News

Merchant Security Registry Caribbean Limited Established

A Private Sector initiative

Modern Secured Transactions Laws are coming to Jamaica and the rest of the Caribbean Islands. Collateral Registries will have a dramatic impact on economic development for many individuals and companies. Merchant Security Registry’s Collateral Registry provides the basis for free-flowing credit, reducing the potential losses lenders face from non-payment.

While land and buildings are widely accepted as collateral for loans, the use of movable collateral (such as inventory, accounts receivables, crops and equipment, appliances, etc.) is restricted because many countries do not have functioning laws and registries to govern secured transactions. This is the main reason, why Merchant Security Registry has been working on a sophisticated collateral registry system for approximately three years. We think the timing is now right, to introduce this private sector initiative first to Jamaica, and then to the rest of the Caribbean.

Merchant Security Registry is assisting with the reforming of the framework for movable collateral lending that will allow businesses, particularly SMEs, to leverage their assets into capital for investment and growth. Our Modern Secured Transactions Registry will increase the availability of credit and reduce the cost of credit over time.

Our main objective: Increasing access to credit for companies and individuals.

Our Secured Transactions and Collateral Registries team is assisting in developing the appropriate legal and institutional frameworks, so as to allow and encourage the use of movable assets as collateral for loans.

We combine deep knowledge and global “Know How”, to help modernize our business climate and improve the capacity of stakeholders. In delivering our platform, we have worked closely with lenders and many relevant public and private stakeholders and interest. Our aim is to bring to the public, Merchant Security Registry.

News

Hilary Reid - The Jamaica Observer, Wednesday, June 06, 2012
http://www.jamaicaobserver.com/business/Making-it-easier-to-give-collateral-for-loans

THE Government of Jamaica has been discussing ways to go about simplifying the process of giving collateral with the hope of facilitating greater access to loans.

We all know that banks and other financial institutions are reluctant to give unsecured loans. One of the first questions when approached for a loan is: where is your collateral? For many of our micro, small and medium-sized enterprises (MSMEs), this question often brings the discussions to a screeching halt.

The best assets which the MSME may have to offer may simply be its equipment, inventory or accounts receivable. However, banks may be concerned about their ability to take security over these kinds of assets, and therefore reluctant to accept these assets as the sole form of collateral. For example, how can they be sure there were no previous charges; or in the instance a borrower has defaulted, that they are able to quickly retrieve and sell the assets. When dealing with sole proprietors, the bank may issue concern regarding whether they can legally take the kind of security that they would like over these assets. Floating charges, the form of security typically taken over shifting assets such as inventory, cannot now legally be given by an individual. One form of security is therefore now not an option available to a large number of MSMEs.

The cost of perfecting any kind of security over these assets may also create its own bar. These costs include the cost of drafting the required documentation, as well as the cost of stamping and registering or recording the appropriate document in the places where registration may be required (if required at all), with all of these costs of course generally being passed on to the borrower for payment.

So what is the Government considering? Consultants to the Inter-American Development Bank (IADB) have, after several discussions and consultations with stakeholders in Jamaica, proposed a simplified system of registration under new legislation to be known as the Personal Property Security Act (PPSA). They suggest that the introduction of similar legislation in other countries, has resulted in an increase in lending and a decrease in the costs of borrowing.

It is hoped that the PPSA will allow: (a) for the reduction in the cost of borrowing: with the suggested removal of stamp duty payable in relation to those transactions; (b) the simplification of the process: with only one place to register and search, regardless of whether you are a company or an individual; (c) greater certainty: with the order of priority being determined based on clear and unambiguous rules based on first to file; (d) widening of available security options: with anybody, whether individual or company being able to give any form of security including floating charges; and (e) the removal of distinctions between types of secured creditors so that there is no longer any need to worry about the distinction between the floating and the fixed charge simplifying the drafting process.

It is important to note that these changes may also give rise to issues which need to be carefully considered. For example, since registration is to be limited only to one register, the ease now of doing searches on companies may become a little more difficult to maneuver. Now, almost all charges given by companies, even if required to be registered elsewhere, must be registered at the Companies Office of Jamaica (COJ). Under the new system, a simple search to confirm the status of a company may end up requiring not only the search at the COJ but also with the Office of Titles (in relation to land) and with this new registry. More searches of course will probably mean more fees.

Additionally, if the distinction between floating charges and fixed charges is removed, the simplification of the drafting process may be at the expense of the protection now given to wages, redundancy payments, NIS and NHT contributions and the like which are now given preferential treatment. What about taxes? Is the Government prepared to give up its current preference?

Careful consideration should also perhaps be given to whether there are any factors which ought to be given preferential treatment when looking at the order in which payment is to be made out of the assets -- does there need to be a distinction between dealing with a company and dealing with an individual in order to at least safeguard some of the assets of the individual so as to allow the individual to be able to survive after the creditor enforces its security?

The PPSA is not intended to cover land. However, not all land in Jamaica is under the registered land system. Although unusual for this type of legislation, could Jamaica benefit from including unregistered land within this system so as to reap some of the benefits of certainty?

As the discussions continue we hope we will be able to chart our way through these and all other issues. The certainty that this register will offer for dealings with assets other than land and the protections which already exist for dealings with registered land, make it likely that this intervention will result in making it easier for MSMEs to offer collateral for loans which banks are more willing to accept.

Over the past half century of experience with notice registries, first in the West and in more recent years in other parts of the world, a set of generally-accepted principles for such registries has evolved. These best practice principles comprise the standard against which registries should be designed and operated. Over the past ten to fifteen years it has become possible to better realize the full value of the principles with the use of modern information and communications technologies. New registries should make optimal use of those technologies to enable the full application of the best practice principles. Our team provides our clients with step-by-step support on how to design, implement, oversee and manage the creation and use of a collateral registry. Overall, our assistance enables our clients to make use of a collateral registry that builds upon the following principles:

Hilary Reid is a Partner at Myers, Fletcher & Gordon and is a member of the firm's Commercial Department. Hilary may be contacted via hilary.reid@mfg.com.jm or www.myersfletcher.com. This article is for general information purposes only and does not constitute legal advice.

Read more: http://www.jamaicaobserver.com/business/Making-it-easier-to-give-collateral-for-loans_11620252#ixzz2NOxASP7D