While Turkey’s engagement continues to grow exponentially in Africa, particularly in OHADA jurisdictions, it remains crucial for Turkish investors to obtain robust security interests in order to secure amounts invested by them. One issue which poses increasing difficulty relates to fees for registering security interests.
What is OHADA?
L’Organisation pour l’Harmonisation en Afrique du Droit des Affaires (“OHADA”) is a pan African organization supporting the harmonization of business law across the OHADA member states. To achieve this, OHADA members have promulgated a number of Uniform Acts, including the Revised Uniform Act on Security Interests dated 15 February 2010 (l’Acte Uniforme Révisé Portant Organisation des Sûretés), which are directly applicable in each member State, overriding any contrary provisions of local or national laws.
OHADA Member States
There are currently 17 OHADA Member States: Benin, Burkina Faso, Cameroon, Central African Republic, Chad, Comoros, Congo, the Democratic Republic of the Congo, Cote d'Ivoire, Equatorial Guinea, Gabon, Guinea, Guinea Bissau, Mali, Niger, Senegal and Togo.
Scope of OHADA security interests
The Revised Uniform Act on Security Interests is based on civil law and, more particularly, on French law. As such, the Revised Uniform Act on Security Interests organizes security interests according to the category of assets over which the security is sought to be created, requiring a different document be signed, and applying different rules for the creation and perfection of security over each such category of assets. In other words, it is not possible anywhere in the OHADA zone to obtain a single security interest which would cover all of the debtor’s assets (other than real property), such as the uniform security interest created under the US Uniform Commercial Code or a “debenture” under English law.
The Revised Uniform Act on Security Interests permits the constitution of a broad range of security interests each of which will, as mentioned above, depend on the nature of the asset to be secured. The security interest can either be granted over (i) movable assets (biens meubles), such as inventory, equipment etc.; or (ii) immovable assets (biens immeubles) such as land, building, etc. There is also a distinction made within the category of movable assets between tangible assets (meubles corporels), which are physical in nature, and intangible assets (meubles incorporels), which do not exist in physical form and include things such as receivables, shares, intellectual property rights, etc. As is the case under French law, it is also possible to create a security interest over a going business concern (fonds de commerce), a “bundle” of assets which can include both tangible assets, such as professional equipment and materials, and intangible assets, such as goodwill, commercial name, operating licenses and patents and trademarks.
Registration fees of security interests
In OHADA jurisdictions, registrations of security interests are usually effected at the trade and credit registry (RCCM). However, depending on their nature it may also be necessary, in order to perfect them, to proceed with additional registrations, for instance with the tax, land and/or mining authorities. Turkish investors should bear in mind that in addition to registration fees, a stamp duty is usually payable to the tax authorities. Some OHADA jurisdictions also have the requirement (or at least it is strongly advisable), to have the documents creating security interests notarized, which triggers notarization costs.
In addition, depending on the asset over which the security interest is created, the procedure to perfect a security interest may be more or less burdensome. In DRC, for example, the perfection process of a mining mortgage will require an approval from the Minister of Mines.
Fees for registering security interests with the RCCM are usually calculated in two manners: either on the basis of a flat fee per security document or on a percentage basis, which will generally range between 0.1 to 5 %, of the secured liabilities under the debt against which the security is taken. Such percentage is often levied on “tranches” of the amount of debt secured on a degressive basis and is usually payable separately for each security document.
Some jurisdictions provide capped amounts for the registration fees of securities and it is, although in very rare cases, sometimes possible to negotiate registration fees with the RCCM, this is most generally on the basis of a package (i.e., global amount to be paid at one time to register all the securities).
There is a recent trend in OHADA jurisdictions to base registration fees on a percentage of the secured liabilities under the debt against which the security is taken. One concern with this approach is that it may result in substantial amounts of registration fees being payable by the financiers, who recently have shown some resistance and are less and less inclined to pay such significant amounts. Consequently, solutions are currently being explored to lower the price of registration fees while trying to maintain the highest level of protection against debt for the creditor.
Registration of security interests in two or more steps
(a) Reducing the scope of secured liabilities to reduce registration fees
A typical solution we have seen to address this issue is to register security interests with the RCCM in two or more stages, the first registration being immediate and the following one(s) subject to the occurrence of certain event (e.g., default of the borrower under the debt against which the security is taken). This is usually achieved through a “step up” security or a power of attorney authorizing the creditor to increase the secured liabilities under the debt against which the security is taken.
(i) “Step up” security
“Step up” securities provide, in a single security interest agreement, for several registrations covering various portions of the debt, with the possibility for the creditor to proceed with additional registration(s) covering the remaining amount(s) of the debt if certain conditions are met, usually if an event of default of the borrower under the debt against which the security is taken has occurred.
(ii) Power of attorney authorizing the amendment of the initial pledge
Another solution frequently used is for the borrower to issue a power of attorney to the benefit of the creditor (financier) authorizing the latter to increase the amount of the secured liabilities to the total amount of the debt in the event of default of the borrower under said debt and proceed with the required formalities with the RCCM (even though, strictly speaking, such authorization is not required as under OHADA law, the creditor may directly proceed with the registration of a security with the RCCM). In more practical terms, the power of attorney entitles the creditor (financier) to enter into an amendment agreement amending the scope of the initial security interest on behalf of the borrower (as well as on its own behalf) to increase the scope of the initial secured obligations.
It should be noted that both of the above solutions are applied differently from one OHADA jurisdiction to another (sometimes even by local counsels intervening in the same jurisdictions) and consequently; the validity, enforceability and effectiveness of any of the above solutions should not be generalized
(b) Risks and challenges
Both of the above options must be regarded and considered very cautiously. The reason for this is that the multiple registrations they entail are not risk-free regarding the validity and ranking of the initial registered security.
(i) Risk that initial security loses its initial ranking
Regarding the ranking of the security, in the event of a new registration (i.e., covering a new portion of the debt in case of a “step up” security or increasing the amount of the secured liabilities in case of an amendment as permitted by the power of attorney) the RCCM may (whether inadvertently or on purpose) change the date of the initial security to the date of the new registration and as a result, the initial pledge could lose its priority ranking.
(ii) Risk in relation to the hardening period
One additional risk is in relation to the hardening period which essentially is a period in which new securities are vulnerable and may be set aside by the liquidator in the context of insolvency proceedings. In the event of bankruptcy proceedings against the borrower, OHADA law provides that any new security taken against old debt within 18 months prior to the insolvency date is unenforceable (articles 34 and 68 of the Uniform Act Organizing Insolvency Proceedings). Consequently, there is a risk that in effecting a new registration, the hardening period would be deemed to start again for the whole pledge, which could put the whole security at risk.
(c) Impact on the amount of registration fees
(i) “Step up” security
The purpose of using the “step up” technique is to pay initial registration fees based only on the initial amount of debt against which the security is first taken and delay payment of additional amounts to such time, if any, as the triggering events occur. However, article 53 of the Revised Uniform Act on Security Interests provides that for the purposes of registration with the RCCM, the maximum amount of the secured obligations must be indicated in the registration document. Consequently, the security would need to include the cumulative amount of all of the secured portions of the debt and such amount could be considered by the RCCM as being the basis for the calculation of the registration fees.
(ii) Power of attorney authorizing the amendment of the initial pledge
Regarding the amendment of a security as permitted by the PoA, this will allow the reduction of registration fees at the stage of registration of the initial security. However, the amendment would need to be registered in the same forms and under the same conditions as the initial security (article 60 of the Revised Uniform Act on Security Interests). As a result, in the event of an amendment increasing the amount of the secured obligations to the total amount of the secured obligations, registration fees would amount to the percentage of the total debt, so this will simply delay the payment of the registration fees and the 2 risks identified above would apply.
Registration of independent separate security interests taken against same debt
The one solution which is considered to be most effective (but far from being ideal) is to register several separate independent security interests covering different portions of the debt. The idea is to have the securities signed at the same time with the first security immediately registered and the second one registered at the time agreed by the parties (e.g., event of default of the borrower).
This solution is viewed as not only having the benefit of securing the validity and ranking of the first registered pledge in the event a new registration is made thereafter, but also reducing registration fees as fees would be based on the portion of the debt on which the security is taken and not on the total amount of the debt.
From our experience, some OHADA jurisdictions (e.g., DRC) are not comfortable having several securities covering different portions of a single debt and therefore if such option were to be entertained, we recommend local counsel review and confirmation.
In addition, there is always a risk that despite being drafted as independent security interest, the RCCM would consider that any registration made following the registration of the initial pledge as being related to the initial pledge (given that it relates to the same debt) with the consequence that the above risks would be incurred. To challenge such claim, it could be argued that under a single facility agreement, each drawdown is a separate loan and therefore that therefore there are no obstacles for multiple registrations based on a single debt.