Launch of the Egyptian Movable Coll

On 11 March 2018, the Ministry of Investment, Financial Regulatory Authority (“FRA”), and the Egyptian Credit Bureau (I-Score) announced the launch of the Efor movable assets termed the “Egyptian Collateral Registry”. This is a significant market development since the registry is the tool through which the implementation of Movable Guarantees Law No. 115 of 2015 (the “Law”) becomes possible. The Law was issued three years ago in November 2015, and its executive regulations followed in December 2016.

Background

For decades, Egyptian Law has known several forms of credit guarantees – i.e. collateral that a debtor can offer to lenders so that they are able to recover their dues or part thereof in the event of default. These guarantees included real estate mortgages, possessory liens (which entail that the debtor relinquishes actual possession to the creditor), and commercial mortgage of business assets. However, throughout the years, Egyptian Law had failed to recognize one other form of guarantee common in international financial markets that is credit guarantees over movable assets. This type is encumbered on movable assets that remain in the possession of the debtor for the entire duration of the guarantee. It thus allows the debtor to make use of movable assets that may be crucial for his/her economic activity, and hence are another way to ensure a means for repayment. While movable guarantees are comparable to the commercial mortgage system in that possession of the assets remains with the debtor, they differ in that movable guarantees are not restricted to existing machinery and productive assets but can also be applied to future claims. In addition, commercial mortgages are only feasible where the creditor is a bank, and their registration and enforcement procedures are slow and cumbersome. While the Law is likely to have a sizeable impact on credit in general, it particularly opens the door to financing small and medium enterprises, which may not be able to offer traditional forms of guarantees to banks and financial institutions in order to receive credit.

The Egyptian Movable Collateral Registry

For the use of this new type of guarantee to materialize, the Law mandated the FRA with establishing a central electronic register for the registration and publishing of credit rights. The Law also allowed the FRA to assign the task of creating and maintaining the register to an independent entity under its supervision. The FRA indeed held a bid the result of which was assigning the task of establishing the register to the Egyptian Credit Bureau (I-Score) in September 2017. Entering data on the register is regulated according to the detailed provisions of the executive regulations of the Law, which stated that the register must be available 24 hours throughout the week and ensured the right of any person in searching its database and receiving copies. It further delineates the procedures for challenging registration and cancelling the same, and the possibility of resorting to summary court proceedings for that purpose. According to the Egyptian Credit Bureau, the registry allows creditors – who could be banks, entities operating in the field of financial leasing, microfinance, movable asset traders, or grantors of intellectual property right licenses – to register and publicize all rights against movable collateral. From the date of their entry on the register, these rights have priority over other rights encumbered over the same movable asset. The register also allows electronic searches over the internet of the different data it contains, including data related to insolvency and liquidation. The launch of the register is hoped to reduce the cost of receiving credit through defining credit priority, providing faster litigation procedures, and the facilitation of creditor enforcement in the event of default with respect to the registered rights. Consequences of registering a given right include requiring that the debtor obtains creditor approval prior to disposing of the protected asset, while allowing the debtor on the other hand to create more than one guarantee over the same movable asset.

Conclusion

At the time it was issued, the Movable Guarantees Law was seen as one of the most significant pieces of economic legislation to come out in Egypt in recent years. This is because it is expected to open the way for a new type of commercial guarantees and therefore contribute to the expansion of the scope of those who are able to make use of financial and credit services, especially among smaller businesses. Whereas the Law contained a provision stating that it comes into effect within three months, its actual application was halted for over two years in anticipation of the creation of the movable collateral registry. For this reason, the finalization and launch of the register is no doubt a positive development that is likely to have an impact on the market. What remains to be seen is the execution of certain procedural details in practice, especially where enforcement and party rights are concerned.