The Future of Secured Cross-Border Financing brought into question by Supreme Court Judgment

A body corporate not registered in Mauritius, not having a place of business in Mauritius and not being a foreign banking or financial institution (a “Foreign Body Corporate”) cannot, by way of security for a loan, advance, payment or for any other obligation granted or effected to a Mauritian person (including a Mauritian company) be given a fixed and/or floating charge on the assets of that Mauritian person. This has been decided in the recent case delivered by the Supreme Court of Mauritius, Atelier Etude Limousin & Ors vs BPCE International Et Outre Mer & Anor 2014 SCJ 166.

This decision has given an uncomfortable interpretation of the Institutions Agréées Regulations 1988 (the “Regulations”) which set out which entities, other than those already set out in the Civil Code, can be the beneficiaries of a fixed and/or floating charge. This judgment also deals with the effects of existing fixed and/or floating charges, which have been granted by Mauritian persons to Foreign Body Corporates.

An interlocutory application was brought by unsecured creditors to restrain a secured foreign lender from realising assets secured under fixed and floating charges on the basis that the charges were null and void as the provision in the Regulations specifying that an “institution agréée” can be “any body corporate not registered in Mauritius and having no place of business in Mauritius” was ultra vires Article 2202-02 of the Civil Code. The Supreme Court interpreted the aforementioned Regulations based on the now defunct Loans, Charges and Privileges (Authorised) Bodies Act 1969 which first provided for fixed and floating charges and on a strict reading of Articles 2201-1 and 2202-2 of the Civil Code which determine who is entitled to a fixed and/or floating charge. Article 2201-1 of the Civil Code authorises a fixed or floating charge to be inscribed only in favour of an “institution agréée” whereas Article 2202-2 of the Civil Code enumerates a list of “institution agréées“. However, Article 2202-2 of the Civil Code gives power to the Minister of Finance to determine, by way of regulations, what institution or financing organism, whether foreign or Mauritian, is an “institution agréée“. The Judge stated that Regulations had to be interpreted in the context of the provisions of the Civil Code and that accordingly “any body corporate” did not mean any entity but had to be a financial institution or a foreign bank.

Notwithstanding the above, the Supreme Court decided that a fixed and/or floating charge granted to Foreign Body Corporate by a Mauritian person is not null and void. The document witnessing the fixed and floating charge will neither be considered as conferring a fixed and/or floating charge to the beneficiary nor the effects of such a charge under Mauritius Laws. The document will constitute a binding agreement between the parties (and the beneficiary would still be allowed to appoint a receiver or receiver and manager under the agreement) but the agreement will not have any priority over other documents inscribed by secured creditors.

This judgment is controversial to say the least and raises a number of issues. While the Supreme Court confirmed that such a document would be enforceable, it did not clarify what type of security (if any) it would constitute.

The judgment also raises broader questions on the future of cross-border secured financing. It is well known that special purpose vehicles (“SPVs”) or other non-financial corporate entities regularly lend to Mauritian entities, with the financing being backed by fixed and floating charges over the assets of the Mauritian entity. Restricting the type of charge that a Foreign Body Corporate can take as security when lending to a Mauritian entity could severely hinder the economics of the cross-border financing. From a policy perspective, Mauritius’ attractiveness as an International Financial Centre would undoubtedly be impacted.

It is not yet known whether the judgment would be appealed, but in any event, a clarification of the Regulations would be helpful.  While conceptually it is arguable that there should not be a blanket authorisation for any type of foreign entity to create a fixed and floating charge over assets of a Mauritian entity, it would be helpful for the Regulations to provide for certain types of foreign entities (which would include SPVs) to be allowed to create such charges.

However, it is to be noted that the Regulations also provide that “any body corporate certified by the Mauritius Offshore Business Activities Authorities as an offshore company” can be granted a fixed or floating charge as security. The Mauritius Offshore Business Activities Act 1992 having been repealed, in the Regulations, a reference to “any body corporate certified by the Mauritius Offshore Business Activities Authorities as an offshore company” is a reference made to a Category 1 Global Business Company. Under Mauritius laws, a reference in an enactment to another enactment, shall be construed as a reference to that other enactment as amended. Since the judgment does not provide an interpretation of the aforementioned provisions, it can well be envisaged that a SPV set up as a Category 1 Global Business Company would be in a position to finance Mauritian persons and benefit from a fixed or floating charge as security for such a financing.