African security enforcement improves under Ohada

Author: Ashley Lee | Published: 6 Jun 2013
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Foreign investors looking to Africa are reaping the benefits of greater certainty under the Organisation for the Harmonisation for Business Law in Africa’s (Ohada) investment framework and arbitration regime.

Created in 1993 by the Ohada Treaty, the first revision of the body of commercial laws in the region simplified business entry in eight member states and strengthened secured transaction laws in the then total of 16 member states. Today, the Organisation now comprises 17 west and central African countries.

At IFLR’s China-Africa Investment Forum in Beijing on June 5, Baker & McKenzie Melbourne partner John Mollard described the impact of Democratic Republic of Congo’s (DRC) ratification of Ohada.

"Once Ohada came into play in the DRC, it gave financial institutions offshore more comfort," he said. "We needed to include a number of key terms in security documents to take advantage of the perceived added protection of Ohada."

He explained that documents were renegotiated to ensure their registration with the trade and investment property register to prioritise the security interest.

Some specific DRC statutory references had to be replaced with relevant clauses from Ohada, such as provisions in relation to the termination of the agreements in the event of default and the ability to resort to public auctions, he said

Security

In 2010, Ohada adopted a revised uniform act on security, which took automatic effect in each member state on May 16 2011. Under this statute, all security created on or after that date is governed by the new Act. It is widely agreed that this law is an important development in multi-lender financings and syndications.

A key part of the law was the introduction of a security agent, described as a hybrid between the civil law mechanism of agency and the common law’s trustee. Previously individual lenders each took security, which then required an involved process whenever a lender transferred the loans.

Under the revised law, all security or other guarantees for the performance of an obligation can be granted, registered, filed, managed and enforced by a national foreign financial institution or credit institution acting in its own name or the benefit of creditors of the secured obligations that have appointed it.

The revised law also allows for the creation of a security interest in future property, such as a cash flow to be earned in a bank account or a new asset that will be acquired.

As the law introduces several new legal concepts to Ohada jurisdictions, panelists expressed concern about the practical implementation of the revised law. But they were optimistic about its impact on investor confidence.

Panelist Simmons & Simmons’ Yongmei Cai drew on her recent experience in assisting Chinese banks and companies on their investments in the region.

"So far, most have preferred using English law and we haven’t yet seen a lot of local security created in support of the investments," she said.

But she noted that Ohada is very helpful, especially when Chinese banks are considering more commercial lending into Africa. She added that the new securities law seems to have come at the right time, which will encourage Chinese banks to consider lending commercially based on local security arrangements.

Arbitration and enforcing agreements

As in most emerging markets, international arbitration is the preferred method in settling disputes. However only 10 of the 17 Ohada states have acceded to the New York Convention and are therefore not required to enforce foreign arbitral awards.

Ohada’s 1999 Uniform Act on Arbitration, which established its Common Court of Justice and Arbitration (CCJA) is based on the model UNICTRAL law. Based in Abidjan, Cote d’Ivorie, the CCJA is recognised by all Ohada jurisdictions.

Capacity, however, may be an issue. Given that CJJA is a relatively new regime, it is not clear if arbitrators are experienced with the complex commercial arbitrations typically settled in the International Chamber of Commerce (ICC) or the International Centre for Settlement of Investment Disputes (ICSID).

Counsel recommended studying where a counterparty’s assets are located, and if that jurisdiction has mutual recognition treaties with England or another jurisdiction with a strong judicial system.

"The first step we take when considering disputes is whether we can possibly enforce in England or other jurisdictions with which England might have mutual recognition, and whether the counterparty has assets in those countries," said Cai.

What to expect

Panelists were optimistic about Ohada’s future, particularly how its legal regime will develop to encourage foreign investment.

Mollard said that more examples of successful enforcement of security under Ohada, and more investors to test the commercial framework, are needed to enhance financier confidence.

The unified securities act has created new momentum, he said, and perhaps we will see other French-speaking countries in Africa become signatories.

As African governments become more outwards facing, it’s also expected that more will become signatories of the New York Convention and therefore see a greater willingness in local jurisdictions to recognise and enforce foreign arbitral awards.

For full coverage of IFLR's China-Africa Investment Forum click here

Related links

Mauritius: the holdco gateway to African FDI  http://www.iflr.com/Article/3215770/Corporate/Mauritius-the-holdco-gateway-to-African-FDI.html

PPPs to deliver Africa infrastructure  http://www.iflr.com/Article/3216139/PPPs-to-deliver-Africa-infrastructure.html?edit=true

Follow African banks’ lead http://www.iflr.com/Article/3209869/IFLR-magazine/Follow-African-banks-lead.html

Highlights from IFLR’s Africa Forum 2013 www.iflr.com/AfricaForum2013coverage

 


 

 

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