Law No. 2004-052 of January 28, 2005 on Financial Leasing

LAW NO. 2004-052 OF JANUARY 28, 2005 ON FINANCIAL LEASING (JO n°2967 du 02/05/2005, p.3478)

CHAPTER ONE DEFINITION

Article 1. Definition Financial leasing is an operation whereby the lessor purchases, at the request of the lessee, from a supplier, an asset, with a view to leasing it for a fixed duration, in exchange for the payment by the lessee of periodic rent. The lessor remains the owner of the asset for the duration of the financial leasing contract, which includes an irrevocable period equal to or less than the lease term, during which neither party may terminate or revise the terms of the contract. The lessee bears all risks, charges, and liabilities relating to the asset leased under financial leasing throughout the entire duration of the contract. Upon expiration of the financial leasing contract, the lessee may either return the asset to the lessor, acquire it for a residual value fixed in the contract that must take into account the payments made as rent, or request a renewal of the contract. Financial leasing is also classified as an investment activity and a financial service. As such, the financial leasing operation is a form of finance lease.

Article 2. Subject Matter of Financial Leasing Financial leasing may cover the following assets: a. movable property, equipment and tooling materials, vehicles and other non-consumable goods; b. immovable property; c. Business assets and artisanal establishments or any of their intangible elements, notably including industrial property rights.

Article 3. Exclusions Regarding the Subject Matter of the Contract The following may not be the subject of financial leasing: shares, bonds and any financial, stock market and government securities, as well as any natural resource or assets considered strategic, copyright and other "moral" rights on intellectual property, and other categories of movable and immovable property for which the law imposes restrictions on free circulation.

Article 4. Financial Leasing Activity This law applies to all entities that regularly engage in financial leasing activities. They are subject to approval by the Banking and Financial Supervision Commission (CSBF), in accordance with Law No. 95-030 of February 22, 1996 relating to the activity and supervision of credit institutions. They must have their registered office in Madagascar. In the event that a company engaged in multiple activities has a specialized financial leasing division, only that division is subject to this law. A financial leasing company has the right to borrow funds from Malagasy or foreign banks or financial institutions to carry out the financial leasing activity under the provisions of this law.

CHAPTER TWO TYPES OF FINANCIAL LEASING CONTRACTS This law also applies to the following types of financial leasing contracts, which constitute variants of the standard financial leasing contract described in Article 1.

Article 5. Lease-Back A lease-back contract is a contract whereby the supplier, owner of an asset, sells it to the lessor, who immediately leases it back to the supplier under a financial leasing contract, at the end of which the supplier, in its capacity as lessee, may become the owner of the asset again by exercising the purchase option stipulated in its favor.

Article 6. Leveraged Financial Leasing Leveraged financial leasing is a contract whereby the lessor leases an asset to a lessee, who in turn leases it to another person. The lessor may require the sublessee to pay the sublease price directly in the event of default by the lessee. Only the relationship between the lessor and the lessee is subject to this law.

Article 7. Secondary Financial Leasing Secondary financial leasing is a contract whereby the asset made available to the lessee is transferred to a new lessor in the event of early termination of the financial leasing contract. In secondary financial leasing, the lessor chooses both the supplier and the asset.

Article 8. Sub-Leasing a) A sub-financial leasing contract is a contract whereby the lessee, with the written consent of the lessor, leases the asset received from the lessor to a sub-lessee for the duration and under the conditions set out in the main financial leasing contract. b) In the event of multiple sub-financial leasing operations concerning the same asset, this Law applies to each operation as a financial leasing operation, as if the person from whom the first lessor acquired the asset were the supplier, and as if the contract under which the asset was thus acquired were the supply contract. c) The sub-lessor and the sub-lessee have the same rights and obligations provided by law respectively for the lessor and the lessee. The written consent of the lessor is required for the transfer to the sub-lessee of the lessee's payment obligations stipulated in the contract. d) A sub-financial leasing contract may not be concluded for a period exceeding the duration of the main financial leasing contract. e) The terms and conditions of the financial leasing contract are fully applied to the sub-financial leasing contract unless otherwise stipulated in the contract. f) Early termination of the financial leasing contract likewise entails termination of the sub-financial leasing contract concluded on its basis, unless otherwise stipulated in the contract. At that time, the sub-lessee has the right to perform the financial leasing contract with the lessor to claim the asset that the sub-lessee holds under the sub-financial leasing contract for the remaining period and under conditions corresponding to those of the terminated contract. g) In the event that the financial leasing contract is declared null and void, the sub-financial leasing contract signed on its basis is automatically annulled.

Article 9. Exclusions Regarding Contract Types Financial leasing is a specific contract that does not constitute a lease, a sale, a hire-purchase, a sale with retention of title, nor a credit or installment sale, which are operations excluded from the scope of this law.

CHAPTER THREE PUBLICITY OF THE FINANCIAL LEASING CONTRACT SECTION ONE Financial Leasing Register

Article 10. (repealed by Law No. 2007-036 of January 14, 2008 on Investments in Madagascar) Financial Leasing Register and Publicity of the Financial Leasing Contract A Financial Leasing Register is established at the registry of each Court. Financial leasing contracts must be evidenced in writing and registered with the Financial Leasing Register of the place where they were concluded; this without prejudice to other publicity requirements imposed by law on the assets concerned.

Article 11. (repealed by Law No. 2007-036 of January 14, 2008 on Investments in Madagascar) Administration of the Register The Chief Clerk of the Court before which the Register is established is the responsible authority.

Article 12. Access to the Register The Register is accessible to any person in compliance with applicable laws on private data confidentiality. The clerk in charge of the Register issues, upon request by any interested person, a copy or extract of the publications, possibly mentioning transfers or modifying entries regarding each financial leasing contract.

Article 13. Costs A fixed fee, determined by regulatory means, is due for: a) registration and modification of entries in the Register; b) data searches; c) requests for extracts from the Register.

Article 14. Obligation to Register Unless otherwise stipulated in the financial leasing contract, the completion of publicity formalities for the contract falls to the lessor. The lessor and the lessee are nevertheless jointly and severally liable for damages suffered by bona fide third parties due to the failure to complete the publicity formalities for the financial leasing contract. The lessor, the lessee, and the supplier are required to register any information regarding the existence of judicial proceedings related to the financial leasing contract.

Article 15. Effects of Publicity A duly registered entry is enforceable against the parties and third parties from the date of registration. It gives the lessor the right to recover the leased asset, as provided by this Law, in the event of the lessee's default on its obligations. Failure to register renders the lessor's rights over the asset, over which it retains ownership, unenforceable against third parties, unless it is proven that they were aware of them. Registration conditions comply with the provisions of this chapter as well as those of Article 6 of Decree 99-717 of September 8, 1999 relating to the publicity of movable credit.

Article 16. (repealed by Law No. 2007-036 of January 14, 2008 on Investments in Madagascar) Documents for Registration Within fifteen days of signing the financial leasing contract, the lessor is required to deposit with the Financial Leasing Register of the place of conclusion of the contract: a) an original copy or a notarized copy duly registered with the competent territorial Tax Center, of the financial leasing contract; b) a registration form, duly signed by the applicant, prepared in four copies mentioning: i) the identity, corporate name, domicile or registered office of the lessee and the lessor, their registration number in the Trade and Companies Register, if applicable, and the lessor's registration number on the list of approved credit institutions; ii) the nature and date of signing of the deposited contract; iii) the duration and term of the contract; iv) a description of the asset, subject of the financial leasing, allowing it to be identified, as well as its registration number, if applicable; v) the amount and frequency of rent payments.

Article 17. Registration Procedures After verifying the conformity of the form with the contract submitted to it, the clerk in charge of the Register proceeds to register the financial leasing contract on the chronological register and hands over to the applicant a copy of the registration form bearing prominently the mention "financial leasing" and mentioning the date and number of the registration. At the same time, the clerk notes the registration in the individual file opened in the name of the lessee and files the deposited contract and a copy of the registration form in the file kept under the lessee's name, with mention of this registration date and its serial number.

Article 18. Modification of Entries in the Register Any conventional or judicial modification of the financial leasing contract is subject to a modifying entry under the conditions and forms provided for the initial registration.

Article 19. Cancellation of Entries Entries in the Register are cancelled at the initiative of the parties, either upon the lessee's exercise of its purchase option, or in the event of termination or rescission of the contract, or by virtue of a final judicial decision. The party requesting the cancellation of entries must present, for this purpose, either the deed of transfer of the asset to the lessee, or proof of the termination or rescission of the financial leasing contract, or the judicial decision.

SECTION II Accounting Publicity of Financial Leasing Operations

Article 20. Accounting Rules and Separate Accounting The accounting and financial statement disclosure rules relating to financial leasing are those prescribed by the 2005 General Accounting Plan. Financial leasing operations must be accounted for separately, distinct from all other operations of the lessor.

SECTION III Special Provisions on Publicity

Article 21. Affixing a Plaque Indicating the Lessor's Ownership Except for intangible and immovable assets, all assets leased under financial leasing, pursuant to this law, must, under penalty of the contract being unenforceable against third parties, be marked by the lessee, on an essential part and in an obvious manner, with a permanently fixed plaque indicating the location, date, and registration number of the contract in the Financial Leasing Register, and stating that the asset is the property of the lessor. The affixing of the plaque must be carried out, at the request of the lessor, within a period of twenty days running from the date of registration of the contract in the Register. Any person who obstructs the affixing of such a plaque or who destroys, removes, or covers the marks thus affixed before the actual transfer of ownership of the asset to the Lessee shall be punished with the penalties provided for in Article 406 of the Penal Code. The same penalties shall apply to any fraudulent maneuvers aimed at hiding from third parties the fact that the asset belongs to the lessor.

CHAPTER FOUR PROPERTY REGIME OF THE ASSET LEASED UNDER FINANCIAL LEASING

Article 22. General Principle Assets made available to the lessee under a financial leasing contract remain the property of the lessor for the entire duration of the contract, unless the lessee has paid all rent and exercised its purchase option. Early payment of the full rent is possible if this right is granted to the lessee by the lessor in the financial leasing contract.

Article 23. Compensation in Case of Improvement of the Leased Asset The products and profits derived from the use of the asset leased under financial leasing, as well as any improvements made to this asset, with the express consent of the lessor, remain the property of the lessee, unless otherwise stipulated in the contract. Improvements made by the lessee without the lessor's consent shall not be compensated to them, unless otherwise stipulated in the contract. In the event that the lessee, at its own expense and with the written consent of the lessor, has made improvements to the assets that are inseparable from them without damaging them, the lessee has the right to receive compensation after the end of the contract, unless otherwise stipulated in the contract.

Article 24. Transfer of Ownership of the Asset Subject to Financial Leasing The transfer of ownership of the asset subject to financial leasing to another person does not entail the termination or modification of the financial leasing contract. The rights and obligations of the lessor arising from the financial leasing contract shall be transferred to the new owner of the asset.

CHAPTER FIVE RIGHTS AND OBLIGATIONS OF THE LESSOR

Article 25. Rights of the Lessor The lessor has the right to: a) demand payment of overdue rent and damages in case of late payment; b) monitor the lessee's activity in accordance with the terms of the financial leasing contract; c) proceed to the recovery of assets leased under financial leasing in the event of default by the lessee.

Article 26. Obligations of the Lessor The lessor must: a) purchase from a supplier an asset chosen by the lessee and make it available to the lessee in accordance with the terms of the financial leasing contract; b) at the time of purchasing the asset, inform the supplier in writing that the asset will be leased under financial leasing to a lessee or sub-lessee, whose name and address must be communicated; c) inform the supplier in writing that possession of the asset has been transferred to another lessee in the case of secondary financial leasing, sub-financial leasing, or any other change in the obligations of the parties within one month of the occurrence of said change; d) where applicable, deliver the asset to the lessee under the conditions stipulated in the financial leasing contract; e) guarantee the lessee against disturbances in the enjoyment of the asset leased under financial leasing; f) carry out the publicity formalities for the contract, unless otherwise stipulated in the financial leasing contract; g) establish in favor of the lessee a unilateral promise to sell the asset subject to financial leasing, indicating an agreed price taking into account the amount of rent paid; The financial leasing contract may provide for other rights and obligations on the part of the lessor.

CHAPTER SIX RIGHTS AND OBLIGATIONS OF THE LESSEE

Article 27. Rights of the Lessee The lessee may: a) exercise its possession of the asset in accordance with the terms of the financial leasing contract; b) bring legal action against the supplier in the event of the supplier's failure to perform the supply contract concluded with the lessor, and notably in the event of an error regarding the quality or quantity of the asset leased under financial leasing, or of delay in its delivery; c) claim compensation for losses suffered in the event of the lessor's failure to perform its contractual obligations.

Article 28. Obligations of the Lessee The lessee must: a) accept delivery of the asset leased under financial leasing in accordance with the delivery conditions stipulated in the supply contract; b) make rent payments within the stipulated deadlines; c) use the asset according to its function and as stipulated in the financial leasing contract; d) maintain the asset in the condition in which it was delivered, taking into account wear and tear resulting from normal use and any modification of the equipment agreed upon by the parties; e) grant the lessor unlimited access to the asset, unless otherwise stipulated by contract or law; f) assume throughout the duration of the financial leasing all risks, charges, and liabilities relating to the asset leased under financial leasing, unless otherwise stipulated in the contract. The financial leasing contract may provide for other rights and obligations on the part of the lessee.

Article 29. Obligation to Return the Asset by the Lessee The lessee must return the asset leased under financial leasing a) if it does not exercise its purchase option at the end of the financial leasing contract, or b) if the financial leasing contract ends before its normal term. The asset leased under financial leasing must be returned in the same condition as when it was received, taking into account normal wear and tear or according to the conditions stipulated in the contract. If the condition of the asset does not correspond to its initial state, the lessee must compensate the lessor, unless otherwise stipulated in the contract. If the asset leased under financial leasing, prematurely, no longer functions correctly due to inappropriate use by the lessee, the lessee must also compensate the lessor, unless otherwise stipulated in the contract. In the event that the lessee does not return the asset or returns it late, the lessor has the right to demand payments for the additional period of possession. When these payments do not cover the losses suffered by the lessor, the latter has the right to claim compensation.

CHAPTER SEVEN RIGHTS AND OBLIGATIONS OF THE PARTIES REGARDING THE SUPPLY OF THE ASSET

Article 30. Obligations of the Supplier a) The Supplier must deliver the asset leased under financial leasing directly to the lessee, unless otherwise stipulated in the supply contract; b) the asset must be delivered to the lessee with technical documentation, a warranty certificate, and an assembly and user manual, unless otherwise stipulated in the contract; c) when the Supplier fails to meet its obligations stipulated in the supply contract, the party to the financial leasing contract who chose the supplier is responsible for the losses and damages caused by these failures, unless otherwise stipulated in the contract.

Article 31. Lessee and Lessor: Joint Creditors of the Supplier The obligations of the supplier resulting from the supply contract concluded by the latter with the lessor may also be invoked against the lessor and the supplier by the lessee as if the latter were itself a party to this contract and as if the equipment were to be delivered directly to it. In this case, the lessee has the legal rights and obligations of a buyer as if it were a party to the supply contract of the asset, except for the obligation to pay for the acquired asset. Vis-à-vis the supplier, the lessor and the lessee are joint creditors. But in no case does the lessee have the right to terminate or annul the supply contract without the express consent of the lessor.

Article 32. Supplier and Lessor: Joint Debtors of the Lessee Unless otherwise stipulated in the financial leasing contract, the lessor is not liable vis-à-vis the lessee for the supplier's failure to meet its obligations stipulated in the supply contract, except in the case where the lessor chose or contributed to choosing the supplier or the asset. In the latter case, the lessee may, in the event of the supplier's default, either act directly against the supplier, or act against the lessor, jointly and severally liable with the supplier.

Article 33. Failure to Notify Financial Leasing to the Supplier In the event that the lessor fails to meet its information obligations owed to the supplier, provided for in Article 26 of this law, it engages its liability vis-à-vis the lessee in the event of the supplier's failure to meet its obligations stipulated in the supply contract.

Article 34. Supplier Having the Status of Lessor If in a contract, the supplier also acts in the capacity of lessor, the rights and obligations of the supplier and the lessor are combined in the same person, and extinguish each other by confusion.

CHAPTER EIGHT CONSTITUTIVE ELEMENTS AND FORM OF THE FINANCIAL LEASING CONTRACT

Article 35. Constitutive Elements The financial leasing contract must include under penalty of nullity the following elements: a) a precise description of the asset leased under financial leasing; the name of the supplier of the asset, and the mention of the party who chose the supplier and the asset; b) the total amount and periodicity of the rent, and the mention, where applicable, of an initial payment; , c) the purchase cost of the asset; d) the duration of the financial leasing contract, including the irrevocability period; e) the conditions for the transfer of ownership of the asset to the lessee, with indication of the transfer price of the leased asset or the method of calculating this price in the event of exercising the purchase option.

Article 36. Determination of Rent Rent is calculated as periodic payments based on the replacement price of the asset leased under financial leasing at the time of signing the financial leasing contract. The rent must include:

1. the acquisition price of the asset leased under financial leasing, as well as the expenses paid by the lessor for making the asset available to the lessee, including notably the costs of a