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Study on warehouse financing in sub-Saharan Africa and Madagascar
1. Study on warehouse financing in
sub-Saharan Africa and Madagascar
Geoffrey L. Wynne and Sam Fowler-Holmes
Sullivan & Worcester UK LLP
16 July 2014
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Areas to cover
1. Summary of legal position in the Subject Countries
2. Legal obstacles to, and possible legal solutions for,
developing warehouse financing
3. Is a legal framework necessary for warehouse
financing?
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The legal position: OHADA countries
(1)
What is OHADA?
• Organisation pour l’Harmonisation en Afrique du Droit
des Affaires
• Treaty signed in 1993 with 14 members although we now
have 17 signatory states including:
Burkina Faso, Cameroon, Côte d’Ivoire, Niger and Senegal
• Creates a framework for the implementation of OHADA-
wide legislation that is directly applicable in each member
state
• 9 Uniform Acts passed to date including:
Uniform Act on Securities (Droit des sûretés)
Uniform Act on Arbitration (Droit de l’arbitrage)
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The legal position: OHADA countries
(2)
Warehouse financing in OHADA countries
• No specific legislation covering warehouse financing
• Reliance on normal contractual principles
• Securities Act provides some assistance:
Security over movable goods taken by way of pledge
Pledge perfected either by registration with RCCM or by
taking possession (either actual or constructive)
May be registration fees and/or stamp duty payable
RCCM will issue a Pledge Form (bordereau de gage de
stocks) on registration – can be endorsed to third parties
Registration v possession
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The legal position: OHADA countries
(3)
Warehouse receipts and collateral managers
• Warehouse receipts are evidence of deposited
goods – not documents of title and not transferable
or negotiable instruments
• Very limited regulation of warehouses, warehouse
operators and collateral managers with exception of
Côte d’Ivoire
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The legal position: Côte d’Ivoire (1)
Regulation of collateral managers
• Law No. 94-620 imposes requirements to be
satisfied by all collateral managers in Côte d’Ivoire
dealing with agricultural products
• Must be authorised to operate by the government
and have insurance cover in place to cover theft, fire
and damage
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The legal position: Côte d’Ivoire (2)
Commodity-specific regulation
• Specific regulation for collateral managers dealing
with coffee, cocoa, cotton and cashew nuts
Minimum share capital requirements
Provision of a bank guarantee
Head office and warehouse facilities in Côte d’Ivoire
Meet standards of commodity-specific regulators (Conseil
du Café-Cacao (CCC) for coffee and cocoa and Conseil du
Coton et de l'Anacarde (CCA) for cotton and cashew
Restrictions on exporting of goods
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The legal position: Côte d’Ivoire (3)
Proposed warehouse financing legislation
Developed by Ivorian government and IFC
Vote by Ivorian Parliament expected ?
Would implement a warehouse financing system allowing
for both Type A (private) and Type B (public) warehouse
financing
Creates a centralised regulatory body
Mandatory licensing requirement for collateral managers
Provides for negotiable warehouse receipts
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The legal position: Ghana (1)
• No warehouse legislation in place
• Existing legal framework provides for:
Warehouse receipts as transferable documents of title (if
agreed by contract)
Creation of security over movable goods and documents
representing them
Actual and constructive possession recognised but
registration and payment of stamp duty necessary
Limited regulation of warehouse operators and collateral
managers
• Ghana Grains Council voluntary warehouse receipt
system
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The legal position: Ghana (2)
• Draft warehouse receipt regulations proposed
• Provide for:
Negotiability of warehouse receipts
Registration of all negotiable receipts
Licensing requirements for warehouses, warehouse
operators and collateral managers
The Ghanaian Securities and Exchange Commission as the
regulatory body
Resolution of disputes via arbitration
• Complemented by the draft commodity exchange
regulations
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The legal position: Madagascar
• No warehouse legislation in place
• Types A and B financing could take place in reliance
on normal contractual principles and the provisions
of the Securities Act
• Security may be perfected either by possession
(actual or constructive) of goods or registration
• Priority for registered security
• However, predominance of Type C financing means
little reliance on existing legal framework
• Practical v legal security
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The legal position: Mozambique (1)
• No warehouse legislation in place
• Mozambican Civil Code (MCC) provides a regime
for the deposit of goods under deposit contracts
• Limited obligations on depositaries imposed by the
MCC
• Warehouse receipts are not negotiable instruments
but parties can contractually agree that they are
transferable
• No specific regulatory body in place
• Security over goods by way of pledge but detailed
perfection requirements
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The legal position: Uganda (1)
• Warehouse receipt system provided for under the
Warehouse Receipt System Act 2006 and the
Warehouse Receipt System Regulations 2007 (the
Legislation)
• Legislation provides for:
Both Type A and B financing including field warehousing
Both negotiable and non-negotiable warehouse receipts
Licensing of warehouse operators
Creation of the Uganda Warehouse Receipt System
Authority as regulator (the Authority)
• Mainly used for Type B financing
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The legal position: Uganda (2)
Issues with the Legislation
• Has a wide scope but doesn’t take into account
specific issues for different types of financing
• Doesn’t expressly address taking security over
goods and warehouse receipts
• Doesn’t provide a statutory power of sale
• The Authority is still not established with Uganda
Commodity Exchange ‘temporarily’ responsible
• Focus on public warehousing meaning Type A
financing taking place outside of scope of the
Legislation
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Legal obstacles
1. Lack of regulation of participants in financing
structure
2. Non-negotiability of warehouse receipts
3. Stamp duty and registration fees
4. Onerous requirements for perfecting security
5. Inefficient or non-existent collateral registries
6. Enforcement issues
7. Slow and cumbersome dispute resolution
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Legal solutions (1)
1. Licensing of warehouses, warehouse operators
and collateral managers to improve confidence in
system
2. Create negotiable warehouse receipts to assist
taking security and transfer of title
3. Abolish stamp duty and lower/remove registration
fees to incentivise registration
4. Look for increased flexibility in perfection methods
(e.g. security by possession of negotiable
warehouse receipts)
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Legal solutions (2)
5. Creation of electronic collateral registries that are
accessible by the public
6. Legal right to enforce security by private sale
7. Use of fast-track procedures, sector-specific
arbitral bodies and indemnity funds
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Is a legal framework necessary? (1)
The options
• Introduction of warehouse receipt legislation (e.g.
Uganda)
• Voluntary contractual approach (e.g. South Africa)
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Is a legal framework necessary? (2)
Legislated approach
Should cover some or all of the following:
• Negotiable warehouse receipts as documents of title
• Licensing and regulation of participants
• Sanctions regime for non-compliance
• Indemnity funds
• Establish security regime and priority of creditors
• Arbitration procedures
• Development of commodity exchange
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Is a legal framework necessary? (3)
Legislated approach
Advantages
Certainty
Increased confidence in the system for participants
Increased efficiency in trading and in dispute resolution
Universal application
Disadvantages
Legislative process often slow and highly politicised
Danger of ‘one size fits all’ approach
Views of participants can be overlooked
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Is a legal framework necessary? (4)
Contractual approach
Advantages
Flexibility to adapt to market changes
Can mirror legislative regime without the need for legislation
Disadvantages
Requires support from market participants
Limited application
Subject to any limitations imposed by law
Sanctions for non-compliance often limited
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Geoffrey L. Wynne
Partner
Geoffrey Wynne is head of the Trade and Commodities Finance Group at Sullivan & Worcester and has extensive
experience in banking and finance, specifically corporate and international finance, bank mergers, acquisitions,
conversions and restructurings, trade and structured trade and commodity finance, structured finance, asset and
project finance, syndicated lending, equipment leasing, workouts and financing restructuring, leveraged and
management buy-outs and general commercial matters.
Geoff is one of the leading trade finance lawyers and has advised extensively many of the major trade finance banks
around the world on trade and commodity transactions in virtually every emerging market including CIS, Far East,
India, Africa and Latin America. He has worked on many structured trade transactions covering such diverse
commodities as oil, nickel, steel, tobacco, cocoa and coffee.
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Sullivan & Worcester UK LLP
Tower 42
25 Old Broad Street
London EC2N 1HQ
T +44 (0)20 7448 1001
F +44 (0)20 7900 3472
gwynne@sandw.com
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Sam Fowler-Holmes
Associate
Sam Fowler-Holmes is an associate in the Trade & Export Finance team. He specialises in structured and
unstructured trade finance and has advised financial institutions on a range of products including large-scale pre-export
financing, supply-chain financing, funded and risk participations, and bank-to-bank lending. Sam's experience includes
advising in relation to numerous jurisdictions across mainland Europe, CIS, Africa and Asia and for a range of
commodities including, oil, gas, metals and cocoa.
Sullivan & Worcester UK LLP
Tower 42
25 Old Broad Street
London EC2N 1HQ
T +44 (0)20 7448 1006
F +44 (0)20 7900 3472
sfowlerholmes@sandw.com
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