General Questions

1. What is a loan?

A loan is a sum of money given to the debtor now that must be repaid later. A debtor may pay it back in scheduled payments (installments) that reduce the loaned amount or periodically where the secured party also allows the debtor to use the loaned amount made available – in this case the debt owed by the debtor fluctuates.

2. Who is a debtor? Is it different than a borrower?

A debtor is commonly known as a person that owes money to another person. However, for the purposes of this Law a person is the debtor only if the debt it owes is secured with some personal property such as a vehicle (see further below). Accordingly, a person that has not created a security interest is not a debtor for the purposes of this Law which applies only when the person also created a security interest. The person may be an individual, a firm, a government or other legal entity. It is commonly known as borrower, but this Law uses the term debtor.

3. Who is a secured party? Is it different than a lender?

This Law describes the secured party as the lender, seller or other person in whose favor there is a security interest. Secured parties have rights in some of the debtor’s assets (e.g., vehicle, inventory, etc.) that allow their debts to be satisfied before the debts owed to unsecured creditors parties from the proceeds of a foreclosure or liquidation sale.

4. What is an asset?

An asset is anything tangible or intangible owned by the debtor that has some market value.

5. What is collateral?

Collateral is any asset that can be given by the debtor against the value of a loan. Collateral can include both real (immovable) property such as buildings or land and personal (movable) property such as equipment and inventory. However, this Law focuses only on personal property collateral.

6. What is a security interest?

A security interest is the term used to refer to the property right that is created over the movable collateral allowing the secured party to take possession of it in case of the debtor’s failure to pay (default). The equivalent of a security interest is for example the mortgage given to the bank over a house (immovable collateral)

7. What is the difference between a secured loan and an unsecured loan?

In a secured loan, the debtor grants a security interest in some of her/his assets. This “grant” is completed when the debtor signs a security agreement with the secured party. The loan is called ‘secured’ because if the debtor defaults on the loan, the secured party has the right to obtain or repossess whatever collateral was given to satisfy the debt. In an unsecured loan, the secured party in case of a default will have to obtain a judgment and enforce it against some of the debtor’s assets.

8. Why would a secured loan be preferable?

Secured loans offer the secured party an alternative way of satisfaction if the debtor does not pay back the loan. They are considered less risky than unsecured loans and therefore often have much lower interest rates. For many businesses of small size, this may be the only kind of loan they qualify for.

9. What is a secured transaction?

A secured transaction refers to an agreement between the debtor and the secured party which creates a security interest in some of the debtor’s property.

10. What is a secured obligation?

A secured obligation is the amount the debtor is required to repay to the secured party. In case of the debtor’s failure to pay, the secured party may enforce the debtor’s obligation by taking and selling the collateral.

11. Who can take a security interest in collateral?

This law applies to all security interests created in collateral located within the country whether or not the secured party is domestic or otherwise. Secured parties can include banks, microfinance institutions, individuals, sellers, etc.

12. What is a security agreement?

Security agreement is the contract between the debtor and the secured party in which the debtor agrees to grant a security interest in her/his collateral. This agreement can be in any form and may be entitled a financial lease, installment sales agreement, pledge agreement, loan contract, etc.

13. What information is contained in a security agreement?

A security agreement must identify the debtor and the secured party, describe the collateral and reflect the intention to create a security interest, such as by “I, John Doe, create a security interest in favour of Bank 123 in the following assets...”

14. What kinds of things can be used as ‘personal property’ collateral under this law?

Personal or movable collateral under this law includes equipment, inventory, accounts receivable, farm products, household items, fixtures, bank accounts, etc.

15. Why doesn’t this law apply to ‘real property’?

Real or immovable property is covered under a different Chapter of the Commercial Code that also calls for the establishment of a separate registry.

16. Only businesses can get a secured loan?

No. While businesses often have many of the assets referred to above, consumers may obtain secured loans using consumer goods. Debtors can be any kind of business, formally registered or informal, to apply for a loan under the law.

17. Does this Law apply to a debtor that doesn’t have business assets?

This law applies not only to business assets but also to consumer goods that are used primarily for personal, family or household purposes. This law also allows businesses and individuals to buy new assets using a secured loan.

18. Can I use somebody else’s assets (e.g. family member, neighbor) as collateral for a loan?

You may only give a security interest in assets that you actually own. However someone else may grant a security interest in their assets to secure your loan but it must be with their consent. They will be typically required to sign a security agreement too. For instance, your family member may use her assets as collateral for your loan.

19. Can individuals pool assets and apply for a loan together?

Yes, individuals may apply for a loan as a group. They may use their assets that they own individually or jointly as collateral for a loan.

20. Why would someone want to use ‘personal property’ as collateral instead of ‘real property’?

A secured loan is based on the premise that the secured party make take whatever assets have been granted as collateral if there is a default on the loan. Using real property (e.g., a family home or farm) can carry certain unwanted risks for the debtor. Therefore, the debtor may be more comfortable losing equipment than a house in case of a default.

21. What is equipment?

Equipment refers to any goods that are not inventory or consumer goods. This can include everything from farm equipment or large machinery to cash registers and computers used by a business.

22. What is inventory?

Inventory refers to goods that the debtor has for sale or lease in a store, raw materials, and work in progress.

23. What is an account receivable?

An account receivable refers to the right of payment the debtor may have for providing services or completing sales. For example, if the debtor has a store that often sells goods on credit or to customers that retain an account with her/him and that is billed at the end of the month. These outstanding payments are accounts receivable and may be used as collateral. In other words, the debtor doesn’t have to wait 30 or so days to collect payments from her/his customers but instead may get money immediately from a secured party using those accounts receivable as collateral.

24. What are farm products?

Farm products include crops (both grown and growing), fish stocks, livestock, and all supplies used or produced during farming operations.

25. What are consumer goods?

Consumer goods are goods that are used or intend to use for personal, family or household purposes. These can include things like appliances, furniture, a personal computer, a vehicle, etc.

26. What kind of collateral is a vehicle?

Classification of vehicles depends on their use. Family vehicles would often be considered consumer goods while those used for the delivery of something, like trucks of a transportation company or taxis would be equipment and those for sale on a car lot would be deemed inventory.

Registry Questions

27. What is the Collateral Registry?

The Collateral Registry is an electronic public database that contains information on security interests in movable assets and the secured parties’ priorities.

28. What is the purpose of the Collateral Registry?

The Collateral Registry’s main purpose is to give transparency to the credit system by: (i) giving publicity that a security interest may exist in an identified collateral and (ii) establishing priority of secured parties by day and time of registration The Registry provides a location for searches to be conducted on the database of the Registry so a secured party can find out if there are prior security interests in the properties offered by the debtors as collateral for a loan.

28. a. Can the Collateral Registry give out loan?

This Law describes the secured party as the lender, seller or other person in whose favor there is a security interest. Secured parties have rights in some of the debtor’s assets (e.g., vehicle, inventory, etc.) that allow their debts to be satisfied before the debts owed to unsecured creditors parties from the proceeds of a foreclosure or liquidation sale.

29. Why is the Collateral Registry important?

The Collateral Registry is important because it is a publicly available database of security interests in assets. As such, when trying to obtain a loan, it allows debtors to prove their creditworthiness to secured parties. Secured parties are also able to better assess priority in claims against the debtor’s collateral. For example, before taking a certain debtor’s equipment as collateral for a loan, the secured party should search the Registry to make sure no other secured party already has a security interest in the equipment. Nonetheless, a debtor may offer her/his assets as collateral to multiple secured parties who will decide whether the assets have sufficient value to properly secure all of those loans.

30. What is a financing statement?

A financing statement is a registration form that a secured party files with the Collateral Registry to give notice that it has a security interest in the debtor’s collateral. The Collateral Registry provides a standard form of the financing statement. The debtor has to sign a security agreement or sign some other authorization before the secured party may register a financing statement.

31. What is a registration?

A registration refers to the information provided in the initial financing statement and financing change statement (any form of amendment) that is entered in the Collateral Registry. It is all the information from a financing statement registered against the debtor that is available publicly to searchers.

32. What information is contained in a registration?

A registration in the Collateral Registry must contain:

  • a. the debtor's name, identification number and type, and address
  • b. the debtor’s gender and birthdate or if an entity, the gender of the owner
  • c. the secured party’s name, identification number and type, and address,
  • d. a general description of the collateral
  • e. the period of time the registration is effective
  • f. and the maximum amount the security interest may be enforced for

33. Who completes the registration?

To complete the registration, the secured party must provide all required information in the financing statement and pay the appropriate fees. The registrar or any employee of the Collateral Registry does not enter any information into the Collateral Registry and is not responsible to verify that the information is accurate.

34. Who is in charge of the Collateral Registry?

The Collateral Registry is maintained and managed by the Central Bank of Liberia

35. How much does it cost to register?

The fees for registrations are minimal and the debtor should consult the website of the Collateral Registry for the most current list of fees.

36. How can a person access the registry?

You may open a user account with the Collateral Registry or access it through one of the kiosks if you don’t have a computer. One of these kiosks will be maintained in the building of the Central Bank. For search, all you need is a computer with an internet connection.

37. Who can search in the registry?

Any person may conduct a search and request a search certificate without having to provide any reasons. Searches may be conducted using the name or identification number of the debtor or the serial number of the collateral. All searches are free of charge.

38. Will the value of my collateral be registered and available in a search?

The law does not require the secured party to indicate a value of the collateral in a financing statement. Nothing in the law however prevents the secured party from disclosing such information in a financing statement. The secured party may do so only with the debtor’s consent and authorization.

39. What if the debtor did not give permission for the registration?

A registration cannot be made without the debtor’s prior permission. Any financing statement registered without the debtor’s permission or consent is invalid and does not create a security interest in any assets. Furthermore, the law gives the debtor the rights to force the secured party to discharge such registration and to compensate her/him for any damages.

40. Can the debtor obtain a copy of the registration?

The debtor may obtain a copy of the registration from either the secured party or directly from the Collateral Registry by completing a search in the Collateral Registry office or electronically. The law requires the secured party to provide a copy of the registration to the debtor so that s/he can verify that the information in it is exactly as it was authorized.

41. What if there is an error in a registration?

If the error is detrimental to the debtor, for example if a security interest is created over inventory only but the secured party described the collateral as “all inventory and equipment”, the debtor has the right to request the secured party to correct that error. If the error is in some details not relevant to the debtor such in an address of the secured party the debtor doesn’t need to worry about it because the secured party is responsible to enter correct information. In case there are significant mistakes that could mislead searchers, the court may find that registration invalid.

42. What happens if information about the debtor or the collateral changes after the original registration?

If information about the debtor changes (i.e. an address) the security agreement will often require that the debtor informs the secured party of this change as soon as possible. Once informed, the secured party will want to register an amendment to the original financing statement and the information will be added to the Collateral Registry. The secured party will also register such amendments if the description of the collateral changes. It is the secured party’s responsibility to ensure that the information in the Collateral Registry is correct.

43. How long does a registration remain effective in the Collateral Registry?

The period of registration is determined by the information contained in the financing statement which reflects the security agreement between the debtor and the secured party. It can be for a period of time or for a perpetual period. However if the collateral is described as consumer goods in the financing statement, this period of time cannot exceed 5 years. The period of registration does not need to be the same as the duration of the loan. This is common when the secured party expects to renew the loan.

44. After the loan is repaid, how does the debtor make sure that the collateral is no longer included in a registration?

The law requires the secured party to cancel or discharge the registration after the loan has been repaid and all obligations have been satisfied under the security agreement. However, sometimes secured parties do not automatically do so. In the event that the secured party doesn’t cancel the registration, the debtor may send a formal request to do so. If the secured party still does not cancel the registration, the debtor may ask a court to issue an order amending or cancelling the registration and may seek damages if applicable. The law protects the debtor in case of the secured party’s failure to cancel a registration.

45. What is priority?

Priority is a concept related to the rights a secured party has over the debtor’s collateral compared to someone else that has a right to that same collateral. Issues of priority arise in situations in which the debtor has granted security interests to multiple secured parties in the same collateral or the debtor has other claims against the general assets such as when someone has a judgment against or the debtor owes money to the employees, etc. The law has specific rules that determine priority conflicts between different kinds of secured parties, creditors, buyers of the collateral, etc.

46. What is a junior security interest?

A junior security interest is one held by a secured party that has lower priority than another secured party to specific collateral. For instance, the debtor owns a machine worth 100 that it has used as collateral with Bank 1. Bank 2 also has a security interest in the same machine but it is junior because it registered a financing statement after Bank 1 did.

47. Is a junior security interest legal?

Junior security interests are legal and you may create more than one security interest in the same collateral. Secured parties may also prohibit the debtor from using the same asset as collateral with another secured party in which case the debtor may breach the security agreement if it creates a junior security interest.

Enforcement Questions

48. What happens if the debtor doesn’t pay back a loan?

In the event of default (the debtor does not repay a loan), the secured party has the right to enforce their security interest in the collateral.

49. What enforcement procedures are allowed?

Enforcing a security interest means that the secured party has legal remedies that include taking possession of the pledged collateral or disposing of the collateral through a sale and keeping some or all of the proceeds. The law allows the secured party to proceed extra-judicially without having to obtain a court order before repossessing the collateral. The secured party may also choose to apply to the court to authorize enforcement. The debtor may also apply to the court to suspend enforcement if it believes that the secured party is damaging the collateral or has sold it for low value.

50. What happens when the secured party disposes the debtor’s collateral?

Disposal of the collateral is a legal term that basically means selling the collateral in an auction and applying the proceeds received from the sale to repay the loan. The proceeds received upon the sale of the collateral are given first to the secured party to satisfy their remaining obligation under the security agreement and cover any expenses associated with the disposal of the collateral. If there are remaining proceeds they are then distributed between those with remaining security interests or returned to the debtor. The debtor will not receive any proceeds from the sale unless all secured obligations that were owed to all secured parties have been fully satisfied.

51. What happens if the collateral does not sell for enough to satisfy the secured obligation?

If the collateral does not sell for enough to cover the remaining secured obligation owed to the secured party, the secured party has the right to obtain the remaining amount from the debtor directly or through other assets. The secured party may initiate a legal action against the debtor and get a judgment for the amount owed. The secured party may also decide not to take any legal action against the debtor and just take the loss on this loan.

52. Can the secured party enforce a security interest against the debtor if it isn’t registered?

Yes. Just because the security interest isn’t registered does not mean the security agreement isn’t valid. Only if the security agreement had some defects such as the debtor did not sign it or it did not describe any collateral, then the secured party would not be able to enforce it.