A loan is a sum of money given to the debtor that must be repaid later. A debtor may pay it back i) at once; ii) in scheduled installments that reduce the loaned amount, or iii) periodically where the secured creditor allows the debtor to use the available line of credit (where this is the case, the debt owed by the debtor fluctuates).

A debtor is commonly described as a person who owes money to another person. However, for the purpose of the CBN Collateral Registry Regulations, a person is a debtor only if the person’s debt is secured with some (personal) movable property, which the person has rights in (e.g., a car). Such property constitutes the collateral. The definition of debtor under the Regulations, also includes a grantor of any type of charge, chattel mortgage, pledge or lien in movable property. In the same vein, a person who has not created a security interest is not a debtor.

A secured creditor, under the Collateral Registry Regulation, is a financial institution in whose favour a security interest has been created. This includes a chargee under any type of charge, chattel mortgagee or holder of any type of consensual lien. The secured creditor acquires a security interest in some of the debtor’s assets (the collateral). Only regulated financial institutions may act as secured creditors under the Collateral Registry Regulation.

Movable property refers to tangible property that can be physically moved like equipment and livestock, or any intangible property like accounts receivable and bank accounts.

Collateral is any movable property, whether tangible or intangible, that is subject to a security interest.

A security interest is a property right in collateral that is created by agreement to secure the payment or performance of an obligation. It does not matter whether the parties have labelled as a security interest, and includes a charge, lien but also retention of title. A security interest is akin to a home mortgage (immovable property) created in favour of a bank. However, a security interest does not include a personal right against a guarantor or other person liable for the performance of the secured obligation.

A security interest is perfected when a financing statement in respect of that security interest has been registered in the Collateral Registry by the secured creditor.

A secured loan is one in which the debtor grants a security interest in some of his/her movable property. This grant is completed when the debtor signs a security agreement with the secured creditor. The loan is called “secured” because if the debtor defaults, the secured creditor has the right to obtain or repossess the collateral where the debtor consents in the security agreement to relinquish possession without a court order. In the event of a default in an unsecured loan, the creditor will often have to obtain a court judgement and enforce it against some of the debtor’s property.

Secured loans are less risky than unsecured loans and usually have much lower interest rates. They provide the secured creditor an alternative way of satisfaction if the debtor does not repay the loan. For many SMEs this may be the most cost-efficient financing option available to them.

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

This refers to the amount that a debtor is required to repay to the secured creditor. In the case of the debtor’s failure to repay, the secured creditor may enforce the debtor’s obligation by taking and selling the collateral.

For the purpose of the Regulations, only a bank or financial institutions licensed by the CBN under the Banks and Other Financial Institutions Act (BOFIA), can take a security interest in collateral.

A security agreement is an agreement in any form, and whether denominated as a charge instrument, sale agreement with retention of title, etc., between the debtor and secured creditor that creates a security interest.

A security agreement must identify the debtor and the secured creditor, describe the collateral adequately, and reflect the intention to create a security interest. It must also describe the secured obligation, including the maximum amount for which the security interest is enforceable and the tenor of the secured obligation.

No. While many businesses usually have most of the properties identified above, private individuals may obtain secured loans using consumer goods, inventory or other movable property, such as cars. Debtors can be any type of business, whether formally registered or informal, or individuals, to apply for a loan under the Collateral Registry Regulation. However charges created by companies remain to be governed by the Companies and Allied Matters Act.

Movable collateral under the Collateral Registry Regulation includes equipment, inventory, accounts receivable, household items, bank accounts, farm products, motor vehicles, boats, planes, consumer goods, trees that have been severed and oil, gas or minerals that have been extracted etc.

Real or immovable property is covered under the various conveyancing laws of Nigeria that call for the maintenance of a land registry. These laws include the Conveyancing Act, The Property and Conveyancing Laws of most states in the South West (and some states in the South South) and the Registration of Title Law that applies in some parts of Lagos State.

Yes. The Collateral Registry Regulation applies to not only business assets but also to consumer goods that are used primarily for personal, family, or household purposes. It also allows individuals and businesses to acquire new movable property using a secured loan.

You may only give a security interest in property 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. Such a person must execute a security agreement as if he/she is the one obtaining the loan. For the purposes of the Collateral Registry Regulation, that person will be the debtor.

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

A secured loan is based on the premise that the secured creditor may exercise rights against whatever property has been granted as collateral if there is a default on the loan. On that note, using immovable property carries certain unwanted risks for the debtor. It stands to reason that a debtor will be more comfortable with losing equipment or other movable property than with losing a house in case of a default.

Equipment refers to any goods that are not inventory or consumer goods. The Collateral Registry Regulation defines it to mean machinery or other capital goods used in the operation of the debtor’s business. Equipment includes assets like farm equipment, large machinery, cash registers, taxi and computers used by a business.

Inventory refers to goods that the debtor maintains for sale or lease in the ordinary course of business, such as tables and chairs in a furniture store. Inventory also includes raw materials or work in progress.

An account receivable refers to the right of payment that a debtor may have for providing services or selling goods. For instance, if the debtor has a store that often sells goods on credit 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. The debtor will not have to wait for 30 or so days to collect payments from his/her customers, but instead may get money immediately from a secured creditor using those accounts receivable as collateral.

Farm products include crops (growing, grown, or to be grown), fish stocks, poultry and livestock (and their unborn offspring), seeds, fertilizers, manure, and other supplies used or produced in a farming operation. This collateral type also includes products of crops and livestock in their unprocessed states.

These are goods that are used or intended to be used primarily for personal, family or household purposes. Consumer goods include assets like household appliances, furniture, a personal computer, laptop, etc.

Vehicles, as well as other assets, have differing classifications depending on their use. Family and personal vehicles are considered to be consumer goods. On the other hand, delivery vehicles such as trucks, pick-ups, taxis, transport buses etc. are considered to be equipment. Finally, vehicles for sale in a car lot are deemed to be inventory.

The Collateral Registry is an electronic public database that contains information on security interests in movable property.

The Collateral Registry’s main purpose is to: (i) give publicity to security interests that may exist in identified collateral; and (ii) establish priority of secured creditors according to the time of registration. The Registry provides a platform for searches, so that an interested party may find out if there are prior registrations against the assets offered by the debtors as collateral for a loan.

The Collateral Registry Regulation describes the secured creditor as a Financial Institution in whose favour a security interest has been created. The Collateral Registry is not a financial institution but rather an entity that provides public service.

The Collateral Registry is important because it is a publicly available database of registrations relating to security interests in movable property. As such, it allows secured creditors to better assess the status of the loan applicant’s assets and its potential priority as against other secured creditors. For instance, before taking a security interest in the equipment the debtor proposes as collateral, the secured creditor should search the Registry to make sure no other secured creditor already has a security interest in that collateral. Regardless, a debtor may offer his/her property as collateral to multiple secured parties who will decide whether the property has sufficient value to secure all of those loans.

Financing statements are prescribed forms on which information is to be provided to effect, amend, cancel or continue a registration under the Collateral Registry Regulation. The Collateral Registry provides standard forms for this purpose. The debtor has to sign the security agreement or sign some other authorization before the secured creditor can register a financing statement. Note that the Collateral Registry system is online, and financing statements are transmitted by secured creditors or their agents electronically.

A registration refers to the information contained in the initial financing statement and amendment financing statement that has been entered in the Collateral Registry. It contains all the information in financing statements registered against a debtor that is made publicly available to searchers.

A registration in the Collateral Registry contains:
a) Identification of the debtor – whether the debtor is an individual, micro, small or large business;
b) Where the debtor is a company, co-operative or registered business name, its Corporate Affairs Commission registration number. In the case of individuals, his/her unique identification number from approved biometric based identification, gender, name, address, telephone no. and date of birth;
c) The name and address of the secured creditor or its representative;
d) A description of the collateral;
e) The maximum amount for which the secured obligation may be enforced; and
f) The period of time for which the registration is to be effective.
If there is more than one debtor or secured creditor, the required information must be entered in the designated field separately for each debtor or secured creditor.

This is done by the secured creditor or its agent, such as a law firm. To complete the registration, the secured creditor must provide the required information in the financing statement and pay the appropriate fees.

The Collateral Registry is not responsible for changes, omissions, or corruption of electronically transmitted information which occurred prior to receipt of the financing statement. It is neither responsible for scrutinizing or verifying information contained in the financing statement. The information is simply entered into the Collateral Registry as received in the financing statement. The secured creditor remains responsible for the accuracy and legality of the information. Where the Collateral Registry wrongly transcripts information in the financing statement into the Collateral Registry system, or provides incorrect information arising from such error, and a person suffers a loss or damage, the Collateral Registry will be responsible.

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

Currently, it costs N1000 for the registrations of initial financing statements, and N500 for a renewal or amendment. However, these fees may change from time to time, so it is recommended that you check the Collateral Registry website for the up- to-date information.

The Collateral Registry may be accessed only electronically through a user account. All that’s required is a computer and a stable internet connection. Searches are available without the necessity to establish a user account. The Registry is open at all times online, except if precluded by maintenance, technical and security constraints.

Any person may search the Registry and obtain a printed search result of the registrations, without any need to provide reasons for the search. Searches may be carried out using the registered number of the company, co-operative, or registered business name. For individual debtors, the unique identification number must be provided in the search request. Searches may also be conducted against the serial number of the collateral. The fee for searches and search certificates is N500. This may, however, be subject to change from time to time. Always consult the Collateral Registry website for the most current information on fees.

The Collateral Registry Regulation does not require the secured creditor to provide the value of the collateral in the financing statement. This does not mean that a secured creditor is barred from disclosing such information in the financing statement.

For the purpose of the Collateral Registry Regulation, where the debtor enters into a security agreement, the debtor automatically authorises the registration of a financing statement. The Registrar and employees of the Collateral Registry Regulation have no duty to verify whether authorisation for the registration has been properly granted. However, where no security interest has been created, the secured creditor has not power to register a financing statement and must discharge any related registration.

The debtor may obtain a copy of the registration either from the secured creditor or from the Collateral Registry by completing a search.

An error will render the registration ineffective, if it is a material error. Material errors are mistakes in the unique identification number (or registration number) of the debtor, or in the serial number of the collateral that prevent the registration from being retrievable in a search. For instance, a bank took a security interest in all assets of Mr. John Smith whose identification number is 12345 but its registration identifies the number as 12346. Such errors render the registration ineffective with respect only to the specific collateral identified by that number or with respect to the specific debtor identified by erroneous unique identification number. An error in the collateral description (other than the serial number) may render the registration ineffective with respect to only that collateral if it seriously misleads the searcher. Every other error does not render the registration ineffective.

Where a change occurs the debtor is advised to inform the secured creditor as soonas practicable. Often the security agreement will impose this obligation on the debtor. The secured creditor may then register an amendment financing statement. It is in the best interest of the secured creditor to ensure that the information in the Collateral Registry is up to date.

A registration will remain in the Collateral Registry until the expiration of the term indicated in the financing statement, or until the registration is cancelled (discharged). The period of registration does not, however, need to be the same as the duration of the loan, as there may be an expectation between the debtor and secured creditor that the loan will be renewed. Six months after the expiration of a registration, it shall cease to be publicly searchable and will be moved to an archive, from which it can be retrieved only by the Collateral Registry staff.

Once all secured obligations have been satisfied, the debtor may send a demand notice to the secured creditor requesting cancellation of the registration. The secured creditor, must within 15 working days of receiving the demand notice, register a cancellation statement. Where the secured creditor fails to do so, the debtor may appeal to the Registrar of the Collateral Registry, showing reasons as to why the registration should be cancelled. The debtor must give notice of this action to the secured creditor before a decision is taken by the Registrar. The secured creditor will have 7 days from the receipt of the notice within which to respond or object to the cancellation request. Afterwards, the Registrar’s decision will be final, unless a court of competent jurisdiction determines otherwise. A cancellation is effective only with respect to the secured creditor that authorised it.

Priority is a concept that refers to the rights a secured creditor has over a debtor’s collateral compared to someone else that has a right to the same collateral. It arises in situations in which the debtor has granted security interests to multiple secured parties/creditors in the same collateral. The Collateral Registry Regulation has specific rules dealing with the determination of priority conflicts between secured creditors and other claimants. In most cases, the time of registration in the Collateral Registry will determine the parties’ respective priorities.

A junior security interest refers to a security interest held by one secured creditor that has lower priority than another secured creditor with regard to the same collateral. For example, the debtor owns a machine that is worth N100, 000 and that it has used as collateral with XYZ Bank. ABC Bank also has a security interest in the same machine, but it is junior because it registered a financing statement after XYZ Bank did.

Yes, it is. A debtor may create more than one security interest in the same collateral. Secured creditors may also prohibit a debtor from using the same asset as collateral with another secured creditor. The debtor will be in breach of such a prohibition if it creates a junior security interest in that same collateral but that breach will not affect the validity of the junior security interest.

If the debtor defaults on its obligations, the secured creditor has a right to enforce its security interest in the collateral.

A secured creditor may enforce its rights under the Collateral Registry Regulation or under any law governing the transaction that relates to the security interest. It may also enforce it in the manner agreed to in the security agreement between the parties. Under the Collateral Registry Regulation, the secured creditor may enforce its security interest by taking possession of the collateral or rendering the collateral inoperative. Subsequently, it may dispose of the collateral through a sale. The Collateral Registry Regulation permits the secured creditor to proceed extra- judicially without having to obtain a court order before repossessing the collateral. The secured creditor may also choose to apply to the court to authorise enforcement.

Disposal of the collateral is a legal term that basically means selling the collateral in an auction, public tender, private sale or other means provided for in the security agreement, and applying the proceeds received from the sale to repay the loan. The proceeds received from the sale of the collateral are disbursed first to cover any expenses associated with the disposal of the collateral. Afterwards, the remaining proceeds will be applied towards the satisfaction of the obligation secured by the security interest. Any leftover proceeds will be distributed first to the remaining secured creditors in the order of their priority, and finally any remainder goes to the debtor. The debtor will not receive any proceeds from the sale until all secured obligations that were owed to all secured creditors have been fully satisfied. Where there is a question as to who is entitled to receive payment from the proceeds, the secured creditor may pay the surplus into court.

Where the proceeds of the sale are insufficient to satisfy the loan, the debtor will be liable for the shortfall. The secured creditor has a right to obtain the balance from the debtor directly or may proceed against other assets of the debtor. The secured creditor may initiate legal action against the debtor for the balance and get a judgement for the amount owed. It may also choose not to take legal action against the debtor and just write off the loss on the loan.

Yes. The fact that a financing statement with respect to the security interest has not been registered does not mean that it is invalid or otherwise unenforceable against the debtor. Unless the security agreement has some defects such as in cases where the debtor did not execute (sign) it, or if it does not sufficiently describe the collateral, the secured creditor will be able to enforce the security interest.