Secured Financing

Cambodia has a comprehensive array of laws dealing with secured financing.  A security interest may be taken over immoveable property (i.e., land), moveable property and intangible property.  Applicable laws include the following:

  • Law on Secured Transactions (2007)

The Law on Secured Transactions law permits security interest over such collateral as “goods or moveable things of any nature”.  Collateral may also consist of intangible property.  Perfection of a security interest may be obtained, in most cases, by the filing of a notice at the Secured Transaction Filing Office maintained at the Ministry of Commerce.  However, at times, perfection may be obtained by the physical possession of the collateral, notably, instruments and/or documents.  Perfection permits the security interest to remain over goods used as collateral even if a subsequent acquirer acquires the goods for value, however if the acquirer acquires the goods in the ordinary course of business he takes free of the security interest.

  • Financial Lease or Operational Lease

As part of Cambodia’s secured financing scheme, there is the concept of financial leasing, which involves the lessor (lender) holding title and leasing specified moveable property to the lessee (borrower).

For some years, there was some confusion in Cambodia as to whether a leasing of goods arrangement was a simple rental, hire purchase, operational lease arrangement or a “financial lease”.  The business of financial leasing is licensed by and regulated by the National Bank of Cambodia.  Simple rental, hire (or hire purchase) and operational lease arrangements should not require licensing by the National Bank of Cambodia.

It is now quite clear that a “financial lease”, requiring licensing, is a lease for an initial non‑cancellable term of a year or more, in which: (i) the lessee specifies the movable property and selects the supplier without relying primarily on the skill and judgment of the lessor; and (ii) the movable property is acquired by the lessor in connection with a financial lease agreement for leasing to the lessee.

Cambodian Law now permits the establishment of financial leasing companies, which are regulated and licensed by the National Bank of Cambodia.  The minimum capital requirements for a financial leasing company is KHR 200,000,000 (two hundred million Riels) (approximately USD 50,000).

  • Land Law of 2001

Until late 2011, security over immoveable property (land) was taken under the Land Law of 2011.  The Land Las specified three security devices: an antichrese (essentially a possessory pledge of immoveable property); a gage (a pledge of moveable property, with the moveable property being the land title document); and a mortgage (essentially a surety in rem which permitted the owner to remain in possession of the immovable property).

In December 2011, provisions of the new Civil Code (2007) came into legal effect.  The Law Implementing the Civil Code expired and replaced virtually all of the provisions in the Land Law dealing with antichrese, gage and mortgage, with (i) the hypothec and (ii) the pledge over immoveable property.

  • Civil Code (2007)

As background, the new Civil Code was signed into law in 2007, but its application was delayed until the passage of the Law Implementing the Civil Code in 2011.  The Civil Code came became applicable law on 21 December 2011.

The Civil Code confirms two statutory lien rights: a possessory right of “retention” by one who has a claim in regard to the thing possessed regardless of whether that thing is moveable or immoveable; and a “preferential right” for benefits furnished (e.g., expenses for common benefit to preserve property for the benefit of creditors, employee claims, funeral, and daily necessities).   Interestingly, it may be that “preferential rights” also include the concept of a “mechanics lien” or “construction lien”.

The Civil Code also provides for five types of security interest: a hypothec (a non-possessory security over immoveable property); a pledge over movables; a pledge over immoveables; a pledge over claims; and transfer (of ownership) as security (applicable to moveable property only).

Perfection of Civil Code security rights – i.e., the right to assert a Civil Code security interest against third parties – is a complex mixture of possessory requirements and/or registration requirements.

To deal with conflicts between security interest provided in the Civil Code, the Law Implementing the Civil Code provides various guidance principles, including the following: transactions executed under the Secured Transactions Law prior to the date of application of the Civil Code remain in effect; transactions executed after the date of application of the Civil Code are assumed to be under the Civil Code unless it is clear that the parties intend the transaction to be under the Secured Transactions Law.

  • Other Laws

Collateral pledge (applicable to moveable property only) is a recognized method of financing and requires a license from the Ministry of Economy and Finance.  The regulations dealing with collateral pledge are not clear and seem to focus on pawn shop activities, although other business may also, if licensed, conduct the business of collateral pledge.

Cambodia’s Law on Taxation provides that the tax department may issue tax liens.  The tax department asserts that tax liens do not have to be registered, but there are laws in Cambodia that imply the need to register tax liens, and if not registered, perfected secured creditors may have a priority.

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