Quick enforcement at market value of the assets given as security

The ST Guide recommends that upon default in payment, the method for the enforcement of security rights should be clear, simple and efficient, capable of being realised in good faith and in a commercially reasonable way.178 This principle of enforcement is also intertwined with the EBRD Core Principle in the realisation of security interests.179 A modern secured transactions law should provide for expeditious enforcement proceedings to accommodate circumstances where the secured creditor, grantor or a third party with an enforcement right applies to a court or other authority with respect to the exercise of post-default rights.180 There should be efficient, inexpensive, reliable and transparent methods (both judicial and extrajudicial) for enforcing security interests. It should allow for the recovery of possession of the collateral, the possibility of the secured creditor purchasing the collateral in total (or partial satisfaction of the debt), and prompt realisation of the value of the collateral in a commercially reasonable way in good faith.181 The procedures and practice of enforcing a security interest needs to be favourable to the secured creditor, otherwise the secured creditor may require additional security, or increase the interest rate at the disadvantage of the grantor. Often, a secured creditor who wishes to enforce its security interest will need to obtain a court order and follow a specified process to dispose of the collateral to satisfy the

175 _{CBNR, Art. 38 (1), Art. 45 (1) & (2).} 176 _{ST Guide, Recommendation 1 (h).} 177 _{CBNR, Art. 40.}

178 _{ST Guide, Recommendation 131.} 179 _{EBRD Core Principle IV.} 180 _{ST Guide, Recommendation 138.}

181 _{Principles for Effective Insolvency and Creditor/Debtor Rights Systems (The World Bank, Revised 2015)}

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obligation.182 More often than not, the process of realising the collateral through this process can be time consuming and expensive.

The CBNR provides for the realisation of the security interest.183 The CBNR allows for the use of self-help only if the grantor consents to it.184 In the event of default, the secured creditor has the option of enforcing his rights in the security as provided under Part V of the CBNR, either by a court action or without court action so long as notice has been given to the grantor.185 By court action, a judicial order would have to be obtained to take possession of the collateral. If the proceeds are to be realised without court action, the grantor must consent in the agreement to relinquish possession of the collateral.186 There is no elaborate detail on how the creditor may enforce the security interest with consent, and without judicial assistance, but the Draft Law has provided for a way of incorporating and effecting it appropriately. It states that the security agreement should boldly include ‘IN CASE OF DEFAULT, THE CREDITOR MAY USE SELF-HELP IN TAKING POSSESSION OF

THE COLLATERAL.’187

Where such an inscription is incorporated in the security agreement, the researcher believes that it should no longer be necessary to provide notice of repossession to the grantor as stated in Art. 35 (1) CBNR. Under such circumstance, ideally, it should be under the discretion of the secured creditor as to whether prior notice is issued to the grantor. In fact, it has been recommended that after default, notice of realisation may or may not be provided to the grantor,188 but the researcher believes that notice should not be given at all because it would alert other creditors who may then obstruct the enforcement process. Worse still, it could be abused by a dishonest grantor who may have no intention of relinquishing possession of the collateral for realisation purpose as they could abscond with the collateral. Again, section 109 NZPPSA allows the secured party to take possession of the collateral when the debtor is in default.189 It does not explicitly mention whether notice of the secured creditor’s intention to repossess is necessary before enforcement can be effected. Due to policy issues, the researcher argues that notice to repossess should be at the creditor’s discretion.

182 _{For example, see High Court of the Federal Capital Territory (FCT) Abuja, Civil Procedure Rules (CPR),}

Order 10.

183 _{CBNR, Art. 34 (2).} 184 _{CBNR, Art. 35 (4) (a).} 185 _{CBNR, Art. 35.} 186 _{CBNR, Art. 35 (4).} 187 _{Draft Law, para 60.4.}

188 _{See generally ST Guide, Chap. VIII 39 – 42; Recommendation 149.} 189 _{See specifically, NZPPSA s 109 (1) (a).}

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In addition, the researcher recommends that prior to realisation, the secured creditor should file a statement (which the researcher will now referred to as ‘enforcement statement’) in the NCR for this purpose which will identify the secured creditor, the debtor and the collateral. The enforcement statement should also indicate the particular method which the secured creditor wishes to use in disposing off the collateral. The purpose of this enforcement statement will be to inform third parties that collateral may be realised on the secured creditor’s behalf without the need to specify the exact date of repossession. After all, the notice of sale of the collateral, after repossession, will provide the information needed to third parties before the collateral is finally disposed to inform other creditors and allow the grantor to redeem.190

The Draft Law indicated that the secured creditor may not enforce the security by strict foreclosure unless the parties had agreed otherwise in the secured agreement.191 Where this happens, any deficiency balance will be terminated. This possibility of strict foreclosure is surprisingly absent from the CBNR. The ST Guide and UNCITRAL Model Law recognise this concept which can be agreed by both parties but only after default in payment, and the secured creditor will have to propose such arrangement in writing in view of total or partial satisfaction of the debt.192 The secured creditor would then need to notify other affected parties with rights in the collateral such as third party assignees and creditors about the proposal which must specify the amount owed and the amount of the obligation it seeks to satisfy.193 The researcher believes that the option of strict foreclosure should be adopted by the CBNR in that where strict foreclosure takes place after it has been agreed between the parties, any deficiency balance should become extinguished.

5.3.5 The security interest should continue to be effective and enforceable after the