The Borrowers and Lenders Act 2020, Act 1052 (The Act) is a re-enactment of the Borrowers and Lenders Act 2008 (Act 773) which establishes the Collateral Registry, provides a legal framework for the registration and enforcement of security interests in collateral, establishes an order of priority of security interests and provides for credit agreements which regulate transactions between borrowers and lenders.

The Act addresses some limitations of Act 773 such as use of a manual registry, the lack of express provisions on priority rules and proceeds for realizations and inadequate enforcement provisions.

The Act applies to the rights and duties of a borrower or lender before the execution of a credit agreement.

Creation of Security Interest and Credit Agreement

A security interest in collateral is a proprietary right in a movable or immovable asset which is created by an agreement to secure payment or the performance of an obligation regardless of the form which the agreement may take either as a fixed or floating charge, a mortgage, a finance lease, a pledge or a charge on chattels. The payment or performance of an obligation is secured by a borrower creating an interest in collateral in favour of a lender.

Registration of Security Interest at the Collateral Registry

Key to the legal framework in secured transactions is the establishment of a Collateral Registry at the Bank of Ghana. Its key functions are to register security interest, to keep and maintain a register of security interest and to maintain a platform for the conduct of searches in security interest in collateral(s).

A security interest that has been created and registered in accordance with this Act is made effective against a third party. A registered security interest shall continue to be effective against a third party for as long as the registration of the security interest has not been discharged. Although the Act does not dispense with the requirement of concurrent registration under other registries, a security interest that covers a right to property which is registered in another registry is effective against third parties only if the lender satisfies the requirements of the Act. Registration of a security with the Collateral Registry however remains the safest means for effective enforcement of any such security.

A lender in whose favour a security interest is created shall register same at the Collateral Registry within twenty-eight days after the date of creation of that security interest. In order to register the security interest, the lender requires the written consent of the borrower which is deemed to have been given by upon the execution of a credit agreement. However, a security interest in property shall not operate as a transfer of title in the property from the borrower to the lender.

A lender that fails to register a security interest within the stipulated time period of twenty-eight days is liable to pay to the Bank an administrative penalty of ten penalty units for each day that the breach continues. Also, a lender who makes a fictitious or fraudulent registration commits an offence and is liable to summary conviction to a fine not less than 1,500 penalty units and not more than three thousand penalty units or a term of imprisonment of not less than two years and not more than five years or to both.

Priority of Registration

The Act provides for a single asset or property to be used by a borrower to access credit from

multiple sources. This means that so long as credit exposure is less than the value of the security provided, the Lender need not have tie the collateral to the credit facility granted. Subsequently, the lender can use same collateral and secure their interest by registration thus establishing an order of priority. The legal effect is that should there be a default by a borrower, all lenders are protected and can recover losses from the proceeds of the sale of collateral.

The Act further provides that a lender may in writing, subordinate its priority in favour of an existing lender without the need for the borrower to be a party to the subordination once the rights of a person who is not a party to the agreement are not adversely affected. The cardinal principal in establishing priority of registration is that irrespective of the time of registration, a lender who registers a notice of its security interest first, will have priority over any other security interests under any other enactment. The Borrowers and Lenders Act fosters access to multiple sources of credit for a Borrower.

Unless otherwise provided in the Act, priority between security interest in the same collateral shall be determined by the order of the registration of the security interest. Despite this provision, the Act provides for other specialized rules on establishing the order of priority of registrations of security interest to priority include:

• Priority of security interest in accession and commingled goods

• Priority of purchase money security interest

• Priority of transferee of money, funds, negotiable instruments, security certificate etc.

• Possessory lien with respect to movable and immovable property.

• Priority Rules related to interests in immovable property and fixtures.

Where a borrower transfers an interest in collateral registered under the Act to a third party, the security interest of the lender shall have priority over any interest acquired by the third party.

It is expected that the Act will regulate transactions between borrowers and lenders in credit agreements in Ghana.