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Using OHADA law to facilitate transactions in Francophone Africa

21 September 2016

From OHADA's inception, its purpose has been to encourage investment into the area, including foreign investments, and thus to support economic development. Its creation results from a political will to remedy the legal and judicial insecurity that prevailed in contracting States by modernizing and harmonizing their business law, and also from this idea (which is deeply rooted nowadays in Africa) that the legal environment can be a powerful development tool.

OHADA is now made up of 17 member States, from Central to West Africa, members of the Monetary and Economic Community of Central Africa (MECCA) and Economic Community of West Africa (ECOWAS), even if some member States of ECOWAS are not members of OHADA (e.g. Nigeria, Ghana, Sierra Leone and Liberia, which are English speaking and common law countries).

OHADA has so far adopted 9 Uniform Acts directly applicable in 17 Countries in various areas of business: (i) corporate law, (ii) commercial law, (iii) security law, (iv) insolvency proceedings, (v) debt recovery, (vi) cooperative companies, (vii) carriage of goods by road, (viii) accounting and (ix) arbitration, and it can be an efficient tool in facilitating transactions in Francophone Africa.

Securing financings in OHADA area

Security law is an essential piece of legislation providing for various guarantees protecting creditors by securing the enforcement of the debtors' obligations. The 2010 OHADA Uniform Act on security law introduces a clear regime governing the pledges, since pursuant to the revised Uniform Act, the tangible nature of the pledged asset is the new criterion for the enforceability of the pledge. Dispossession is now used as an alternative way to achieve perfection of the pledge against third parties. It is easy to assess the impacts of this simplification if we remember that under the former Uniform Act, the pledge agreement was effective between the parties once assets had been handed over to the creditor or the agreed third party. Such mechanism implied deterrent costs for the parties, and was inefficient from an economic standpoint, especially concerning the pledge over inventory. For the commodities business, absence of dispossession will provide a real advantage, given that sales of items pertaining to the pledged stock will generate cash flows which may be assigned or pledged pursuant to an assignment of or a pledge over receivables agreement. The new regime allows for security to be granted in order to secure present or future obligations, and a pledge can also be granted over a future asset. Although the range of security interests has been extended, OHADA system has not created a global security interest capable to cover all or most of the debtor's assets, like the debenture or the English law floating charge. The structure of the OHADA security law remains based on a Napoleonic legal system, which provides for a number of security interests covering each type of asset (business, banking account, receivables, etc.).

How OHADA can help local companies access financial markets?

If we look at the financial market in Central Africa for example, one can note that the insufficient depth of this market and the weak market culture of the zone represent some of the main challenges to overcome (in addition to what remains to be done in terms of the market's infrastructures). Financial and accounting information remains the Achilles' heel of most local companies. For example in Cameroon, the general inventory published in 2013 by the National Statistical Institute revealed that 57.7% of the 93,963 Cameroonian companies do not keep written accounts, while this is necessary in order for their securities to be quoted on the DSX. They should thus be capable of complying with the required standards of information in order to gain access to the financial market and therefore, to give that market depth. These companies already benefit from a unified normative framework related to corporate law and accounting standards, to the extent that the member States of the MECCA are also parties to the OHADA treaty.

Investment climate

In terms of enhancement of investment climate, this is actually one of the main objectives of OHADA. For example if we look at the last Doing Business reports we can note that OHADA member States have made significant progress in the ranking. Why?

  • foreign group's expansion strategy in this area can now be elaborated on the basis of a clear, uniform and predictable corporate law, applicable in 17 countries;
  • OHADA is also promoting lending and the protection of the lenders' rights by a modern and efficient security law which is ahead of French law on various matters. For example, the creation of a security agent (it is an hybrid institution between the civil law agency (mandat) and the well-known security trustee; again, it demonstrates that it is possible to find a common approach between civil law and common law principles), which may certainly be considered as the main illustration of the modernisation of the OHADA security law; and
  • on alternative dispute resolution, OHADA is promoting the arbitration as an efficient and confidential mode of dispute resolution – It is an open secret that foreign investors look the national courts suspiciously.

This article was first featured in Without Prejudice, September 2016 edition.

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