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| Sunday, 31 August 2003 |
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Business |  |
| News Business Features Editorial
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Act to permit movable property as collateral Allen Welsh of the Center on Institutional Reforms and the Informal Sector (IRIS), University of Maryland, USA presented the draft Secured Transactions Act at a workshop organised by the Law and Society Trust recently in colombo. Only immovable property can be pledged as collateral when obtaining loans at present, which is a major hinderance to Small and Medium Enterprises. The Act, once legal, will permit the pledging of movable property as collateral for loans. The Act promotes many kinds of economic activities including equipment financing, inventory financing, agricultural financing, fixture financing and consumer financing, Welsh had stated. It attempts to give wider access to business credit through the strategies of simplifying the rules for creating security, clarifying the rights of competing creditors, modern methods of information sharing and efficient enforcement. The Act creates a set of rules for creating security in movable property of any nature. The formalities for creating security are minimal. The security agreement need not use any special terminology and need not be on a particular form. Any one may give or take a security interest in movables. Collateral may be movable property of any nature whether tangible or intangible. The draft act removes the distinctions between the various legal forms and establishes clear rules to resolve competing claims to collateral. Through clear and precise priority rules, lenders can assess their risks more prudently and minimise them. Access to credit expands when the risk is reduced. The Act establishes modern means of satisfying important information needs. When movable collateral is offered, it is in the interest of lenders and borrowers that there is an easy, fast, accurate and inexpensive means to determine whether others claim an interest in the collateral. The Act creates a filing office to serve this purpose. It is not a traditional registry where action by the registrar may be delayed and where compliance with formal requirements may be difficult and expensive. The secured transactions filing office can be offered via the Internet. Filing can be done at the desk of the lender, perhaps as the borrower completes the loan application. There is no need for delay, no uncontrollable risk of error and no unnecessary formalities or expense. Only a notice is required identifying the parties and describing the collateral. The filing office can be operated with user fees with no taxpayer subsidy. The risk of ineffective and expensive enforcement must be factored into every loan decision depressing credit for everyone. The secured transactions act strengthens enforcement procedures by guaranteeing the lenders right to possession of collateral upon default in all cases and by assuring the lenders ability to dispose of the collateral by methods most likely to satisfy the secured debt. |
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| Editorial | Security Produced by Lake House |
