MODERNIZING GHANA’S BUSINESS LAWS: The case for replacing the Borrowers and Lenders Act with a personal property security act and amalgamating the registry system
Business laws and regulations are made to protect consumers and uphold the integrity of commerce. However, as time passes and technology changes, business practices and needs change, making some laws and regulations obsolete. When laws and regulations no longer add value to government operations and business needs, they become an impediment to economic growth. Thus, in many countries, legislative reviews remain a necessary and ongoing public policy priority. Ghana must adopt similar approach and modernize its laws.
The government can start the process of modernizing business laws by overhauling the Borrowers and Lenders Act, 2008. This Act is too elitist and is skewed to favour the big banks to the detriment of small businesses. The government must therefore replace the Act with a modernized and rationalized secured credit law by harmonizing all pre-existing devices to ensure a uniform system of security registration and priorities in the country.
The Borrowers and Lenders Act was signed into law in 2008 to regulate the secured credit regime in the country. Through several provisions -- such as a collateral registry and credit bureau and remedies of lenders on default -- the Borrowers and Lenders Act aims at regulating the relationship between lenders and borrowers. Secured credit is a loan that the borrower guarantees with collateral such as a home or a car. The lender can seize and sell the collateral to recover its losses if the borrower defaults.
The Act has many benefits, including the collateral registry system which makes it easier for the banks to verify encumbrances on collateral before approving loans. Further, small businesses have used their personal properties as collateral to secure loans from financial institutions to finance their businesses. Many of these people would not have qualified for credit from the banks without being able to use their personal property as collateral.
However, despite many of its benefits, critics argue that the Borrowers and Lenders Act is rudimentary. For example, it lacks priority rules to address competing claims among secured creditors. Ordinarily, priority among secured creditors will be determined by the chronological order in which the security interests are perfected. However, there are exceptions to every rule. So, what happens where there are multiple charges registered against a single piece of collateral? To resolve potential conflicts, all modern secured credit legislations have comprehensive priority rules that address competing claims and third party rights.
What changes are required if the current legislation is inadequate? The government must replace the collateral registry provision with a Personal Property Security Act (PPSA). The PPSA applies to any form of interest that either in form or substance can be considered a security interest. According to Lexi-online, a security interest is a property interest created by agreement or by operation of law over assets to secure permanence of an obligation.
As a rule, written contracts between creditors and debtors govern their rights and obligations, so registration of a security interest in a personal property may not be necessary. However, enforcement of the creditor’s rights is governed by the PPSA and the common law. Thus, creditors typically register their interest in the Personal Property Registry (PPR) to preserve their interest and protect the priority of their claims against third parties.
Why should Ghana adopt the PPSA system? The fundamental difference between the Borrowers and Lenders Act and the proposed PPSA is that whereas the collateral registry is located within Bank of Ghana operations, under the PPSA system, the Personal Property Registry (PPR) is open to the public, corporations, banks, government agencies and individuals. Further, unlike the Borrowers and Lenders Act, the PPSA system authorizes registration of certain claims and notices which are not security interests, such as writs of enforcement filed by creditors against properties, money judgements, garage liens and government liens. Therefore, vendors such as masons, auto-mechanics and even farmers can register a caveat or money judgement against the properties of people who refuse to honour their contracts with them. Similarly, car dealers can take on the risk of selling, leasing and renting cars to consumers on a payment plan while protecting their assets through the PPR. In other words, the little guys can be assured of protection for their services under the PPSA system, rather than what currently exists under the Borrowers and Lenders Act, where the banks are the major beneficiaries.
In conclusion, this article recommends government action in the following areas: (a) a comprehensive modernization of all business laws including the Borrowers and Lenders Act to align them with modern business practices; and (b) the amalgamation of all registry services, including the collateral registry, into a single entity and commercialization of the delivery functions.