Before parties or entities enter into a credit agreement or transaction of any nature, such parties or entities would want to satisfy themselves that there would be something they can fall on in the event that a party defaults or is unable to perform their obligations. Hence, most credit transactions or agreements are characterized by the use of securities to secure the agreement.
The Black’s Law Dictionary defines “security as a collateral given or pledged to guarantee the fulfilment of an obligations, especially the assurance that a creditor will be repaid, usually with interest, any money or credit extended to a debtor”
The provision of security seems to be one of the conditions precedent that a borrower would be required to fulfil before being granted a credit facility by most creditors in Ghana and may be in the form of a mortgage over a property, execution of personal guarantees, assignment of interests in properties, both real and otherwise, liens, etc. Under the Borrowers and Lenders Act, these are regarded as charges required to be registered in accordance with the Act.
A charge is an encumbrance, lien or claim and Section 38 of Act 773 defines it as a charge, mortgage, security, interest, lien, pledge, assignment by way of security, covenant, restriction, reservation, lease, trust, order, decree, judgment, title defect (including retention of title claim), or any other encumbrance of any nature other than liens arising by operation of law.’
Although the Borrowers and Lenders Act[i] does not categorically define what a collateral is, deductions may be made from the ordinary definition of a collateral that it is also an encumbrance on a property which is used as a security for the credit agreement.
Why must I register a Charge
Registration of a charge at the collateral registry is a matter of necessity and is mandated by law. Indeed Section 25 of Act 773[ii] provides as follows:
- A borrower or a person interested in a charge shall register a certified copy of a charge or collateral created by the borrower in favour of a lender with the Collateral Registry within twenty-eight days after the date of the creation of the collateral or charge
- Where a charge is created by a company, the requirement to register charges with the Collateral Registry under this section shall be in addition to the requirement under section 107 of the Companies Act 1963 (Act 179) to register charges with the Registrar of Companies
- A charge which is not registered in accordance with subsection (1) is of no effect as security for a borrower’s obligations from repayment of the money secured and the money secured shall immediately become payable despite any provision to the contrary in any contract.
Who must register a charge at the collateral registry?
Even though the Act seeks to put the burden of registration on the borrower, it appears from the tenor of the provision above that any other person who is interested the charge, to wit the Lender, in whose favour the charge is even created as security for the obligations of the borrower in the first place, may also take up the challenge of registering the charges.
Where the charge created is by a company, then in addition to registering at the Collateral Registry, the Companies Act also requires that the said charge would be registered with the Registrar of Companies[iii]. Under the Companies Act[iv],section 110 provides that the registration of the charge ought to be done within forty-five (45) days after the date of its creation. The courts have on some occasions granted leave to companies to register their charges out of time. This is however not automatic, but on a case by case basis depending on the circumstances. So, in the case of Ghana Timber Board v Ashanti Curl & Lumber Products[v], it was posited that the courts may grant an extension of time within which a charge is to be registered where it is satisfied that the applicant’s failure to register was due to circumstances outside of its control.
Under the Borrowers and Lenders Act, section 25(3) indicates that a charge which is not registered in accordance with the Act is of no effect as security for a borrower’s obligation for repayment of the money secured and the money secured shall immediately become payable despite any provision to the contrary in any contract. The decision of the court of appeal in the case of ESM Company Limited vrs Eximguaranty Company Limited and Another and In the matter of Best Point Savings & Loans Co. Ltd,[vi] shows the extent to which non-registration of charges could have consequences especially for the lender.
Where do I register a charge?
Section 26 of Act 773 suggests that the registration section does not affect the provision of other enactment related to the registration of charges. It may be surmised from the text that parties required to register charges under other enactments are not absolved or relieved of that obligation merely because the charges have been registered at the Collateral Registry.
An example of a charge which is required to be registered under other enactments are charges affecting interest in land. For instances if a mortgage property is used as security for a credit transaction, being a charge affecting land, such would also have to satisfy the registration requirements under the various enactments.
Per the Mortgages Act[vii], the Land Registry Act, 1962[viii] and the Land Title Registration Act[ix] a mortgage as well as an instrument affecting land, apart from a judge’s certificate and a will ought to be in writing in order to have effect. This implies that whether that instrument has been registered as a charge at the collateral registry or not, it will still be of no effect, hence unenforceable.
A similar issue came up for determination in the case of Martin Alamisi Amidu vs. The Attorney General, Waterville Holdings (BVI) Ltd, Alfred Agbesi Woyome and UT Bank Ltd (In Receivership) as Claimant.[x]
The learned justice Benin JSC, sitting as a single Judge stated that a mortgage which is used as a charge and which affects land ought to be registered at the Collateral Registry as well as the Land Title Registry to avoid being ineffectual.
It is trite that non-registration of any deed affecting land renders the said instrument or deed ineffective. A party cannot therefore be heard saying that registration at the collateral registry is as good as registration at the land registry. Each registration regime must be complied with before the charge can be enforceable at law. Compliance with one enactment does not absolve a party of compliance with any other enactment.
How are securities enforced under the Borrowers and Lenders Act?
It is commonplace in our jurisprudence that obtaining judgment for the recovery of money does not take much effort. The real tussle is how to enforce such a judgment, especially where the debt is an unsecured debt.
By section 32 of Act 773, the lender is obliged to give written notice of default to the borrower and request the latter to pay the amount due within thirty days where there is an incidence of default on the part of the borrower.
Section 7 of Act 773 provides that the Bank of Ghana may by Notice make rules for the effective implementation of the Act 773.
Hence in furtherance of the enforcement provisions of Act 773 which includes section 32 of the Act, Rule 17 of BOG Notice No. BG/2012/08 dated 1st June, 2012 provides as follows:
- “The lender shall register a notice of default and indicate the date when default actually occurred and the date when the borrower received a notice pursuant to section 32 of Act 773.
- The lender shall register a removal of the notice of default if the borrower cured default within thirty (30) days after receipt of notice of default.”
The above places an extra obligation on the lender to register any notice of default given to the borrower notifying him of the default.
It is only when there is failure on the part of the borrower to make good the debt after the thirty-day notice, after the lender has fulfilled all the requirements stated above that the lender would be entitled to enforce the rights provided by the Act.
If the borrower defrays the debt within thirty (30) days after receipt of the notice of default, the lender is obliged to remove the said notice and such removal ought to be registered at the collateral registry as espoused by Rule 17 above.
Where the borrower pays the debt for which the charge was created in whole or in part or where the property which was charged as security for the credit facility is released in whole or in part, the borrower may apply to the Registrar at the Collateral Registry to enter a memorandum of release of debt in the register upon satisfactorily proving to the Registrar that the debt has indeed been defrayed. The Registrar upon receiving such application and registering the satisfaction of debt shall furnish the borrower with a copy of the memorandum of satisfaction of debt. Rule 18 of the BOG Notice[xi]provides the steps in registering the satisfaction of debt.
What are the rights of a lender upon default of the borrower?
A borrower who has been given the requisite thirty-day notice of his or her default is expected to remedy that default without further delay. If the borrower refuses or fails to remedy that default timeously, the Act[xii] affords a lender some rights which may be asserted over the borrower.
So, section 33 of Act 773 provides as follows:
“Where a borrower fails to pay an amount secured by a charge under this Act, the lender may
- Sue the borrower on any covenant to perform under the credit agreement, or
- Realize the security in the property charged on notice to the person in possession of the property.”
This implies that a lender in such a situation may either bring an action in court to enforce his rights against the borrower or abandon any thought of instituting a court action and rather realize the security in the property charged on notice to the person in possession of the property. Realization of security without court order as contemplated section 33(b) of Act 773ought to be done in accordance with the Rule 20 of the BOG Notice.
Rule 20 provides as follows:
- “The lender that intends to realize a charge registered at the Collateral Registry without a court order shall register a notice of that intention thirty (30) days after the day of receipt of the notice of default of the borrower.
- The Registrar shall certify the realization process by issuing a certificate to that effect.
- All realization of charges shall be made in compliance with the Auction Sales Act, 1989 (P.N.D.C.L 230) and other applicable laws.”
From the provision stipulated above, it would be realized that until the intention of the lender to realize security in the properties charged is registered, the lender cannot go ahead to realize the said charges. Therefore, another burden is placed on the lender to obtain a Registrar’s Certificate which indicates the intention to realize the security before any such realization would be deemed valid.
Per rule 20 referred to supra, all realization of charges must comply with the Auctions Sales Act[xiii] and section 11(1) provides as follows:
- “Subject to subsection (2), an auctioneer shall, at the request of the owner of a property, undertake the sale of the property and shall sell the property within the time that the owner requires, or as soon as is possible, having regard to the sale or any other property with which the auctioneer is entrusted.
- The auctioneer is not bound to sell the property sooner than seven days after the undertaking to sell the property.”
Usually, in every auction, notice is supposed to be given. Not less than seven (7) days’ notice and not less than twenty-one (21) days’ notice is required for perishable and not perishable properties such as land respectively.
Thus, section 15 provides as follows:
- “A sale by auction of land shall not take place unless the auctioneer has given at least twenty-one days’ public notice of the sale at the major town of the district in which the land is situated, and at the place of the intended sale.
- The notice shall be in writing and shall state the name and place of residence of the vendor and, where necessary, by the beating of drum and gong-gong or any other method intelligible to the public as the District Chief Executive of the district where the sale is to take place may direct.”
The above implies that every sale done to realize the security in a charge ought to be done in accordance with PNDCL 230.
The law advises on how proceeds after realization is to be disbursed. So, in Rule 21 of the BOG Notice cited supra, it is stipulated that
- “A lender who has sold collateral shall, before applying the net proceeds of the sale towards the satisfaction of the debt or other obligation secured by the charge of the lender, apply the net proceeds of the sale towards the reasonable costs and expenses of the sale incurred by the lender, and to the extent provided for in a credit agreement, reasonable legal expenses
- The lender shall pay the following persons the amount of any surplus in the following order:
- Any persons who have a subordinate charge in the order of their priority
- Any other person who has given the lender notice that that person claims an interest in the collateral; and
- The borrower
- The lender may pay the surplus into court if there is a question as to whom or in which order is entitled to receive distribution.”
A lender who is able to realize the security is enjoined by law to disburse the surplus after defraying the debt owned by the borrower in the manner prescribed by law. This implies that realization of a charge does not entitle a lender to appropriate all the money realized, even if the realization far exceeds what is owed. The excess money has to be distributed as directed by law or paid into court for the disbursement to be done.
Apart from the right of realization, another right available to a lender under the Borrowers and Lenders Act is provided for in section 34 of Act 773 which states that:
- “In the exercise of right of possession of property that is subject to a charge to secure a borrower’s obligations under a credit agreement, a lender is not obliged to initiate proceedings in court to enforce the right of possession.
- Where a lender is unable to enforce a right of possession in a peaceable manner, the lender may use the services of the police to evict the borrower or other person in possession pursuant to warrant issued by a court
- A person who
- fails without reasonable excuse, to vacate premises being foreclosed by a lender under subsection (1) when duly requested to do so, or
- obstructs a lender in the lawful exercise of power conferred on the lender by this section,
commits an offence and is liable on summary conviction to a fine of not more than five hundred penalty units or to a term of imprisonment of not more than six months or to both; and in the case of a continuing offence, to a further fine not exceeding fifty penalty units in respect of any day on which the offence continues.”
With this right, a lender after following all the required procedure is not obliged to initiate any proceedings in court to possess the property which has been used as a charge. This right came under scrutiny under the case of Bond Savings and Loans vs. George Kwame Manful.[xiv]
In that case, the Court of Appeal stated that the issuance of demand notice to a defaulting party or a borrower was enough notice such that in seeking to possess the property charged no other notice is required. Her Ladyship Justice Avril Johnson J.A. (as she then was) intimated that Order 19 of C.I. 47 which requires that every application be brought on notice could not purport to override a Primary Legislation such as the Borrowers and Lenders Act which did not require any notice to the borrower for warrant to possess. She stated as follows:
“It is clear from the above that the Act does not insist on an application for such a warrant being brought on notice. …….. In the first place, the subject matter of the application for a warrant did not arise form pending proceedings before the Courts. It was an originating process. Secondly, the provisions of CI 47 cannot override the provisions of Act 773 which is an Act of Parliament notwithstanding the fact that the application although brought pursuant to the Act was granted by the High Court whose proceedings are governed by the provisions of CI 47. It is not the place of the Courts to think for Parliament by importing provisions into Act because we hold the opinion that such importation will result in a fairer outcome.”
Upon careful perusal of the reasoning given by the learned Justice, it seems that the court’s position is that once the requisite notice in writing contemplated under section 32 is given, a lender seeking to possess or enforce any of the rights given it by Act 773 need not give any further notice.
In order to ensure that credit facilities given out to borrowers can be recovered without any tussle, it would be necessary for lenders to ensure that securities used as charges over the said facilities are registered under the requisite regimes in accordance with the law.
[i] Act 773
[ii] Borrowers and Lenders Act, 2008
[iii] Section 107 of Act 179; section 110 of Act 992
[iv] Companies Act, 2019 (act 992)
[v]  GLR 931
[vi] Civil Appeal No. H1/169/2017 [31st May 2018]
[vii] Section 3(2) of the Mortgages Act 1972 (NRCD 175)
[viii] [Act 122] Section 24
[ix] 1986 (Act 152) Section 72
[x] Civil Motion No. J7/10/2014 dated 27th June, 2019
[xi] Notice No. BG/2012/08 dated 1st June, 2012
[xii] Borrowers and Lenders Act, 2008 (Act 773)
[xiii] 1989, (PNDCL 230)
[xiv] Suit No. H1/169/2018 dated 24th January, 2019