Study on warehouse financing in sub-Saharan Africa and Madagascar

Study on warehouse financing in sub-Saharan Africa and Madagascar

Geoffrey L. Wynne and Sam Fowler-Holmes

Sullivan & Worcester UK LLP

16 July 2014

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Areas to cover

1. Summary of legal position in the Subject Countries

2. Legal obstacles to, and possible legal solutions for, developing warehouse financing

3. Is a legal framework necessary for warehouse financing?

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The legal position: OHADA countries (1)

What is OHADA?

• Organisation pour l’Harmonisation en Afrique du Droit des Affaires

• Treaty signed in 1993 with 14 members although we now have 17 signatory states including:

Burkina Faso, Cameroon, Côte d’Ivoire, Niger and Senegal

• Creates a framework for the implementation of OHADA-wide legislation that is directly applicable in each member state

• 9 Uniform Acts passed to date including:Uniform Act on Securities (Droit des sûretés)

Uniform Act on Arbitration (Droit de l’arbitrage)

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Warehouse financing in OHADA countries

• No specific legislation covering warehouse financing

• Reliance on normal contractual principles

• Securities Act provides some assistance:Security over movable goods taken by way of pledgePledge perfected either by registration with RCCM or by

taking possession (either actual or constructive)May be registration fees and/or stamp duty payableRCCM will issue a Pledge Form (bordereau de gage de

stocks) on registration – can be endorsed to third partiesRegistration v possession

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Warehouse receipts and collateral managers

• Warehouse receipts are evidence of deposited goods – not documents of title and not transferable or negotiable instruments

• Very limited regulation of warehouses, warehouse operators and collateral managers with exception of Côte d’Ivoire

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The legal position: Côte d’Ivoire (1)

Regulation of collateral managers

• Law No. 94-620 imposes requirements to be satisfied by all collateral managers in Côte d’Ivoire dealing with agricultural products

• Must be authorised to operate by the government and have insurance cover in place to cover theft, fire and damage

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Commodity-specific regulation

• Specific regulation for collateral managers dealing with coffee, cocoa, cotton and cashew nuts

Minimum share capital requirementsProvision of a bank guaranteeHead office and warehouse facilities in Côte d’IvoireMeet standards of commodity-specific regulators (Conseil

du Café-Cacao (CCC) for coffee and cocoa and Conseil du Coton et de l'Anacarde (CCA) for cotton and cashew

Restrictions on exporting of goods

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Proposed warehouse financing legislation

Developed by Ivorian government and IFC

Vote by Ivorian Parliament expected ?Would implement a warehouse financing system allowing

for both Type A (private) and Type B (public) warehouse financing

Creates a centralised regulatory bodyMandatory licensing requirement for collateral managersProvides for negotiable warehouse receipts

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The legal position: Ghana (1)

• No warehouse legislation in place

• Existing legal framework provides for:Warehouse receipts as transferable documents of title (if

agreed by contract)Creation of security over movable goods and documents

representing themActual and constructive possession recognised but

registration and payment of stamp duty necessary Limited regulation of warehouse operators and collateral

managers

• Ghana Grains Council voluntary warehouse receipt system

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The legal position: Ghana (2)

• Draft warehouse receipt regulations proposed

• Provide for:Negotiability of warehouse receiptsRegistration of all negotiable receiptsLicensing requirements for warehouses, warehouse

operators and collateral managersThe Ghanaian Securities and Exchange Commission as the

regulatory bodyResolution of disputes via arbitration

• Complemented by the draft commodity exchange regulations

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The legal position: Madagascar


• Types A and B financing could take place in reliance on normal contractual principles and the provisions of the Securities Act

• Security may be perfected either by possession (actual or constructive) of goods or registration

• Priority for registered security

• However, predominance of Type C financing means little reliance on existing legal framework

• Practical v legal security

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The legal position: Mozambique (1)


• Mozambican Civil Code (MCC) provides a regime for the deposit of goods under deposit contracts

• Limited obligations on depositaries imposed by the MCC

• Warehouse receipts are not negotiable instruments but parties can contractually agree that they are transferable

• No specific regulatory body in place

• Security over goods by way of pledge but detailed perfection requirements

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The legal position: Uganda (1)

• Warehouse receipt system provided for under the Warehouse Receipt System Act 2006 and the Warehouse Receipt System Regulations 2007 (the Legislation)

• Legislation provides for:Both Type A and B financing including field warehousingBoth negotiable and non-negotiable warehouse receiptsLicensing of warehouse operatorsCreation of the Uganda Warehouse Receipt System

Authority as regulator (the Authority)

• Mainly used for Type B financing

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The legal position: Uganda (2)

Issues with the Legislation

• Has a wide scope but doesn’t take into account specific issues for different types of financing

• Doesn’t expressly address taking security over goods and warehouse receipts

• Doesn’t provide a statutory power of sale

• The Authority is still not established with Uganda Commodity Exchange ‘temporarily’ responsible

• Focus on public warehousing meaning Type A financing taking place outside of scope of the Legislation

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Legal obstacles

1. Lack of regulation of participants in financing structure

2. Non-negotiability of warehouse receipts

3. Stamp duty and registration fees

4. Onerous requirements for perfecting security

5. Inefficient or non-existent collateral registries

6. Enforcement issues

7. Slow and cumbersome dispute resolution

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Legal solutions (1)

1. Licensing of warehouses, warehouse operators and collateral managers to improve confidence in system

2. Create negotiable warehouse receipts to assist taking security and transfer of title

3. Abolish stamp duty and lower/remove registration fees to incentivise registration

4. Look for increased flexibility in perfection methods (e.g. security by possession of negotiable warehouse receipts)

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Legal solutions (2)

5. Creation of electronic collateral registries that are accessible by the public

6. Legal right to enforce security by private sale

7. Use of fast-track procedures, sector-specific arbitral bodies and indemnity funds

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Is a legal framework necessary? (1)

The options

• Introduction of warehouse receipt legislation (e.g. Uganda)

• Voluntary contractual approach (e.g. South Africa)

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Legislated approach

Should cover some or all of the following:• Negotiable warehouse receipts as documents of title

• Licensing and regulation of participants

• Sanctions regime for non-compliance

• Indemnity funds

• Establish security regime and priority of creditors

• Arbitration procedures

• Development of commodity exchange

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Legislated approach

AdvantagesCertaintyIncreased confidence in the system for participantsIncreased efficiency in trading and in dispute resolutionUniversal application

DisadvantagesLegislative process often slow and highly politicisedDanger of ‘one size fits all’ approachViews of participants can be overlooked

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Contractual approach

AdvantagesFlexibility to adapt to market changesCan mirror legislative regime without the need for legislation

DisadvantagesRequires support from market participantsLimited application Subject to any limitations imposed by lawSanctions for non-compliance often limited

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Geoffrey L. WynnePartner

Geoffrey Wynne is head of the Trade and Commodities Finance Group at Sullivan & Worcester and has extensive experience in banking and finance, specifically corporate and international finance, bank mergers, acquisitions, conversions and restructurings, trade and structured trade and commodity finance, structured finance, asset and project finance, syndicated lending, equipment leasing, workouts and financing restructuring, leveraged and management buy-outs and general commercial matters.

Geoff is one of the leading trade finance lawyers and has advised extensively many of the major trade finance banks around the world on trade and commodity transactions in virtually every emerging market including CIS, Far East, India, Africa and Latin America. He has worked on many structured trade transactions covering such diverse commodities as oil, nickel, steel, tobacco, cocoa and coffee.

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Sam Fowler-HolmesAssociate

Sam Fowler-Holmes is an associate in the Trade & Export Finance team. He specialises in structured and unstructured trade finance and has advised financial institutions on a range of products including large-scale pre-export financing, supply-chain financing, funded and risk participations, and bank-to-bank lending. Sam's experience includes advising in relation to numerous jurisdictions across mainland Europe, CIS, Africa and Asia and for a range of commodities including, oil, gas, metals and cocoa.


Tower 42

25 Old Broad Street

London EC2N 1HQ

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F +44 (0)20 7900 3472

[email protected]

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Study on warehouse financing in sub-Saharan Africa and Madagascar