Vanuatu PPSA By George Andrews, Commissioner, Vanuatu Financial Services Commission, Business Forum 12 June 2008 Facilitating credit secured by movable property

Overview Current Situation Benefits Collateral History Key Policies Examples Enforcement Implementation New Initiatives

Current Situation Mortgage Bill of Sale Personal Loan Company Charge

Benefits of Vanuatu PPSA Financing for new equipmentFinancing for new equipment Cash flow financing for importers, exporters, wholesalers, retailersCash flow financing for importers, exporters, wholesalers, retailers Financing for agricultural productionFinancing for agricultural production Financing for building improvementsFinancing for building improvements Financing for government projectsFinancing for government projects Consumer financingConsumer financing

Key Changes Anyone can secure a loan with present or future-acquired movable property (c.f. company charge which is limited to corporations) Electronic registry gives filers and searchers instant access to necessary information Cost of enforcement upon default is reduced

What may be used as collateral? Tangibles: equipment, vehicles, inventory (stock in trade), crops, livestock, farm products Quasi-tangibles: letters of credit, documents of title, negotiable instruments Intangibles: accounts receivable, intellectual property rights Property to be acquired in the future Any property right other than rights in land and buildings

Who can give and take a security interest in movables? Anyone may give a security interest in movables of any nature (c.f. company charge – only companies can give a charge on future-acquired property) Anyone may take a security interest in movables – banks, finance companies, credit unions, individuals

Example Transactions Retailer secures line of credit for operating expenses with present & future-acquired inventory & receivables Farmer secures credit for seed & fertilizer with present & future crops, livestock and their offspring Exporter secures loan for shipping fees with the right to future payment from off- shore buyers of goods

Brief History PPSA replaces antiquated common law devices (e.g. company charge, conditional sale, consignment, assignment of claims) U.S. and Canada innovated the new approach in the 1960s and 1970s Eastern European, then Asian countries experimented with reform in 1990s NZ adopted Canada-like PPSA in 1999

Brief History, part 2 In the Pacific... NZ PPSA with electronic registry adopted in 1999, implemented in 2000 Guam has used U.S. version of PPSA since 1972 FSM adopted PPSA reform with electronic registry in 2006 Samoa and Solomons will soon enact PPSAs Australia is considering legislation similar to NZ

PPSA Details – Policy 1 Anyone can give or take movable property as collateral Any movable property may serve as collateral Collateral agreement may include property acquired in the future Form and terminology do not matter (pledge, assignment, finance lease) – all transactions are treated the same Potential Benefits Greater access to credit, especially for small business and farmers Lower borrowing costs: professional fees, and other fees and costs Costs Some revision of standard agreements may be necessary Educational campaign is required

PPSA Details -- Policy 2: Comprehensive Priority Rules Clarify the Rights and Duties of: Secured creditor vs. buyers of collateral Secured creditor vs. other secured creditors Potential Benefits All rules on dispute resolution are in one place Dispute resolution rules are designed to promote commerce Clarity of rules deters litigation Costs Educational campaign required

Examples of Conflict Resolved by PPSA Priority Rules Example 1: Secured creditor vs Buyer of Collateral –Kalo lends to Tom to buy car; loan is secured by a car; Kalo files notice describing the car on Jan. 1 –Tom sells car to John on June 1 –Upon default by Tom, Kalo may recover the car from John (Exception: Kalo may not recover from John if Tom is a dealer of cars)

Examples of Conflict Resolved by PPSA Priority Rules Example 2: Secured creditor vs Secured Creditor –Kalo lends to Tom, secured by present and future acquired equipment, inventory, and receivables; registers notice on Jan. 1 –John lends to Tom, secured by present & future equipment, inventory & receivables; registers notice on June 1 –Upon Toms default on either loan, Kalo has priority over John because Kalo filed the first notice. John should have searched the registry to discover Kalos notice

PPSA Details -- Policy 3: Electronic Registry Secured creditor files notices of security interests online Notices may be searched online Priority in collateral is generally determined by first to file a notice Filing fees pay for ongoing operational costs Potential Benefits Instant access to important credit information Legal certainty as to priority is objectively verifiable Reduction in time and cost to register Reduction in time and cost to search Costs Training to operate online filing and search facilities Ongoing maintenance costs

Example of Notice Date: June 1, 2008 DebtorCreditor John JonesABC Finance 123 A Street123 B StreetPort Vila VU Collateral Description: Shop inventory and receivables, presently owned or acquired in the future

PPSA Details -- Policy 4: Streamlined enforcement of security interests Secured creditor has the right to possession upon default Secured creditor has the right to dispose of collateral upon default When practical, secured creditor may pursue non-judicial remedies Debtor may cure default and redeem collateral prior to disposition Potential Benefits Conserve judicial resources Less time for enforcement Lower cost for enforcement Strong incentive to borrower to work out payment plan with creditor Costs Judiciary must adjust to a new role

Examples of Enforcement Kalo (debtor) defaults on loan secured by vehicle (car) Secured Creditor may take possession of and sell vehicle to satisfy secured debt, returning any surplus to debtor Car dealer may redeem (take back) vehicle prior to sale by paying the secured debt in full

Implementation Strategy NZ PPSR offers free registry software license ADB offers free adaptation to meet all Vanuatu needs (e.g. bi-lingual screens) Maintenance performed, at least initially, off-shore by NZ IT management team Provincial HQs & CCI - Terminals CCI – Awareness/Training

NEW INITIATIVES New Companies Act New Trustee Act New Insolvency and Bankruptcy Act New On-Line Company Registry

END THANK YOU