Examining Suitability of the Draft Ethiopian Personal Property Security Rights’ Law to the Local Context

Abstract

In what could be regarded as a defining moment in secured transactions law reform in Ethiopia, a new legal regime governing security interests has been drafted under the aegis of the International Finance Corporation (IFC), evidently based on Article 9 of the Uniform Commercial Code (UCC) of US or legal systems (instruments) influenced by it. Pending the approval of the draft law by the Ethiopian parliament, this article examines whether it is suitable to the Ethiopian local context. It argues that while the anatomy of the draft law and its general approach are consistent to the theme of enhancing access to credit, which dictates secured transactions law reform across the globe, it suffers from shortcomings that must be addressed. First, the draft law mandates electronic collateral registration system in a country without the necessary perquisites for its successful operation. Second, by adopting the Personal Property Security Right (PPSR) approach, the draft law unnecessarily excludes security rights in immovable property from its umbrella and defeats the purpose of comprehensive secured transactions law reform, i.e., implementing a legal regime that covers all types of assets, parties, and transactions. Third, the draft law has alarming terminological problems resulting from drafter(s) misapprehension of or insensitivity to the existing legal regime. Fourth, the unclarity of the provisions of the draft law on floating security interest could potentially lead to costly court litigation. Fifth, in departure from UCC Article 9 or recently reformed secured transactions laws, the draft law entitles the creditor to take possession of the collateral upon the debtor’s default, without putting in place the necessary tools to protect consumer debtors from potential abusive conducts of creditors. By empowering the Collateral Registry Office to order the police to assist the creditor in repossessing the collateral, it potentially subjects the debtor to extra-judicial deprivation of property right, with no judicial control mechanism. Based on comparative analysis of the key provisions and policies of UCC Article 9, the Draft Ethiopian PPSRs’ law along with the laws of other civil law jurisdictions to a limited extent, this article concludes that the draft law is ill-suited to the Ethiopian local context. The paper suggests that its approval by the parliament be delayed for further public scrutiny and debate among the relevant stakeholders. It proffers policy recommendations for revision.