Some facts about the new Law of Guarantees over goods and chattels. (Ley de Garantias Mobiliarias)
In order to give a boost to trade exerted by micro, small, and medium enterprises (hereinafter MSMEs) in the country, responding to their need to access credit from financial institutions, which require the provision of guarantees MSMEs are not able to provide, for lack of real estate properties sufficient to provide mortgage guarantees, it has been a duty of the National Congress, to try to provide a modern regulatory framework that ensures the provision of chattel mortgage, unifying the different schemes that allow such guarantees, which until the approval of this law, were widely dispersed in our legislation. For such purposes, it recently approved the “Law of Guarantees over goods and chattels” which we will discuss briefly below.
According to Article 1, this law “aims to promote access to credit, through the regulation of all kinds of guarantees over chattel and goods, by expanding assets, rights or actions that may be subject to this type of guarantees in Nicaragua and establishing standards for its determination, creation, publicity, priority, execution, cancellation, and other aspects contained therein”.
Within the scope of this law are all credit relations, obligations or legal acts in general involving the creation, publicity, priority, execution and cancellation of guarantees over chattel and goods, and other aspects covered in them. As subjects involved, we can find that it can be any natural person or legal entity, national or foreign, domiciled or not in the country, who can become creditor, debtor, guarantor, transferor or transferee of present or future obligations secured by a chattel mortgage in accordance with the above mentioned law.
As a relevant aspect of the law, we have the creation of the Public Registry of guarantees over Chattels and Goods, whose purpose is the registration of the constitution, modification, transfer, renewal, termination and judicial execution of guarantees over chattel and goods, and therefore their publicity. Such registration may be physical, digital or on an electronic format. The Registry Office of guarantees over chattel and goods will be part of the National System of Registry (SINARE), which will allow an order of priority to be established in case that successive chattel mortgages have been made on the same property, right or action, giving priority to those that although formed subsequently, have been publicized before than those previously constituted, by the act of registration.
The law, in its Art. 7 defines guarantees over chattel and goods as “a real right created on property, rights and shares (or stock certificates) of the debtor or guarantor to the creditor or a third party, in order to ensure compliance of one or more obligations of the debtor”, any obligation can be supported with this type of guarantee, establishing the possibility of also constituting guarantee of one or several specific movable property, all assets of the debtor or guarantor, whether present or future, corporeal or not, determined or determinable, and whose monetary value can be estimated either at the time of establishment of the guarantee or later.
Its constitution, has to be established by written contract between the guarantor and the creditor, on either public deed, private document or electronic document, in which case a notary is required to authenticate the signatures of the parties by formalizing it through the notary’s protocol (which is the consecutive record of deeds authorized by that notary), acquiring strength of a public document, without needing prior judicial recognition, having effect between the parties since the signing of the contract, or when the parties said so. For purposes of guarantees over chattel and goods, possession on the goods is equivalent to title, except in cases of possession in bad faith established in the Civil Code (Art. 891, 1745, 1746, 1762 C). The collateral, may be with or without delivery of possession and must advertise this situation through registration in the respective register.
Additionally, as forms of special constitution, we find that such guarantees can be made according to the title in question, so, for instance, if it is a bearer credit instrument or a security, it is constituted by endorsement and delivery of title to the creditor; if it is a dematerialized security, by the entry in the register of the depositary and delivery of the document to the creditor; if are shares of a corporation, by endorsement on the back or bottom of the title, given to the creditor and entry in the book of shares of the company; in the case of guarantee on loans or unsecured credit portfolio, or personal guarantee, loan portfolio with real estate collateral it is constituted by annotation at the end of the contract, and delivery of documents to the creditor; and in the case of bills on credit or exchange, by a note on the back of the bill and deliver to the creditor.
The formalities for these contracts are the same as required for any other, viz: date and place of celebration, general data of the parties, a precise reference of the obligation guaranteed (interest, term, conditions, payment , value and location of the assets as detailed as possible, validity), and the will of the debtor or guarantor to provide security on the property described, the acceptance of the creditor, procedure for extrajudicial realization of assets (referred to in the art . 65 to 75 of the law), alternative dispute resolution clause, and of course signature. Electronic contracts, must adhered to the provisions of Law No. 729 “Electronic Signature Law” Art. 5, on the validity requirements of the Electronic Signature Certified Act. The right established by these contracts is likely to be transferred by endorsement at the end of the contract, or given as security (through endorsement under warranty), the announcement of transmission or the annotation of the endorsement in warranty must be entered in the register, so that the same is opposable to third parties. When the right is assigned, the debtor or guarantor must be notified, being excluded from that obligation all institutions supervised by the SIBOIF (Superintendence of Banks and Other Financial Institutions) and by the National Commission of Microfinances.
In addition to the constitution, contents of the contract, obligations and rights of the parties, it can also be found in the law, a number of special provisions in regards to the guarantees over chattel and goods on bank deposits, credit portfolios, securities and other rights.
With regard to extinction, it extinguishes with the main obligation or under the grounds for the extinction of all obligations according to our civil code (Art. 2004 to 2005 C)
Finally, with the approval of this law, all the different laws on the establishment of guarantees over chattel and goods contained in different parts of the Nicaraguan Legislation, are being derogated, also the whole Title IX of the Commercial Code on the Commercial Pledge (Art. 506-518 CC), as well as the Art 2483 C No… 6 concerning the transfer of shares in a public deed. Similarly, Law No. 120 “Law of Agrarian or Industrial Pledge” Law No. 146 “Law on Commercial Pledge” and the “Law on Habilitation” and Art. 109 of Decree No. 13-2013 “Regulation of the Public Registry” concerning the cancellation of registration on agrarian or industrial pledges.
Now, it can be said that Nicaragua has a modern, systematic and complete law pertaining to such guarantees, offering a range of possibilities for small entrepreneurs to access better credit conditions in order to alleviate their businesses, while also providing an important boost to the country’s economy.
For more information please contact jgarcia@alvaradoyasociados.com.ni