Reform of the OHADA law on movable securites
Interview published on the website www.agenceecofin.com (June 2011)
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After more than thirteen years of application, it was necessary to improve and modernise the system of guarantees (securities) applicable in the Member States of OHADA.
This reform, which will enter into force by 15 May 2011, aims to provide the OHADA area with effective and innovative guarantee tools, in order to facilitate financing, which we know is a key element in the development of the oil sector.
WHAT ARE THE KEYS OF REFORM OF PLEDGE AND COLLATERAL?
The reform proposes a deep change in legal concepts, since pledges and collaterals will henceforth be defined in relation to the property on which they relate (and no longer by the debtor’s dispossession or not). The pledges now concern tangible movable property (raw materials, professional equipment, etc.) and pledges on intangible movable property (shares, claims, bank accounts, etc.).
The emphasis is on flexibility, as pledges/collaterals may relate to present or future assets and guarantee also present or future debts. The pledge is in particular very extensive since it can be freely consented on any property remaining in the possession of the debtor.
Finally, it should be welcomed a real objective of simplification, by the constitution of a guarantee on a simple written (not registered) subject to registration in the Trade Register (RCCM), but also of efficiency by the new possibility of being allotted the pledged/collateral property in case of default of payment, that is to say without a court decision.
Does the reform have an impact on current financing?
No, the draft reform is very clear: the guarantees granted before the entry into force of the new Uniform Act will remain in any event governed by the previous law until they are extinguished. In what way is the pledge of shares, widely used in oil financing, modified? In most cases, banks ask for collateral on the shares of the oil company holding the licences, in the absence of an effective guarantee directly on the licences themselves.
In addition to the simplification measures already mentioned – notably the removal of the obligation to register – this security is greatly enhanced by the possibility for the creditor to be granted, without a court decision, ownership of shares in the event of default. This allocation is of course possible only subject to any administrative authorisations required by the oil legislation.
How are the guarantees on hydrocarbon stocks modified?
So far, it has been difficult to set up a system for pledging hydrocarbon stocks without the debtor’s dispossession. It was subject to particularly heavy constraints, in particular the obligation to maintain the value of the stock under penalty of immediate repayment of the loan - which poses difficulties for products whose prices are subject to fluctuation - and to record the sale price of the stock with a domiciliary establishment, before any delivery.
The reform corrects these two aspects, by allowing the creation of a pledge without forfeiture of «ordinary law» raw materials, in which the creditor can exempt the debtor from his obligation to maintain the value of the stock (only a quantity of stock to be maintained), and without prior recording of the sale price.
Finally, the new possibility of guaranteeing future goods will make it easier in practice to establish guarantees on the production share belonging to the oil company which signs a production-sharing agreement, since the stocks of hydrocarbons available in the country of production often remain the property, at least undivided, of the State and any other partners in the contract (CEPP or Transport Contract), thus preventing the free constitution of guarantees on these assets.
Are there any developments regarding the possibility of establishing a guarantee on oil permits?
This question remains very delicate and must be assessed on a case-by-case basis, within the framework of each national oil legislation. We note, however, that the list of intangible movable property that may be pledged, drawn up by the new Uniform Act, is no longer exhaustive. Hydrocarbon mining interests that would be classified as intangible personal property, as well as claims arising from a production-sharing contract, are therefore not necessarily excluded...
What other new concepts are likely to interest oil finance?
Many other new concepts are introduced (assignment of debt as security, transfer of a cash trust, pledge of a bank account, security agent status, etc.).
The bank account pledge, already used in practice but whose regime was not expressly provided for by the Uniform Act, will be a very effective guarantee on the accounts on which export revenues would be domiciled, particularly when these- must be repatriated to the State of origin in accordance with foreign exchange regulations.
Finally, the recognition of the concept of a security agent acting for the benefit of a banking pool will, if necessary, allow the security agent to be involved in full legal certainty vis-à-vis the Oil Authorities, in particular where specific authorisations are required by the oil law or the oil contract for the establishment or performance of the guarantees granted.
