Commercial Code Chapter 8 Section 4: Management and Registration of Security Interests in Movable Property

Extract from the Commercial Code A. Chapter 8, Section 4 (New): Management and Registration of Security Interests in Movable Property Article 44: The following new articles are inserted as Section 4 in Chapter 8 of Book 2, which replaces and supplements certain provisions of the Commercial Code concerning the registration of security interests in movable property.

Art. 2284-1 Definition of Terms For the purposes of this Section, the following terms have the following meanings:

1. Money: Djiboutian currency or any other foreign currency legally accepted as a means of payment in the Republic of Djibouti;

2. Security Agreement: an agreement that creates a security interest or provides for it and references the existence of a security agreement;

3. Commingled Goods: goods that are physically mixed with other goods to such an extent that their identity is lost in the resulting product or mass;

4. Product: identifiable movable property derived directly or indirectly from an operation performed or from its proceeds for the benefit of the debtor;

5. Accessions: goods incorporated into a movable property or attached to other goods;

6. Register: the Register maintained by the Office of the Registrar General where all data relating to security interests are recorded;

7. Registrar General: the authority responsible for maintaining the register of data relating to security interests, namely the Central Bank of Djibouti;

8. Notice: data required or recognized by this law or regulations that must be submitted to the Register for the registration of a security interest on an encumbered asset;

9. Encumbered Asset: personal property subject to a security interest;

10. Negotiable Instruments: a bill of exchange or a promissory note;

11. Chattel Paper: one or more writings evidencing both the existence of a monetary obligation regarding specific goods or a security interest in such goods, or in such goods and their accessions;

12. Jurisdiction: the competent court;

13. Debtor: a person who has obtained credit and must repay or is bound to perform a secured obligation; for the purpose of determining payment and notice registration priority, the term includes a lessee or seller of debts to be repaid or chattel paper;

14. Disposition: the act of disposing of or transferring an estate subject to a security interest;

15. Document of Title: a writing issued by or delivered to a bailee;

16. Movable Property: different types of tangible or intangible movable property. Tangible movable property includes equipment, vehicles, crops, livestock, merchandise, trees to be harvested, and other movable property. Intangible movable property includes receivables, negotiable instruments, intellectual property, or other transferable rights or money;

17. Inventory: a collection of goods held by a person for sale or lease; raw materials held for transformation or goods in the process of transformation;

18. Registered Security Interest: a security interest created and all data relating thereto entered in the Register of the Registrar General;

19. Secured Creditor: a person who holds a security interest under an agreement with their debtor for the purpose of determining payment priority and registration of the security interest;

20. Security Interest: a right in movable property that secures payment or performance of an obligation;

21. Lien: a right in property resulting from a statute, a court decision, another legal authority, or the power of an insolvency administrator; as used in this Section, it does not include the right of retention;

22. Right of Retention: the right of a person who provides services or materials to maintain or add value to goods to retain possession of the goods until the day of repayment for their services or materials;

23. Incorporated Goods: goods fixed or to be fixed to an immovable property such that the right to these goods is transferred to a person having an interest in that immovable property.

Art. 2284-2: Scope of Application The provisions of this Section apply to all rights in movable property resulting from an agreement that secures payment or another form of performance of an obligation, regardless of the form of the transaction, the type of movable property, the status of the debtor or secured creditor, or the nature of the secured obligation.

Art. 2284-3: Types of Movable Property Subject to Security Interest Movable property subject to a security interest mainly includes the following:

1. Security interests covering all types of movable property, tangible or intangible, present or future, including inventory, equipment, and other tangible assets, contractual and non-contractual receivables, non-monetary contractual receivables, negotiable instruments, negotiable documents, rights to payment on funds credited to a bank account, right to receive proceeds from an independent business, and intellectual property;
2. Security interests created or acquired by all natural or legal persons, including consumers, without affecting rights established by consumer protection legislation;
3. Security interests that secure all types of obligations, present or future, determinable or non-determinable, including fluctuating obligations and obligations described generically;
4. All ownership rights resulting from a contract to secure payment or another form of performance of an obligation, including transfers of ownership of tangible assets for security purposes or assignments of receivables for security purposes, various forms of retention of title sales, and financial leases;
5. Liens on movable property, but solely for the purpose of determining payment priority and their registration.
6. The sale of receivables or negotiable instruments and the leasing of goods for a period of more than one (1) year, but solely for the purpose of determining payment priority and registration;
7. Replacements, fruits, and products of encumbered assets.

Art. 2284-4: Creation of a Security Interest A security interest is created on an asset when there is a security agreement between the creditor and the debtor after the creditor has given value to the encumbered asset and the debtor continues to retain rights over that asset.

Art. 2284-5: Description of the Secured Obligation and the Encumbered Asset A security interest may secure one or more obligations, which may be described specifically or generally, and which may be present, pre-existing, or future, or conditional obligations. The description of the encumbered asset may attest to the existence of the performance of one or more obligations taken specifically by item or generally by nature, and its obligations may be present, pre-existing, or future, or conditional.

Art. 2284-6: Validity of the Security Interest A security interest is valid upon its creation.

Art. 2284-7: Validity of the Security Interest Against Third Parties A security interest is enforceable against third parties only after its entry in the register of security interests.

Art. 2284-8: Validity Against Third Parties on Products After the realization of the encumbered asset by the debtor, the security interest extends to the replacements, products, and fruits of the encumbered asset, and the security interest on accessions continues to be enforceable against third parties if the security interest encumbering the encumbered asset was enforceable against third parties; The validity of the security interest against third parties on a product expires after a period of fifteen (15) days from receipt of the product by the debtor, unless they are identifiable cash products or are described by the encumbered asset in the register. If the product is not in cash and is not described in the register, and if the secured creditor amends the registration to describe the product within fifteen (15) days after the debtor has received the product, the security interest remains continuously enforceable against third parties.

Art. 2284-9: Priority Order Among Security Interests Security interests and lienholders' interests in the same assets have priority according to their date of registration or enforceability against third parties by other means, unless otherwise provided in this Section. The priority order is established from the registration or the achievement of enforceability against third parties by other means, provided there are no subsequent circumstances where the registration is invalid or enforceability against third parties does not exist. The security interest registered first is paid in preference to other unregistered security interests or any other form of enforceability against third parties.

Art. 2284-10: Acquisition of Security Interest as an Exception to the Priority Rule The acquisition of a security interest exists in the case of:

1. A security interest taken on an encumbered asset by a seller to the extent that it secures the obligation to pay all or part of the purchase price of the encumbered asset;
2. A security interest taken on an encumbered asset by a secured creditor who gives value for the purpose of enabling the debtor to acquire rights in the encumbered asset, to the extent that the value is taken into consideration to acquire these rights.

Art. 2284-11: Exceptions of the Assignee to the Priority Order Principle An assignee takes the encumbered asset free of a real security interest if they pay its value and if there is delivery of the encumbered asset without knowledge of the security interest and before its registration. A buyer or lessee of goods in the ordinary course of business of the seller or lessor takes the asset free of a real security interest, even if the security interest is registered and the buyer or lessee is aware of its existence. A buyer takes goods free of a registered security interest if the secured creditor consents in writing to the sale made by the debtor. A person who receives money takes that cash free of a registered security interest.

Art. 2284-12: Right of Retention The right of retention takes priority over the security interest in merchandise, even if the security interest is enforceable against third parties, if the right of retention exists in the ordinary course of business of the person holding said merchandise.

Art. 2284-13: Protection of Rights in Accessions A security interest continues to exist on an encumbered asset that becomes an accession. If the security interest was registered when the encumbered asset becomes an accession, the security interest remains valid in the accession.

Art. 2284-14: Security Interest in Commingled Goods A security interest may not be created on commingled goods. However, if the encumbered asset on which a security interest was created becomes commingled, the security interest continues on the product or mass. If a real security interest was registered before the encumbered asset becomes commingled, the security interest continues to be valid regarding the product or mass. The priority of the security interest on the product or mass is established from the time of registration of the security interest on the encumbered asset that became commingled.

Art. 2284-15: Incorporated Goods A security interest may continue on goods that become incorporated. A security interest on an incorporated good is subordinate to rights in the immovable property on which it is located unless the security interest on the incorporated good was registered at the Office of the Registrar General, and if the right to the immovable property arose after the good was incorporated, the registration of the security interest on the incorporated good preceded the registration of rights in the immovable property or the seizure of the real estate.

Art. 2284-16: Security Interest in Goods Imported into the Republic of Djibouti A security interest registered on goods according to the law of the country where the goods are located at the time of creation of a security interest before the goods are brought into the Republic of Djibouti continues to be valid in Djibouti and may be registered in the Republic of Djibouti for the benefit of the secured creditor under this Section. The validity of a security interest and its effects are governed by Djiboutian law when the encumbered asset is located in the Republic of Djibouti unless the law provides otherwise.

Art. 2284-17: Security Interest in Crops A security interest in crops not yet harvested or to be planted, for which a security interest has been registered in the register, takes priority over any other right of the owner or mortgage creditor of the land, if the debtor is in possession of the land or has rights to it in accordance with legal provisions on the matter. A security interest in crops or their products for which it has been registered in the register, considering the value enabling the debtor to produce or harvest the crops and while the crops are growing or during the six (6) months period before the crops were planted, takes priority over any other security interest on the same encumbered asset by the same debtor. When creditors are different, the priority rule applies.

Art. 2284-18: Possession of the Collateral The secured creditor who has a priority right over all other creditors may take possession of the encumbered asset and sell it at auction or by private sale if the debtor fails to perform according to the security agreement. In this case, the Registrar General issues a certificate to the creditor authorizing the taking of possession of the encumbered asset.

Art. 2284-19: Repayment from the Security Interest The security agreement must contain a clause authorizing the creditor to be repaid from the encumbered asset taking into account the nature of the encumbered asset and the market price. The Registrar General prepares general instructions governing, the taking of possession, leasing, and auction sale of the encumbered asset.

Art. 2284-20: Right of Redemption of the Encumbered Asset At any time before the creditor sells the encumbered asset or takes possession of it to collect the secured obligation, any interested person entitled to be notified may redeem the asset as follows:

1. By agreeing to perform the obligations secured by this encumbered asset;
2. By paying an amount equal to the expenses incurred for the seizure of the encumbered asset in the course of taking possession of the collateral and any other expenses incurred by the secured creditor in realizing the security agreement; The debtor's right to redeem the encumbered asset takes priority over all other persons' rights.

Art. 2284-21: Secured Creditor's Rights on the Encumbered Asset A secured creditor is entitled to be repaid from the proceeds of the sale of the asset, in the performance of obligations in the following order:

1. Reasonable expenses of repossession, holding, preparation for disposition, and disposition of the collateral, including reasonable attorney fees and reasonable legal expenses incurred by the secured creditor as well as any other services rendered in connection with the collateral;
2. Performance of obligations secured by a first-ranking security interest;
3. Performance of the obligation secured by the secured creditor's security interest;
4. Satisfaction of obligations secured by any subordinate security interest on the encumbered asset;
5. Remittance to the debtor by the secured creditor of any surplus. When the encumbered asset is sold to a buyer who acquires the interest for value and in good faith and takes possession of it, the buyer acquires the encumbered asset free of a right of the secured creditor, the debtor, or any other subordinate creditor.

Art. 2284-22: Registrar General of Movable Security Interests The Central Bank of Djibouti also performs the functions of Registrar General of movable security interests as provided in this Section. The Registrar General may delegate to any person they designate in writing certain powers and responsibilities recognized to them by this Section.

Art. 2284-23: Register of Movable Security Interests The register of security interests must be kept in the Republic of Djibouti at the office of the Office of the Registrar General located at the Central Bank of Djibouti. Any other contrary provision is repealed. This register is in electronic form.

Art. 2284-24: Content of the Register of Movable Security Interests The secured creditor or their agent or a lienholder must register a security interest on a movable property containing the following main data:

1. If the debtor is a natural person, the name, full identity, address, and identification number of the debtor;
2. If the debtor is a registered organization, the name and specific number assigned to it upon registration, and the address of the debtor;
3. The name and address of the secured creditor or lienholder;
4. The nature and description of the encumbered asset, which may be specific or general;
5. The period for which the registration remains valid;
6. The maximum amount of the secured obligation and other data provided by current regulations that are collected for statistical purposes of the register. The maximum amount of the obligation and other statistical data are not made public with regard to any registered notice. The provisions of this point do not apply to the registration of liens.

Art. 2284-25: Registration of the Security Interest The registration of a security interest is carried out directly by the secured creditor and a registration number is issued instantly with the possibility of printing a registration certificate if needed. The registration notes the date and time of registration in the register. These register data are accessible to the public. The format and content of the certificate mentioned in this article are determined by internal instructions of the Registrar General.

Art. 2284-26: Duration of Registration The registration of a security interest is valid from the day of its registration:

1. Until the expiration date of the term mentioned in the contract;
2. If the duration of the obligation continues beyond the time specified in the registration, until the end of the extended period mentioned in the registration of the extension that was registered before the end of the original period; or
3. If the obligation is terminated before the end of the period specified in the registration, until the recorded end date of validity of the registration.

Art. 2284-27: Assignment of Security Interest A registered security interest may be assigned in whole or in part. Such an assignment is registered by providing the identification of the assignee and their address. The name of the assignee of the security interest is immediately entered in the register.

Art. 2284-28: Rejection by the Registrar General of the Registration of the Security Interest The Registrar General may reject the registration of a security interest when it does not meet the conditions of this Section. In this case, the Registrar General or the online system immediately and in writing communicates to the secured creditor the reasons for this refusal.

Art. 2284-29: Restoration of Registration and Correction of Registration Errors The Registrar General restores a registration when they notice that such a registration was erroneously deleted or struck off the register. A registration thus restored must be considered as having been valid throughout the period during which it was incorrectly deleted or struck off, as if it had never been deleted or struck off. The Registrar General corrects typographical errors or omissions made in the registration. They must automatically communicate these modifications to the secured creditor with the justification. In case of disagreement, the secured creditor may appeal to the jurisdiction.

Art. 2284-30: Deletion of Data from the Register Registration data may be struck off the register:

1. When the registration is no longer valid;
2. In the case of registration of a change notice that completely or partially removes the registration;
3. When a competent court requests the Registrar General to strike off the registration upon finding that it is based on no obligation.