The Salvadoran Law on Secured Transactions (SLST) has been in force since April 2014 by Decree No 488, which is based on the Organisation of American State´s (OAS) Model Inter-American Law on Secured Transactions. Under Article 88, the SLST clarified that the new national central registry would become operational no later than six months after this law came into force (that is, October 15 2014).The creation of the SLST had an overarching theme: to improve access to credit for micro, small and medium-sized enterprises (MSMEs), particularly those involving women-owned businesses and other marginalised groups.
In an extremely competitive and global atmosphere, with cross-border lending activity becoming progressively predominant, access to secured credit is a key source of capital for economic growth.
Historically, investment in El Salvador has been almost exclusively land-based. Consequently, when assets are physically located in any part of the region or the Caribbean, lenders are forced to comply with outdated laws that are largely based on real property principles. To this end, the implementation of a modern legal framework, which establishes a system that appropriately handles secured lending with personal property as collateral, is vital. The aforementioned would cater to the needs of businesses, specifically MSMEs, by improving their access to affordable credit.
The SLST establishes several formality requirements, among the most important of which are: (I) a written contract must be drawn up between the debtor and creditor; (II) the secured agreement must be formalised through a public deed or authenticated private document, both authorised by a domestic notary; and, (III) for those goods requiring registration, the registration must be carried out at the registry of secured transactions (RST).
National law mandates the RST to function as a debtor-based system, meaning it electronically organises the registry based on each debtor´s tax identification number.
In terms of formation, Salvadoran law allows the security agreement to be created as a separate document or be included in the main contract of the underlying transaction. In either case, the security agreement must clearly establish (i) the date and time of the agreement; (ii) the name of the parties along with their unique identity numbers and national tax numbers; (iii) the maximum monetary amount secured by the collateral; (iv) a general description of the collateral; and, (v) the conditions under which the collateral can be seized, among other requirements.
In an effort to comply with international best practices, the SLST was recently modified, among other things, to allow registration of secured transactions through electronic means. This fresh approach aimed to revitalise the past registry into an active, accessible, reliable, fast, and modern system that provides adequate support to the needs of MSMEs. Now, registrants can request the registration of a secured transaction electronically, verify in real time the existence of other secured transaction vis-à-vis the debtor, and execute their secured transactions immediately thereafter. Registration of the security interest is automatic, hence the security interest is immediately perfected and opposable against third parties. By the same token, this new system modified the fee scheme applicable to the registration of secured transactions, into a mixed regimen. Generally speaking, it considerably lowered the applicable fees.
It is important to note that the Model Inter-American Law on Secured Transactions and the Model Registry Regulations offer essential frameworks to improve existing legal shortcomings in Central America and the Caribbean. They offer a uniform, centralised, non-possessory security interest regime that eradicates competing devices, while also delivering flexibility, protecting third parties and broadening the range of property that may serve as collateral. This framework also provides fast and tangible enforcement remedies, making financing readily available to MSMEs while helping them address their modern-day needs.
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Alejandro Solano |
Maria Alejandra Tulipano |