Creating a secured transactions regime

The Government of Guyana is currently working to develop a Secured Transaction Framework (STF) to enhance the credit environment in Guyana. This framework will comprise legislation, regulations and institutional arrangements to help facilitate the use of moveable property as collateral for business and consumer lending.

The development of the secured transaction framework is one of several actions which seek to improve the ease of doing business. This sort of framework strengthens the degree to which collateral laws protect the rights of borrowers and lenders and thus enhance the facilitation of lending. Well-functioning secured transactions systems enable businesses to use their assets as security to generate capital—from cattle being used as collateral for a tractor loan, to pledging the cash flow from customer accounts as collateral for business expansion. The introduction of supporting legislation and the development of an electronic registry system to register and publish security interests assigned by borrowers to creditors will provide a comprehensive and effective mechanism for securing credit.

Draft legislation known as the “Moveable Property Security Act of Guyana” has already been prepared and has benefited from a consultative workshop with various stakeholders. The legislation is designed to promote consistency and certainty in secured financing relating to movable assets. It should be noted, however, that the decision to accept movable assets as collateral will remain with the bank or lender based on their own risk assessment.

The Act will assist persons who do not own real estate (immovable property) to secure credit by facilitating borrowing against various types of movable assets, tangible and intangible, including future assets (moveable assets which do not exist or which the grantor does not have rights in or power to encumber at the time the security agreement is made); parts of, and undivided rights in, movable assets; generic categories of movable assets; all of a grantor’s movable assets; and accounts receivable.

Tangible assets include all types of goods such as motor vehicles, crops, machinery and livestock whereas intangible assets include receivables, deposit accounts, electronic securities and intellectual property rights.

While the Act does not compel the lender to accept movable assets as collateral, it nevertheless establishes an inclusive set of rules governing priorities among all types of security interests and making it easier for lenders to act against defaulting borrowers.

In a nutshell the Act provides for a lender to give notice of his/her security interest in a movable asset or in movable assets assigned by the borrower using an electronic (online) register of assets that is available for public inspection. The priority of lenders who have registered security interests from the same borrower and are claiming the same assets, is generally determined on a “first to publicize” basis.

However, the Act specifies a number of exceptions to this general rule with respect to special situations where the “first to publicize” rule would have inappropriate consequences.

While contracts between parties allow them to define their own rights and obligations in event of default, the parties may not waive certain provisions of the Act, in particular those related to the following principles on which the system relies:

1. Disposing of collateral as soon as possible after seizure. If there is a dispute

over the process, then it should be litigated post-disposition, after the proceeds of disposition are paid into Court. This is necessary since, unlike immovable property, movable property generally depreciates rapidly;

2. Disposition of the asset should be done in a manner that will obtain the best value possible, under the prevailing circumstances;

3. It is in the interest of other creditors, as well as the debtor, to monitor the disposal of the asset by the seizing creditor;

4. Once the proceeds of disposition are obtained, distribution must be in accordance with the priority rules established under the Act.

An electronic collateral registry will be established in the Commercial Registry for the purpose of receiving, storing and making accessible to the public, information on registered notices with respect to security rights and the general running of the Registry.

It is expected that the Registry will adopt a regime of notice filing, where a notice given will contain the following information: the names and addresses of both the debtor and the secured party; the class of collateral covered by the security interest; and the length of period of registration.

The information required in an initial notice is substantively similar to the content of the current notices of charges, mortgage debentures and bills of sale published in The Official Gazette.

The Registry will permit searches using several identifiers either related to the grantor of a security, or to the collateral itself. Priority will generally be determined by the time of lodging of the security for registration, but subject to the provisions of the Act.

A well-designed and properly implemented secured transactions system can contribute to a more inclusive and robust financial system. The system outlined above is expected to diversify credit and increase in access to finance in Guyana. In the long- term, in conjunction with more competition among credit providers, and other initiatives such as the Credit Reporting Act, it will also contribute to the lowering of interest rates.