The Ministry of Justice has recently announced a draft bill concerning the securitization of movables and receivables. The Bill has been pushed for strongly by SMEs. SME’s have complained, since the 1997 Currency Crisis that they are unable to adequately capitalize at market rates. Representatives of the IMF, that I spoke with a few years back, also were very keen on this type of bill. They believed that this Bill will help foster SMEs and new entrant’s potential for innovation and growth.
At present, over 92% of securitized lending is through real estate. The reason stems from the lack of a disclosure system for movables and receivables. The Bill intends to address this issue and solve the problem of SME with adequate raw materials, account receivables, intellectual property, and inventory and no real property.
Basic Details of the Act on Security on Movable Property and Receivables (the "Bill"):
1. Grantors can only be those with a registered business name (exception for intellectual property rights);
2. Fosters the creation of a registry to be modeled after the present real property registry;
3. Joint collateralization of intellectual property is possible through registration in the intellectual property registry;
4. Addresses the obvious, but not all, procedural shortcomings of the Asset Backed Securitization Act;
5. Grantor may be a non-registered business if securitization of intellectual property;
6. Avoids conflicts with other laws by exempting ships, aircrafts, construction equipment, and vehicles (bill of lading or may be registered under other laws);
7. Avoids conflicts with others laws by still allowing, under prior security systems, security assignments, mining securities and factory mortgages;
8. The security interest holder is granted a right to priority;
9. The Bill grants the holder the right to request the exclusion of third party “interferers” in the interest;
10. Bill grants the holder the right to request the transfer, disposal, and auction of all security with the exception of intellectual property;
11. Bill grants the holder only the right to request auction of intellectual property rights;
12. Bill creates a system to register receivables and perfect against third parties after registration (discussed in a follow-up post);
13. Law Firms and consultants are presently assisting some proactive lenders in creating internal systems and processes in order to take advantage of these new eagerly anticipated lending opportunities.