Securing a loan and timely recovery of it, in the unlikely event of default, have always been a long standing challenges for financial institutions, businesses and individual lenders in Ghana.
Financial institutions and other businesses, in the course of doing business, may give loans, products or services on credit. However, due to the little or no data or credit history of potential borrowers, it has always been a very risky venture to lend or offer goods and service on credit.
One of obvious measure lenders have been undertaking to secure their loans and credit transactions is to demand for a collateral to secure the business transaction. This normally gives lenders some level of assurance that upon default they may have a property or asset to rely on - at least to mitigate it loses.
Notwithstanding the above, upon default, Lenders will always requires court order to enable them dispose off the collateral to settle the debt. The court process can be costly, cumbersome and protracted. This discourages lenders and businesses from lending or entering into credit transaction.
In view of the above challeges, the Bank of Ghana (Bank), through Parliament, enacted “Borrowers and Lenders Act, 2020 (Act 1052)”. The main purpose of the Act is to enable Lenders to dispose off a security interest in a credit agreement without going to court.
To achieve that the Act established a Collateral Registry to register all collaterals under a credit agreement. The lender, upon creation of the collateral or security interest, is required to register the security interest with the collateral registry within 28 days after the date of creation of that interest. The collateral can be in form of movable properties, immovable properties, stocks, receivables etc.
The Act makes collateral or security interest register with Collateral registry priority over any other collateral created under any other Act or processes in the Country.
Once registered and upon default by the borrower, a lender can sell or take possession of the collateral without any court order. To exercise this right, a lender must first notify the borrower in writing to pay the amount due within thirty days from the date of the default. If the borrower fails to remedy the default within the stipulated date, the lender then can dispose off the collateral without any court order.
Where it becomes impractical for the lender to peacefully take possession of the collateral, the lender can apply to court for police protection to undertake the exercise.
Any proceeds realized from the sale can be applied to the cost incurred in disposing off the collateral; reasonable legal fees incurred and the debt outstanding to the borrower.
Unfortunately, the above process only applies to transaction which are registered with the collateral registry. It is therefore important that you register all your credit agreements with the registry to enjoy the benefits indicated in the Act.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.