment financing statement covering the collateral (Clause 13(2)). A grantor may give consent in writing to register a financing statement prior to the conclusion of a security agreement. However, if an amendment financing statement adds a description of new collateral or a new grantor (unless the new grantor is a transferee of the collateral already described in the registration), unless the grantor consents in writing, the registration of the amendment financing statement is ineffective.

7.          Contents of a Financing Statement: -

A financing statement to be provided by the creditor shall contain grantor type description, co-operative or registered business name (in case of a company), unique identifier number (in case of an individual), name and address of the creditor, description of the collateral, etc. (Clause 14(1)(a) – (h). if there is more than one grantor or creditor, the required information must be entered in the designated field separately for each grantor or creditor.

8.         Non-Nigerian Citizen or Resident: -

If the grantor is neither a citizen nor resident, the secured creditor shall enter the debtor’s name and unique identification number that appear on the grantor’s passport issued by a foreign government or any other document as the CBN may prescribe from time to time.

9.        Ineffective Financing Statement: -

A registered financing statement shall be ineffective if there is an error in the unique identification number of the grantor or the serial number of the collateral that causes the registration not to be retrieved in a search (Clause 16). An error in the unique identification number shall render the registration ineffective only with respect to the grantor, where a registered financial statement contains information on multiple grantors or collaterals. The serial number of a collateral shall render the registered financing statement ineffective only with respect to the collateral identified by such serial number.

10.       Error in Registration: -

An error in the name, address of the grantor, maximum amount for which the security interest may be enforced or the name or address of the creditor does not render the registered financing statement ineffective (Clause 17). However if the error seriously misleads the searcher due to an error in the collateral description other than in the serial number, it may render the registered financial statement ineffective with respect to that collateral.

11.        Validity of the Registered Financing Statement: -

The registered Financing Statement shall be valid until the expiration of the term specified in the financing statement, or its cancellation, which ever comes first (Clause 18). Duration of a registered financing statement may be extended or renewed before its expiration. This would however not result to any deletion of information at the registry. An expired registered financing statement shall be maintained in the registry and searchable by the public for 6 months following its expiration after which it shall be archived.

12.        Amendment of a Registered Financing Statement: -

A registered financing statement may be amended by a creditor upon registration. An amendment to a registered shall be in accordance with regulations made under this Bill (when passed into law). An amendment to a registered financing statement that adds collateral or a new grantor is effective only from the date and time when the amendment financing statement is registered (Clause 19)

13.       Transfer of a Collateral: -

Where a collateral described in a financing statement is transferred and the secured creditor registers an amendment financing statement adding the transferee as a new grantor within 15 days after the secured creditor becomes aware of the transfer, the security interest shall retain its perfection and priority (Clause 20).

14.      Cancellation Statement: -

A creditor shall file a cancellation statement within 15 working days of receiving a request for cancellation from the grantor where all obligations under the security agreement have been performed and there is no commitment to make future advances. The cancellation statement shall include the registration number of the initial financing statement to which the cancellation statement relates, identification of the creditor authorizing the cancellation and other relevant information prescribed by the regulations under this Bill (when it becomes law).

15.      Appeals to the Registrar: -

When the creditor fails to comply with the request for cancellation by the borrower or grantor, either the borrower or grantor may appeal to the Registrar. The Registrar shall give notice of appeal to the creditor, after which a response is expected in 7 days of receipt of the notice of appeal. The decision of the Registrar is final on such appeals.

16.     Search of Information in the Registry: -

A person may conduct a search in the registry for information provided in registered financing statements according to the following criteria –

• the unique biometric-based identifier of the grantor
• the serial number of the collateral or
• such other criterion as may be prescribed by regulations

The prescribed fees shall be paid by a person who intends to run a search, and the person shall be entitled to a search result (Clause 22).

17.     Priority of Security Interests: -

The priority of a security interest in a collateral shall be the same with the proceeds derived from the collateral. A security interest shall have the same priority in respect of all secured obligations and advances, whether existing or future (Clause 24)

18.     Transfer of Security Interests: -

A secured creditor may transfer a secured obligation notwithstanding any agreement with the borrower or grantor without consent of either (Clause 25)

19.     Voluntary subordination of Priority: -

A creditor may enter into an agreement to subordinate its priority in favor of any other claimant. An agreement to subordinate shall not adversely affect the rights of a person that is not a party to the agreement

20.     Priority of Holders of Lien

A lien arising out of materials or services provided in the ordinary course of business in respect of goods that are subject to a security interest shall have priority over that security interest (Clause 30). A holder of a negotiable instrument or title document shall have priority over a perfected security interest in the negotiable instrument or title document where the holder gave value, acquired the negotiable instrument or title document without knowledge that the transaction is in breach of the security agreement, and took possession of the negotiable instrument or title document.

21.      Rights of a Buyer or Lessee: -

A buyer or lessee who acquires goods for value and receives possession of the goods shall take the goods free of an unperfected security interest (Clause 32)

22.      Rights and priority of Assignee: -

The rights of an assignee of an account receivable shall be subject to the terms of the contract between the assignor and account debtor, and any other defense/claim of the account debtor against the assignor (Clause 33)

23.      Priority of Judgment Creditor: -

A perfected security interest has priority over the rights of an unsecured creditor that has obtained judgment or an order of attachment, unless the judgment creditor before the security interest is perfected registers a financing statement, seizes the collateral or serves a notice of its claim on the third party holding property for the debtor.

24.     Entitlement to Damages: -

Where a person fails to discharge a duty or obligation under this Bill (when passed into law) the person to whom a duty or obligation is owed shall have a right to recover damages for any loss or damage (Clause 36)

25.    Confirmation Statement

Not later than 15 working days after registration of the confirmation statement, a creditor shall provide the grantor or borrower a copy of the confirmation statement (Clause 37)

26.     Judicial Remedy: -

In case of default, a creditor may exercise his rights under this Bill (when it becomes law) or resort to any appropriate judicial remedy. In case of default by a borrower, a creditor shall give the borrower and the grantor a notice of the default and intention to repossess the collateral (Clause 41)

The creditor may, 10 days after sending the notice of default take possession of the collateral or without taking possession, render the collateral inoperative.

27.    Creditor’s Disposal of a Collateral: -

A creditor may dispose of a collateral by sale, lease, license or other form of disposal in its present condition. A collateral may be sold in an auction, public tender, private sale or any method provided for in the security agreement (Clause 44).

A creditor shall send a notice not less than 10 working days before selling the collateral to the borrower, grantor or any other person as provided under this Bill (when passed into law). A creditor shall within 15 working days after the sale of a collateral, give to the persons entitled to receive a notice of sale , a statement of account in writing stating the amount, costs of the sale and balance due to the grantor or creditor (Clause 47).

Where there is surplus from the sale, a creditor may pay it to the court if there is a dispute as to who is entitled to receive payment pending a resolution.

28.    Right to redeem the Collateral: -

At any time before the creditor sells the collateral, the borrower, grantor or other creditor may redeem the collateral by fulfilling all obligations secured by the collateral and payment of any other reasonable expenses incurred by the creditor (Clause 49).

29.    Reinstatement of Security Agreement: -

The borrower may reinstate the security agreement at any time before the creditor sells the collateral by paying the sums owed, remedying any other default and paying a sum equal to the reasonable expenses incurred by the creditor. Unless otherwise agreed, a borrower shall not be entitled to reinstate a security agreement more than twice a year (Clause 50).

30.    Applicable Law: -

The applicable legislation to the creation, perfection and priority of a security interest in tangible property, when the property is located in Nigeria shall be this Bill (when it becomes law). If the tangible asset is of a type ordinarily used in more than one country, this Bill (when it becomes law) shall apply if the grantor is located in Nigeria (Clause 51).

31.    Law Governing Security Agreement: -

The law applicable to the mutual rights and obligations of the grantor, the borrower and the secured party arising from their security agreement is the law chosen by the parties, and in the absence of a choice of law, the law governing the security agreement. (Clause 52)

32.     Jurisdiction: -

Any proceeding between the parties arising out of a transaction governed by this Bill (when passed into law) shall be actionable in a court within any state of the federation vested with jurisdiction to entertain commercial suits provided that it shall not derogate from the exclusive jurisdiction vested in the Federal High Court under the Constitution of the Federal Republic of Nigeria.

33.     Offences and Penalties: -

If a person knowingly provides a false or misleading information to the Registry, s/he commits an offence and is liable on conviction to a term of 1 year or a fine of N100,000 or both. If as a result of this act, s/he benefitted financially, he shall fully indemnify the Registry (Clause 58). In the case of a corporation, partnership or other entity, the court may impose the penalty on every officer of the corporation, partnership or entity found to have facilitated or to have been personally responsible for the offence, and the corporation shall be liable to a fine of N1,000,000.

34.      Fees and Charges: -

The Registrar shall fix, impose and review such fees and other charges for services of the Registry as may be specified by Regulations under this Bill (when it becomes law). (Clause 57)

35.     Criminal Jurisdiction: -

All offences may be tried by a court of competent jurisdiction in the place where the offence is alleged to have been committed (Clause 59)

36.     Grievance Procedure: -

A person aggrieved by any decision or action of the registry may within 60 working days of the decision, give notice to the Registry addressed to the Registrar, to address the grievance; and if no satisfactory response is obtained within 30 working days, the aggrieved person may appeal to the Court for judicial determination.

37.     Rules, Guidelines and Regulations: -

The Registrar may from time to time make rules and issue regulations for proper administration of the Registry. The governor may make regulations generally to give full effect to the provisions of this Bill.

CONCLUDING ISSUES

Secured Transactions in Movable Assets Bill seeks to enhance financial inclusion in Nigeria. This Bill would stimulate responsible lending to Micro, Small and Medium-scale Enterprises (MSMEs), when it becomes law. Though the objectives of the Bill are positive to the extent that microcredit can be easily accessible and growing small business would be encouraged, the registration processes are cumbersome. A collateral is required to be registered with the National Collateral Registry (Clause 10) and a financial statement is required to be registered as well. Registration requires written consent of the grantor (Clause 13).

The Bill also gives the CBN governor the powers to make regulations generally, thereby increasing the powers that the governor has already. The National Collateral Registry shall be established under the Central Bank of Nigeria and the governor shall have the powers to appoint the Registrar and other staff (Clause 10).

A few clauses are repeated in the Bill – Clauses 6(2) and 7 are the same, as well as Clauses 6(1) and 15(2). Passage of this Bill would be a welcome development in Nigeria. These Clauses need to be reframed to capture correctly what is intended and differentiate them

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