Enforcement Procedure of a Registered Charge Under Ghanaian Law

1. Introduction

On 23rd December 2008, the Borrowers and Lenders Act, 2008 (Act 773) was enacted to, amongst others, improve on the existing standards of disclosure of information on lending and borrowing, and also promote a consistent loan recovery and enforcement system by lenders. To this end, the Collateral Registry was established by Act 773 and placed under the Bank of Ghana to register charges and collaterals, provide information to interested parties on securities registered with the registry and promote and support the development of a fair, transparent, competitive and accessible credit market for borrowers and lenders.

Prior to the coming into force of the Home Mortgage Finance Act, 2008, (Act 770) and Act 773, a mortgagee was obliged to obtain an order of a court of competent jurisdiction in order to sell a mortgaged property belonging to a defaulting mortgagor.

The current position of the law now gives an option to lenders to easily recover monies given to defaulting customers without going through the exacerbating procedure of commencing an action in court to procure judgment before going into execution or enforcement. 

The aim of this write-up is to give the various steps that one must undertake in seeking enforcement or relief under Act 773. 

2.Condition Precedent to Enforcement

i. Registration of Charge

For a lender or mortgagee to realise a mortgaged property or a charge under Act 773, the property or Charge must have been duly registered with the Collateral registry. Section 25(1) of Act 773  provides that:

A borrower shall register a certified copy of a chargeor collateral createdby the borrower in favour of a lender with the Collateral Registry within twenty-eight daysafter the date of the creation of the collateral or charge.

The obligation to register a mortgage is placed on the borrower-mortgagor or any person interested in the mortgage including the lender-mortgagee. By practice, the lender normally undertakes the registration of the mortgage while the mortgagor pays for the cost involved (usually provided for in the contracts by the parties). 

A charge or collateral which is not registered has no effect for the purposes of enforcement of the charge or collateral. This is captured in Section 25(3) of Act 773 provides that:

(3) A charge which is not registered in accordance with subsection (1) is of no effect as security for a borrower’s obligations for repayment of the money secured and the money secured shall immediately become payable despite any provision to the contrary in any contract.

Thus the fact that a charge/security is not registered at the Collateral Registry does not make the loan transaction itself void or unlawful. Rather, the fact of non-registration of a charge or collateral renders the charge or collateral ineffective; and therefore, the lender cannot enforce that security/charge against the borrower in the event of a default. In sum,your failure to register will deprive you of enjoying the rights conferred under Act 773 ( e.g. appointment of a receiver or sale of the property without a court order). 

In Ivory Finance Co. Ltd. v. Global Green Built (Gh.) Ltd. and 4 Others [2015] DLCA4923,  Mariama Owusu, J.Ain detailingthe effect of a non-registration of a charge observed as follows: 

“Counsel for the plaintiff continued that, Section 20 of Act 773 makes provision for parties to incorporate on their own volition notice requirements in the credit agreement which may not necessarily be thirty (30) days’ notice referred to in Section 32(1) referred to by the trial Judge. That section is in reference to steps that ought to be taken in realising a property registered as a charge at the collateral registry in consonance with Section 25 and other provisions of Act 773 to enable the creditor realise the charge without going to court unlike in a mortgage action. Since no charge has been registered at the collateral registry of the Bank of Ghana, the application of Section 32 of Act 773 to this case was wrong. This is so especially when Sections 33 and 34 of Act 773 specifically make reference to properties or amounts subject to charges which are non-existent in the instant case…”

ii. Registration within 28 days and Extension of Time to Register

Per Section 25(1) stated supra, the charge must be registered within 28days of creation. This notwithstanding, the registrar [of the Collateral Registry] may accept an application made after the 28 days if he is satisfied that, the failure to register will not prejudice the position of creditors or shareholders of borrower, or it is just and equitable to extend the time.^[1]

iii. Registration of Charge under Companies Act, Act 179

 Section 107 of the Companies Act, 1963 (Act 179) imposes extra registration obligations on a company creating a charge.  Thus, in addition to the collateral registry registrations (discussed above), a company creating a charge is required to have registered with the Registrar of Companies. 

Section 107(1) of the Companies Act, 1963 (Act 179) further reiterates the point that after the coming into force of Act 179, a charge created by a company, other than a pledge, bill of exchange, possessory lien on goods etc. mentioned in s. 107(4), is void so far as a security of the company is conferred on the charge.  Thus, for a charge created over a company’s property to be valid, the original instrument by which the charge was created or evidenced or a certified copy thereof, together with some specified particulars must be delivered in the prescribed form to the Registrar of Companies for registration within 28 days of the date of its creation. Section 107 further defines “property” to include an undertaking by the company (debentures would be implied here) and unpaid liability on shares. 

Similar to the provisions in Act 773, Section 111 of Act 179, places the primary duty to register a charge on the borrower though “any person interested” in the charge to register it. The cost of registration is however, paid by the borrower. 

Act 179 further states that where a company defaults in registering the charge within the stipulated time, then unless it was duly delivered for registration by another interested party, the company and every officer in default will be liable to pay a penalty of up to 500 penalty units. However, on the authority of Ghana Timber Board v. Ashanti Curl & Lumber Products [1968] GLR 931, the courts may grant an extension of time within which a charge is to be registered where it is satisfied that, the applicant’s failure to register was due to circumstances outside of its control.

It should be noted that with respect to companies, Section 25(2) of Act 773 provides that:

(2) Where a charge is created by a company, the requirement to register chargeswith the Collateral Registry under this section shall be in addition to the requirementunder section 107 of the Companies Act, 1963 (Act 179) to register charges with the Registrar of Companies.

By reason of this provision, it is incumbent on a company to ensure the registration of the particulars of the charge both with the Registrar General’s Department pursuant to section 107 of Act 179 and also with the registrar of the Registry of the Collateral Registry pursuant to section 25(1) of Act 773.

The effect of non-Registration under Companies Actis captured by Section 107 (3) and Section 111(3). The said provisions state:

 Section 107(3)

(3) This section shall not prejudice a contract or an obligation for repayment of the money secured by the contract or obligation and when a charge becomes void under this sectionthe money secured by the charge shall immediately become payabledespite a provision to the contrary in a contract.

Section 111 (3)

(3) Where a company defaults in sending to the Registrar the particulars requiring registration as required by this section, then, unless the particulars have been duly delivered for registration by any other person, the company and every officer of the company who is in default is liable to a finenot exceeding [five hundred penalty units].

The combined effect of these two provisions is that, a charge/security not registered at the Registrar Generals Department does not make the loan transaction or facility itself void or unlawful. All it simply means is that, such a company cannot realise the charge to make good on the debt (though the debt or defaulting party will still owe the company).

In addition to this, the company that fails to register the charge at the Registrar General’s Department, and its defaulting officers shall be liable to a fine not exceeding 500 penalty units (i.e. GHS 6000).

3. Enforcement Procedure For Sale of Property 

Any Property/Charge/Security/Collateral duly registered at collateral registry within 28 days of grant of credit facility or such period as extended by the Collateral Registry may be sold in accordance with Act. For the court to grant the judicial sale of a property that has been properly registered the Lender must establish: 

1. Default by the Borrower in accordance with contract.
2. Demand by Lender to settle indebtedness or to make satisfactory arrangement to settle debt within 30 days of receipt of letter. 
3. Defaulter has failed to make payment within 30days as required.^[1]
4. Notice to the Collateral Registry 
5. Notice to Persons in Possession
6. Peaceable possession of Charged Property
7. Auction of Property

Section 32 (1): Where a borrower fails to make payment on the due date for a payment, the lender shall give notice of default to the borrower in writing and request the borrower to pay the amount due within thirty days.

Section 32 sets out the position of the law with regards to the first three factors and same has been expanded by case law. Section 32 (1) states: 

Where a borrower fails to make payment on the due date for a payment, the lender shall give notice of default to the borrower in writing and request the borrower to pay the amount due within thirty days.

Case law has further expanded on same.In True Life Microfinance v Stella Akpa[2017] DLHC3327, Kyei Baffuor. J stated that:

“… the provisions [Section 32] state that upon failure by the borrower to repay the loan, the lender must serve notice of least thirty days’ notice of the liability of the borrower. And if the borrower fails to repay within that thirty days or if the borrower is of the opinion that he does not owe to seek to reconcile statements. Where this is not done, the lender has two options…”

In the words of Asiedu J in Kwabena Boateng v Melbond Microfinance Co. Ltd  [2018] DLHC3342

“Under section 32(1) of Act 773 where a borrower fails to make payment on the due date for a payment, the lender shall give notice of default to the borrower in writing and request the borrower to pay the amount due within thirty days. It is only after the expiry of the thirty days’ noticegiven under section 32(1) and the borrower continues to default in the re-payment of the loan that a right accrues to the lender to possess the properties used to secure the loan”

His Lordship further stated: 

“From the answers given by the plaintiff herein the court finds that a demand notice was taken by the defendant to the office of the plaintiff and that the plaintiff saw the notice and that is why he was able to testify to the said notice. Section 32(1) only says that the “lender shall give notice of default to the borrower in writing and request the borrower to pay the amount due within thirty days”. Hence, once the plaintiff has seen the notice of default in writing in his office the requirement of the section has been duly complied with by the defendant. If the plaintiff decided not to receive the said notice, the fact of his refusal to accept same does not take away the fact that he has been given notice of his default by the defendant within the meaning of section 32(1) of Act 773.”

Furthermore, the Lender must ensure that the Collateral Registry is given a copy of the notice informing the Registry of the notice of default and the creditors intention to realise the security within thirty -days (30) of receipt of the notice by the borrower:

Collateral Registry gives permission to creditor to sell property without court order. This is normally done by the issuance of a “Notice of No Objection”.  In Sarobi Limited & Anor v Ecobank Ghana Limited Unreported Suit No. BMISC 969/2913 the 2^ndplaintiff- mortgagor made an application for injunction to restrain the defendant mortgagee-bank from selling his mortgaged property as security for a loan granted to the 1^stplaintiff . The mortgage had been duly registered at the collateral Registry which then issued the Memorandum of No Objection. The Court held, (dismissing the application) that, the mortgagor herein did not have a right to protect. The plaintiff was in violation of the terms of the parties’ agreement by being in default while the defendant mortgagee had complied with the due requirements of law.

If a borrower fails to pay or make satisfactory arrangements to pay the amount outstanding to the lender within thirty days of receipt of the notice, the lender may sue the borrower on any covenant to perform under the credit agreement, or realise the security in the property charged on notice to the person in possession of the property by issuing an Originating Motion on Notice for a Warrant to Possess.^[3] In True Life Microfinance v Stella Akpa [2017] DLHC3327 Eric Kyei Baffuor. J stated that

“Where this is not done, the lender has two options.Oneto peacefully enter into possession of the security without any court action and if there is resistance to seek the assistance of the police. In the alternativethe lender may proceed to court for leave for warrant to possess the security. The applicant herein chooses the latter option of applying for warrant from the court”

The Creditor may therefore demand possession peaceably or by order of the court and for police assistance if the Creditor thinks that the Borrower may challenge same.^[4]Section 34 of Act 773 provides that in the exercise of the right of possession of property that is subject to a charge to secure a borrower’s obligations under a credit agreement, a lender is not obliged to initiate proceedings in court to enforce the right of possession. Where a lender is unable to enforce a right of possession in a peaceable manner, the lender may use the services of the police to evict the borrower or other person(s) in possession, pursuant to a warrant issued by a court.

Where possession cannot be obtained peaceably and the mortgagee resorts to obtaining a warrant from the court for police assistance to take possession, such an application must, except in exceptional cases be on notice to the mortgagor and/or any other person in occupation. Thus all person(s) in possession as well as the mortgagor must be notified of intention to sell mortgaged property.In the Matter of Borrowers and lenders Act 2008 (Act 773) and in the Matter of an Application by Dalex Finance & Leasing Company Ltd: Dalex Finance and Leasing Co. Ltd vs. Beatrice Hammond Suit No. MISC/02/13 Unreported Frimpong J held that: “For an application ex- parte to be obtained, the condition specified in sub rule 3 of order 19 rule 3 had to be met…. Indeed, I should state that the nature of the right exercisable under Section 36(2) of the Borrowers and Lenders Act is such that an application brought under it unless there are extremely exceptional reasons to make it ex-parte, ought to be on notice not only to the borrower but to the one in possession of the property.”                                                       

Upon satisfaction of aforementioned conditions, the property shall then be auctioned in accordance with Auction Sales Act, 1989 (PNDCL 230) with the hope that, the amount realised will be able to satisfy the judgment debt. 

4. Conclusion

Once a party complies with the legislative requirements outlined above, the lender will be able to enforce their rights under the contract over any security/charge provided without resorting to the long procedures of court action. 

However, if these rules are not followed, the court will place a fetter on the steps to be taken by the lender. As Koomson J noted in in 1^st Atlantic Bank Gh Ltd v. K. Sarfo Kantanka Ltd and Another [2017] DLHC3456 although 

“There [was] no dispute (in that case) that the … property of the Managing Director of 1st Defendant … [had been] used as security for the … [loan] facility, [t]he question [was if] the parties [had] register[ed] the charge so created, with the Collateral Registry? [As] … None of the parties, more especially the plaintiff, led any such evidence [of registration of the charge] [t] he effect [was] that the charge… created [was] of no legal effect and [could not] be enforced… [T]he plaintiff [was consequently] not entitled to the judicial sale of the Managing Director’s residence…”

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^[1]Expiry of time for registration – Section 28

28. (1) The Registrar may accept for registration particulars of a charge submitted later than the time specified in section 25 on satisfaction that

(a) the failure to register particulars of the charge within the specified time shall not prejudice the position of creditors or shareholders of the borrower, or

(b) it is just and equitable to allow the registration on terms that the Registrar considers just and expedient to extend the time for registration.

 (2) The extension of time for registration of charge

(a) shall not, unless otherwise decided by a court adversely affect the right of a person who, prior to the date of actual registration of particulars of the charge, may have acquired proprietary rights in, or a fixed or floating charge on, the property subject to the charge, and

(b) is of no effect against a liquidator, official trustee, and creditors of the borrower, if insolvency or winding-up proceedings that affect the borrower commences before the date of actual registration of the charge.

^[2]Section 32 (1): Where a borrower fails to make payment on the due date for a payment, the lender shall give notice of default to the borrower in writing and request the borrower to pay the amount due within thirty days.

^[3]Sections 32 (4) & 33 of the Act 773

^[4]Section 32(4)