Harmonising Secured Transactions Law in an Emerging Economy: the Central Bank of Nigeria Collateral Registry Regulations

This post introduces a forthcoming article titled ‘Harmonising Secured Transactions Law in an Emerging Economy (re CBN Collateral Registry Regulations)’ which will appear in the Nottingham Insolvency and Business Law e-Journal. The most recent version of the paper can be found here.

The paper examines secured transaction law reforms in emerging economies, and, particularly, the Collateral Registry Regulations (“CRR”) recently passed by the Central Bank of Nigeria (“CBN”), in the interest of accepting moveable property as collateral security. The work conducted by the CBN aims to reform the lending environment through the harmonisation of secured transactions laws, following various international initiatives championed, e.g., by the European Bank for Reconstruction and Development (“EBRD”) and the United Nations Commission on International Trade Law (“UNCITRAL”). 

Emerging economies are constantly in search of the best internationally developed system against which they can benchmark and transform their precarious lending legal framework for their private businesses. This paper reflects this notion and seeks to benchmark the provisions of the CRR against the EBRD and UNCITRAL laws on this subject. For instance, the Registro Único de Garantías Mobiliarias “RUG”, influenced by the Organization of American States (“OAS”) Model Law and the UNCITRAL Legislative Guide on Secured Transactions, was established in 2010 to usher in a new security interest registry system in Mexico. Similarly, the EBRD Model Law has impacted on several reform countries in Eastern Europe. The Organisation pour l’Harmonisation en Afrique du Droit des Affaires (“OHADA”) Uniform Act Organising Securities has been implemented by African Francophone countries. More recently, Malawi has enacted a personal property security act (“PPSA”) which is very similar to the New Zealand system.    

As an economy in rapid transition, Nigeria’s credit sector has been the subject of previous attempted reforms conducted by the International Finance Corporation: a Report published in 2004 by Ronald Cuming and Yair Baranes provided the basis for establishing a modern personal property secured financing system for Nigeria. This Report was followed by a Draft Act and a moveable collateral Registry Assessment Proposal produced by the Centre for the Economic Analysis of Law in 2009 and 2010 respectively. The Draft Act was based on recommendations of the Cuming Report, and was heavily influenced by the UNCITRAL Legislative Guide on Secured Transactions. The Draft Act, however, was never passed by parliament.

Yet, the CRR will achieve a similar purpose. Their scope is almost as wide as the Draft Act’s: they similarly apply to security interests in moveable property, regardless of the form of the transaction, the legal personality of the grantor, or the nature of the secured obligation, inclusive of, but not exclusive to, assignment of accounts receivable, lease of moveable property, hypothecation, etc. Yet, they do not extend to company security interests.

Also, the CRR recognises the realisation of the security interest by way of extrajudicial procedures, but it does not elaborate how exactly it would be carried out. Again, the possibility of activating a ‘strict foreclosure clause’ whereby the grantee can assign the collateral to itself is not recognised under the CRR. In the event of the grantor’s insolvency, the CRR is silent on the process of enforcement and the nature of any authority vested in the trustee in bankruptcy or liquidator to realise the security for creditors. Additionally, contrary to the recommendations of the Cuming Report and the Draft Act proposals, the CRR fails to explicitly indicate that consumer goods cannot be granted as security.   

Iyare Otabor-Olubor is a Doctoral Researcher of the Centre for Business and Insolvency Law, Nottingham Law School, Nottingham Trent University.