Collateral is property, whether movable or immovable, tangible or intangible, that is offered as security for the repayment of a sum of money borrowed by a person or company. Collateral is given as an assurance that the Lender will obtain (full or part) repayment of the loaned sum in the event of breach by the Borrower of their obligation to repay the Lender under the underlying contract.
The Movable Property Security Rights Act 2017 facilitates the use of movable property as collateral for credit facilities by establishing an office of the Registrar and an electronic collateral registry for security rights over movable assets (the Collateral Registry) where security rights in movable assets may be registered.
The term “Collateral” is defined in the Act as a movable asset that is subject to a security right or a receivable that is subject to an outright transfer.
“Movable assets” are broadly defined in the Act as tangible assets (meaning all types of goods including motor vehicles, crops, machineries and livestock) and intangible assets (including receivables, choses in action, deposit accounts, electronic securities and intellectual property rights).
The Act and the Movable Property Security Rights (General) Regulations 2017 set out the nature of security rights and formalities for the creation and registration of security rights in movable assets.
A security right is evidenced by way of a written security agreement that meets certain criteria and registration of the security right is achieved by electronically filing a notification of the security agreement at the Collateral Registry in the manner described in the Act.
Although not mandatory, registration of a security right is important as it is the only way that a holder of a security right will achieve third party effectiveness over a security right. There is also provision for an electronic platform for undertaking a search at the Collateral Registry.
