taking security in african countries - how to approach it ... · key considerations: other legal...

Simon Cook and Alexandra Tillbrook

Sullivan & Worcester UK LLP

20 January 2015

Taking security in African countries - how to approach it and how to solve problems

What this talk will cover

• Introduction to Africa • Overview of African legal regimes • Types of security available • Key commercial and legal considerations when taking security • Case studies: Kenya, Mozambique and South Africa • Final thoughts

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Introduction to Africa: What do we mean by Africa?

• Anglophone (English speaking countries): Mostly East Africa (e.g. Kenya, Tanzania and Uganda), Southern

Africa (e.g. Zambia), Nigeria and Ghana

• Francophone (French speaking countries): Mostly West Africa (e.g. Burkina Faso, Mali and Senegal), some

Central African countries (e.g. Chad and the DRC) and Madagascar

• Lusophone (Portuguese speaking countries): Angola, Cape Verde, Guinea-Bissau, Mozambique and Sao Tome

and Principe

• North Africa: Algeria, Libya, Morocco and Tunisia

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Introduction to Africa: Our current view

2009 Sullivan & Worcester, LLP 4

• Trade finance is more than possible • There is a lot of positive news • Many institutions are focussing on the possibilities • However, there are concerns and risks at legal and

regulatory level to be considered • See our Africa experience map for where S&W has

experience

Overview of African legal regimes: Map

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Overview of African legal regimes: Common, civil and mixed systems etc.

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• Common law systems

Anglophone countries: English law dominant influence

• Civil law systems Francophone countries: French law dominant influence Lusophone countries: Portuguese law dominant influence

• Mixed systems Rwanda: Belgian civil law and English common law South Africa and Zimbabwe: Dutch civil law and English common law North Africa: laws of Arabic countries, Sharia, European civil law

• Other sources of law: Sharia and OHADA

Overview of African legal regimes: Common law v. civil law regimes


• Common law v. civil law regimes

Common law traditionally more investor friendly Civil law traditionally more debtor friendly and prescriptive Types of security interests which are available differ Trusts recognised under common law and not under civil law Insolvency set-off recognised under common law and not under

civil law

• Some commonality between countries, but local law advice is key to getting it right

Overview of African legal regimes: OHADA

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• L'Organisation pour l'Harmonisation en Afrique du Droit

des Affaires (OHADA) • Treaty signed in 1993 with 14 countries although now 17

signatories Benin, Burkina Faso, Cameroon, Central African Republic, Chad,

Comoros, Republic of the Congo, Ivory Coast, Equatorial Guinea, Gabon, Guinea, Guinea-Bissau, Mali, Niger, Senegal, Togo and DRC

• Creates a legal framework for the implementation of OHADA-wide legislation that is directly applicable in each member state

• 9 Uniform Acts passed to date • Reform of the Uniform Act on Security Interests in 2011

Taking security: What security is available? (part 1)

• Typical security in a trade finance transaction:

Security over goods Security over sales proceeds (i.e. receivables) Security over collection account (likely to be offshore, if possible)

• Security should follow the assets as they exist throughout the commercial process

• Does local law recognise the types of security interest you want to create?




• Anglophone countries (e.g. Kenya and Malawi): Fixed and floating charges over goods Pledges of goods (require possession of the goods) Assignments of receivables (present and future) Security over different asset classes can be combined in a

debenture

• Francophone countries - OHADA: Pledges of goods (possessory and non-possessory) Pledges of receivables (present and future) Usually a separate pledge for each asset class



• Lusophone countries (e.g. Mozambique): Pledges of goods (renew pledge for future assets) Pledges of receivables (difficult to secure future receivables but

permitted and local account required) Pledges for different asset classes can usually be combined

• North Africa (e.g. Morocco): Pledge of goods Assignment of receivables (similar to a French “Dailly”)

• Mixed General notarial bond and special notarial bond in South Africa Assignment equivalents: security cession in South Africa and

notarial general covering bond in Zimbabwe

Taking security: Will English law security work? (part 1)

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• Common question asked by clients

• Temptation to use the same law for all security documents

• Points to consider:

Type of asset

Location of asset: onshore v. offshore

Location of third parties that may be involved with the asset

What does local law say?

Taking security: Will English security work? (part 2)


• Points to consider (continued): Ease of enforcement - Is English law enforceable? - Will an English court judgment be upheld? - Can you enforce directly in the local courts?

• Needs to be looked at on a case by case basis

Key considerations: a list of the key issues

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• Due diligence • Holding security • Costs • Third parties involved in security • Perfecting security • Other legal formalities • Regulatory issues • Role of local counsel • Enforcement

Key considerations: Due diligence

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• Scope of due diligence in a security context

Who owns the assets Type, grade, quantity of goods Commercial arrangements / business Any relevant third parties? Review contracts being assigned

• Do not underestimate the importance of due diligence onshore • Due diligence can be complex and time-consuming and can

require local law advice

Key considerations: Holding security

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• Onshore or offshore? Typically in a syndicated transaction security is granted to a

security agent or security trustee who holds on behalf of the finance parties

In a bilateral transaction security is granted directly to the lender It may not be possible under local law or desirable to grant

security to an offshore entity Onshore security agent or trustee may need to be appointed to

hold the security

• Security Agent v. Security Trustee Certain jurisdictions do not recognise a trust so an alternative

structure is needed (e.g. South Africa) Agency structure usually requires a parallel debt provision OHADA allows security to be granted to a security agent

Key considerations: Costs


• Stamp duty • Registration fees • Notary fees • Legalisation fees • Translation costs • Third party costs e.g. collateral manager, stock monitor,

onshore security agent etc. • Legal fees

Key considerations: Third parties involved in security

• Collateral managers / warehouse operators • Stock monitors • Onshore security agent / trustee • Local administration agent • Offtakers • Trust company (South African SPV structure)


Key considerations: Perfecting security (part 1)


• Stamp duty Is it payable? If yes, usually payable before registration of security May be fixed amount or percentage of secured or facility amount Reducing stamp duty impact: limit secured amount, up-stamp or

restructure

• Registration Is the security registerable? May be fixed amount or percentage of secured or facility amount

• Notice of assignment to debtors Anglophone: generally no requirement (but advisable) Francophone and Lusophone: generally yes, but separate regime

for OHADA member states

Key considerations: Perfecting security (part 2)


Country Stamp duty rates and registration costs on security over goods and receivables

Angola Stamp duty at 0.1% - 0.3% (depending on the term of the security) Benin Registration fee of 0.25% of the secured amount Cameroon Tax of 2% of the secured amount (although not always payable) DRC Registration fee of 3% and 1% for notarisation Ghana Stamp duty at 0.5% for the principal security document and at 0.25% for

each additional security document Guinea Conakry Registration fee of 1% of the secured amount Ivory Coast Registration fee of 0.05% of the secured amount Kenya Stamp duty at 0.1% of secured amount and tariff legal fees Malawi Stamp duty at 0.60% of secured amount and tariff legal fees of 1% of

secured amount Mauritius No stamp duty and nominal registration fees Mozambique Stamp duty at 0.3% of secured amount Rwanda No stamp duty South Africa No stamp duty but published tariff fees for taking a special notarial bond

and a general notarial bond Tanzania Nominal stamp duty and registration fees Uganda Stamp duty at 0.5% of the secured amount Zambia No stamp duty and nominal registration fees Zimbabwe Bond duty payable which is usually calculated as: (value of assets) x

4/1000

Key considerations: Other legal formalities (part 1)

• What do the terms notarisation, legalisation and apostille mean? Notarisation: the act of certifying due execution or verifying some

fact or thing by a notary or verifying some fact or thing of which the notary has certain knowledge

Legalisation: the act of certifying that a notary’s signature and seal on a notarised document are genuine, performed usually by a foreign embassy or consulate

Apostille: a certificate issued by a state authority to certify that a notary’s signature and seal are genuine instead of legalisaton


Key considerations: Other legal formalities (part 2)


• Other notarisation, apostille and legalisation considerations Rules differ across countries Rules apply to the local obligors and the finance parties Check where the parties will execute and consider options

• Translation What documents need to be translated? Documents must be translated prior to execution

• Prescribed forms

Key considerations: Regulatory issues

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• Country specific Exchange control approval - A large number of countries have FX controls (e.g. Malawi, Morocco, Mozambique and South Africa etc.) - Who is responsible? - What is the process? Withholding tax

• General AML UK Bribery Act and facilitation of payments Basel III / credit risk mitigants

Key considerations: Role of local counsel

• Guidance on jurisdiction specific issues: may influence way the deal is structured

• Due diligence on corporate existence • Draft local law security documents • Draft corporate authorities • Issuance of local law legal opinion • Assistance with exchange control approvals (if required) • Assistance with notarisation, legalisation etc. • Payment of stamp duty (pre-funded by borrower) • Registration of security


Key considerations: Enforcement

• How long will it take e.g. statutory notice period requirement by law before enforcements can be made

• Freedom to enforce and sell or is there a legal procedure to be followed? Private sale v. public auction Mandatory court procedures

• Arbitration? • Costs of enforcement • Enforcement should be treated as a “last resort”

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Case study: Kenya


• Types of security the same as under English law • Guarantees must be governed under Kenya law • Trusts recognised • Typically no exchange control approval • Typically no execution formalities • Tariff legal fees apply under the Advocates Remuneration

Order which can make transactions commercially unviable unless you find a way around

• Stamp duty applicable at rate of 0.1% of the secured amount • Security can be registered for a nominal amount • Common to grant debentures to local banks so make sure you

get a carve out for your security

Case study: Mozambique


• Security over goods and receivables taken by way of a pledge • Trusts not recognised and parallel debt wording required • Exchange control approval required from the Central Bank of

Mozambique • Documents and resolutions must be translated into Portuguese • Notarisation and legalisation requirements apply • No tariff legal fees • Stamp duty applicable at rate of 0.3% of the secured amount • There is no security register

Case study: South Africa


• Security over receivables taken by way of a cession. Security over goods may be taken by way of a pledge (which requires possession) or a special or general notarial bond

• Security on a syndicated transaction to be granted to the lenders on a joint and several basis or via an SPV structure as trusts are not recognised

• Approval required from the South African Reserve Bank to be obtained through an authorised dealer

• If a general or special notarial bond is to be registered, the fee will be calculated in accordance with a published tariff payable to the conveyancers appointed to register the bond (an expensive form of security to take)

• Stamp duty is not applicable • Security cessions and pledges are not registerable • Special and general notarial bonds are registerable

Final thoughts

• Much of Africa needs financing • Many potentially good financings could be completed • Accept that there is a level of inherent risk and things do

not always go to plan • Consider whether security is the answer • Take advice from local counsel at the outset • No single approach to legal and regulatory issues in

Africa • Structure around issues if necessary

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Map of Sullivan & Worcester Africa experience


Simon Cook Partner Simon Cook is a partner in the Trade & Export Finance Group in our London office. He has experience in a wide variety of banking and finance transactions, including in particular in relation to structured trade finance, trade finance, project finance, invoice discounting facilities and borrowing-base facilities in Africa, the Middle East, Asia and the CIS. His work in the structured trade area covers a range of pre-export and prepayment financings acting for both lenders and borrowers notably in oil, telecoms, soft commodities and metals sectors with particular experience in Africa and the Middle East.

Simon has worked and travelled extensively in Africa and the Middle East, having spent over three and a half years in Dubai. He has participated in a number of structured trade finance and project finance conferences and seminars throughout Europe, the Middle East and Africa.

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Sullivan & Worcester UK LLP Tower 42 25 Old Broad Street London EC2N 1HQ T +44 (0)20 7448 1002 F +44 (0)20 7900 3472 [email protected]


Alexandra Tillbrook Associate Alexandra Tillbrook is an associate in the Trade & Export Finance Group in our London office. She has experience in trade and export finance. She advises leading banks on financings covering multiple jurisdictions and a range of commodities. Some of the transactions she has advised on include pre-export, letter of credit and receivable financing structures. Alexandra has spent a few years working in the Middle East, having spent time in Qatar, Abu Dhabi and Dubai.

Sullivan & Worcester UK LLP Tower 42 25 Old Broad Street London EC2N 1HQ T +44 (0)20 7448 1012 F +44 (0)20 7900 3472 [email protected]

Awards & Recognition

TFR “Best Law Firm in Trade Finance” Trade & Forfaiting Review (TFR) recently named Sullivan & Worcester "Best Law Firm in Trade Finance" in its 2014 TFR Excellence Awards The Legal 500 UK 2014 Sullivan & Worcester UK LLP was ranked in the following category in The Legal 500 UK:

• Trade Finance (Tier 1) Chambers UK 2015 Geoffrey Wynne is ranked a Tier 1 lawyer and Simon Cook a Tier 3 lawyer in Chambers UK 2015 Directory. GTR “Best Law Firm 2014 Poll” Sullivan & Worcester UK LLP was a top ranked firm (no 3) in the Global Trade Review (GTR) Best Law Firm 2014 poll

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Sullivan & Worcester advise clients concerning their activities throughout the world, with a special emphasis on the emerging markets of Africa, Asia, the CIS countries and Latin America.

Our practice is multi-disciplinary, involving attorneys and solicitors expert in trade, banking, securitization, securities law, project finance, insurance, tax, compliance issues and dispute resolution.

In addition to trade and commodities finance, the firm intends to build up a London practice linked closely to our U.S. practice and the needs of our clients worldwide. The office will also benefit from our joint venture in Israel, ZAG-S&W, and significant client activity across Europe and Asia. We will broaden and enhance our existing practices in cross-border finance, mergers and acquisitions, tax, banking and international arbitration.

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