The Salvadoran Law on Secured Transactions (SLST) has
been in force since April 2014 by Decree No 488, which is based
on the Organisation of American State´s (OAS) Model
Inter-American Law on Secured Transactions. Under Article 88,
the SLST clarified that the new national central registry would
become operational no later than six months after this law came
into force (that is, October 15 2014).The creation of the SLST
had an overarching theme: to improve access to credit for
micro, small and medium-sized enterprises (MSMEs), particularly
those involving women-owned businesses and other marginalised
groups.
In an extremely competitive and global atmosphere, with
cross-border lending activity becoming progressively
predominant, access to secured credit is a key source of
capital for economic growth.
Historically, investment in El Salvador has been almost
exclusively land-based. Consequently, when assets are
physically located in any part of the region or the Caribbean,
lenders are forced to comply with outdated laws that are
largely based on real property principles. To this end, the
implementation of a modern legal framework, which establishes a
system that appropriately handles secured lending with personal
property as collateral, is vital. The aforementioned would
cater to the needs of businesses, specifically MSMEs, by
improving their access to affordable credit.
The SLST establishes several formality requirements, among
the most important of which are: (I) a written contract must be
drawn up between the debtor and creditor; (II) the secured
agreement must be formalised through a public deed or
authenticated private document, both authorised by a domestic
notary; and, (III) for those goods requiring registration, the
registration must be carried out at the registry of secured
transactions (RST).
National law mandates the RST to function as a debtor-based
system, meaning it electronically organises the registry based
on each debtor´s tax identification number.
In terms of formation, Salvadoran law allows the security
agreement to be created as a separate document or be included
in the main contract of the underlying transaction. In either
case, the security agreement must clearly establish (i) the
date and time of the agreement; (ii) the name of the parties
along with their unique identity numbers and national tax
numbers; (iii) the maximum monetary amount secured by the
collateral; (iv) a general description of the collateral; and,
(v) the conditions under which the collateral can be seized,
among other requirements.
In an effort to comply with international best practices,
the SLST was recently modified, among other things, to allow
registration of secured transactions through electronic means.
This fresh approach aimed to revitalise the past registry into
an active, accessible, reliable, fast, and modern system that
provides adequate support to the needs of MSMEs. Now,
registrants can request the registration of a secured
transaction electronically, verify in real time the existence
of other secured transaction vis-à-vis the debtor, and
execute their secured transactions immediately thereafter.
Registration of the security interest is automatic, hence the
security interest is immediately perfected and opposable
against third parties. By the same token, this new system
modified the fee scheme applicable to the registration of
secured transactions, into a mixed regimen. Generally speaking,
it considerably lowered the applicable fees.
It is important to note that the Model Inter-American Law on
Secured Transactions and the Model Registry Regulations offer
essential frameworks to improve existing legal shortcomings in
Central America and the Caribbean. They offer a uniform,
centralised, non-possessory security interest regime that
eradicates competing devices, while also delivering
flexibility, protecting third parties and broadening the range
of property that may serve as collateral. This framework also
provides fast and tangible enforcement remedies, making
financing readily available to MSMEs while helping them address
their modern-day needs.
|
|
| Alejandro Solano |
Maria Alejandra
Tulipano |