Soo Fon Ip Min Wan and Vincent Chong Leung of GlobaLex Chambers assess the options and framework for parties raising capital in Mauritius
Section 1 – Bank licences
1.1 What licences or approvals do lenders need to have if lending to a borrower in this jurisdiction if a) the lender is a bank or b) the lender is a not a bank?
A lender must be licensed by the Bank of Mauritius to conduct banking business or to act as a moneylender.
1.2 Are any exemptions available and/or are any techniques typically used to structure around such requirements?
There are several exemptions provided under the Banking Act 2004. These include any bona fide person carrying on the business of banking or insurance or carrying on any business with a primary object which is not the lending of money, in the course of which, and for the purpose of which, they lend money. Moreover, any person licensed under the Financial Services Act 2007 will not require a moneylender licence to lend to a borrower in Mauritius.
Section 2 – Security interests
2.1 Can security be taken over the following asset classes and what documentation or formalities are required to create, perfect and maintain such security?
b) bank accounts
d) contractual rights
e) insurance policies
f) real property
g) plant and machinery
h) intellectual property
i) debt securities
j) future/after acquired property
k) floating charges over all assets
Yes, it is possible to take security over these asset classes. There may be formalities to create and perfect such security and these would depend on the type of collateral being granted, given that certain types of security specifically require registration or inscription to be effective against third parties.
For instance, a charge (fixed or floating) needs to be registered with the registrar-general and inscribed in the register held by the conservator of mortgages. The document witnessing the charge must also fulfill certain formalities such as being printed on A4 paper of not less than 90 grams and various formatting margins being observed.
A pledge of shares must be inscribed in the register of the company in which the shares are being pledged while a pledge of a bank account or assignment of receivables must be notified to the bank with which the account is held, or to the debtor.
2.2 Highlight any issues with securing obligations that may arise in the future.
Future property cannot be the subject of a fixed charge and should therefore be covered by a floating charge on future assets as and when acquired by the chargor.
2.3 Can a universal security agreement be used to grant security over all assets in this jurisdiction?
A charge will generally cover all assets where this is specifically mentioned in the deed witnessing the charge.
2.4 Can security be granted for the benefit of different classes of creditors under the same security agreement and if so, are there any issues that creditors should be aware of in adopting this approach?
Yes, the creditors should have an intercreditor agreement or a subordination agreement in place to regulate their rights and obligations.
2.5 Can security trustee or security agent structures be used in this jurisdiction to secure obligations that are owed to fluctuating creditor classes?
2.6 Briefly outline any issues to consider when transferring loans and accompanying security interests between lenders.
Loans and accompanying security interests are generally transferable between lenders by way of assignment, novation or sub-participation. In a novation, the consent of the borrower is required and the intention of the parties to do so must be clearly stated in the document witnessing the novation.
2.7 Can security be granted by third parties? Are there any rights of contribution, subrogation or similar that might arise as a result of granting/enforcing third party security that ought to be/can be waived?
Yes, the security documentation would typically require the third party to subrogate, suspend or waive any right of subrogation.
2.8 Briefly outline the registration requirements, if any, applicable to security interests created in this jurisdiction, including considerations such as the timing, expense and consequences of non-registration.
A company must file a statement of particulars of a security interest it has granted over its assets with the registrar of companies, together with a certified copy of the agreement witnessing such security interest, within 28 days of the creation of the security. Non-registration will not generally affect the validity of the security.
Registration of a security document with the registrar-general will normally depend on whether the lender intends to affect the interest of third parties and on the nature of the security itself. For instance, a pledge of shares created under the Civil Code will only be enforceable against third parties if the document has been duly registered. Both a mortgage and a charge should also be registered to be effective against third parties.
The rate of registration duty payable depends on the type of document being registered. For a financing transaction exceeding Rs5 million ($143,000), a security document will typically attract a registration duty of Rs50,000. If such a document is not registered within eight days of the date of the document, a penalty of 50% of the duty leviable is applicable.
2.9 Briefly outline any regulatory or similar consents that are required to create security (other than board/shareholder approvals).
Generally none, except where there is a third party contractual prohibition on the company granting security on its assets.
Section 3 – Guarantees
3.1 Briefly explain the downstream, upstream and cross-stream guarantees available, with reference to any particular restrictions or limitations.
Such guarantees may be issued and shareholders' approval would normally be required where the proposed guarantee has or is likely to have the effect of the company incurring obligations or liabilities the value of which exceeds at least 50% of the value of the company's assets.
3.2 What regulatory or other consents are required to grant downstream, upstream and cross-stream guarantees (other than board/shareholder approvals)?
None, except where there the guarantor has undertaken with a third party not to grant any guarantees.
3.3 Briefly outline any enforceability concerns associated with the granting of downstream, upstream and cross-stream guarantees that lenders should be aware of (eg any exchange controls or similar obstacles).
Unless expressly waived, a guarantor may require the beneficiary of the guarantee to first enforce its claim against the debtor before claiming against it. It may also request the beneficiary to apportion its claim among all co-guarantors. In practice, these obstacles are typically waived in the document witnessing the guarantee.
Section 4 – Enforcement
4.1 Do the local courts generally recognise and enforce foreign-law governed contracts?
The local courts will generally do so, except where the choice of governing law was made by the contracting parties with the intention of evading the provisions of another more appropriate jurisdiction, or where the choice of law infringes a mandatory provision of Mauritian law or is contrary to public policy.
4.2 Will the local courts generally recognise and enforce a foreign judgment that is given against a domestic company in foreign courts (particularly the New York or English courts) without re-examining the merits of the decision?
A final and conclusive judgment for a definite sum duly obtained against a Mauritian company in a foreign court is generally enforceable in Mauritius without re-examination of the merits by way of exequatur proceedings.
If the judgment emanates from a superior court of the United Kingdom, it may also be enforced by way of registration under the Reciprocal Enforcement of Judgments Act 1923, except where the Supreme Court considers that registration and enforcement of the judgment would not be just and convenient in all the circumstances of the case.
4.3 Will the local courts recognise and enforce an arbitral award given against the company without re-examining the merits of the decision?
Generally yes, the recognition and enforcement of such a foreign arbitral award will be governed by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards Act 2001.
4.4 When enforcing security, what factors significantly impact the time such enforcement takes and the value of the proceeds received from such enforcement? For example, are there any statutory requirements such as (a) holding a public auction; (b) court involvement; or (c) obtaining regulatory consents?
The main factors are the nature of the security itself and whether there are court or insolvency proceedings. Otherwise, a secured lender may usually enforce its security without court involvement or regulatory consent or holding a public auction.
4.5 Are there any restrictions that apply specifically to foreign lenders when taking enforcement action?
No, but the foreign lender may need to provide security for the defendant's costs.
Section 5 – Bankruptcy and insolvency proceedings
5.1 Briefly, outline the main bankruptcy/insolvency processes in this jurisdiction, including any control or influence that creditors can exert on the process, the timeframes usually involved and any mandatory filing requirements.
A company may be wound up voluntarily, by way of a court order or a resolution of creditors passed at a watershed meeting (which is a creditors' meeting called by the administrator during administration to decide on the future of a company and, in particular, whether the company and the creditors should execute a deed of company arrangement).
A voluntary winding up may be: (a) a creditors' voluntary winding up where the company is insolvent and the liquidator is appointed by a meeting of creditors; or (b) a shareholders' voluntary winding up where the company is solvent and the liquidator is appointed by a shareholders' meeting.
In a winding up by the court, a petitioner must, within seven days of making a winding-up order: (i) lodge with the director of the Insolvency Service a copy of the order and the name and address of the liquidator; (ii) deliver a copy of the order to the official receiver; (iii) cause a copy of the order to be served on the secretary of the company or on such other person or in such manner as the court directs; and (iv) deliver a copy of the order to the liquidator with a statement that the above requirements have been complied with.
A liquidator must, within seven days of being appointed or being notified of their appointment, give public notice, in addition to submitting to the director of the Insolvency Service, of their appointment and the date of the commencement of the liquidation. Further, 14 days (in the case of a creditors' voluntary winding up) or 28 days (in a winding up by the court) after the liquidator's appointment they must prepare a list of every known creditor of the company and (except in the case of a shareholders' voluntary winding up) prepare and submit to the director of the Insolvency Service a report containing the details, including a statement of the company's affairs, proposals for conducting the liquidation, and, where practicable, the estimated date of its completion. Lastly, within 28 days of the end of each period of six months following the commencement of the liquidation the liquidator must prepare and send to every known creditor and shareholder, and submit to the director of the Insolvency Service, a report on the conduct of the liquidation during the preceding six months and of any further proposals which the liquidator has for completing the liquidation.
The timeframes involved are dependent on the method of winding up. Where a company is solvent and is wound up voluntarily this would normally take a few months, provided there are no substantial assets and liabilities. On the other hand, a court-petitioned winding up would generally take about 12 months to complete.
A company can also be placed under receivership, administration or enter into a compromise under the laws of Mauritius.
5.2 Are there any preference, fraudulent conveyance, clawback, hardening periods or similar issues or preferential creditor rights that lenders should be aware of?
Certain claims, for example taxes, the costs of insolvency proceedings and remuneration due to employees, have statutory priority over both unsecured and secured creditors.
A liquidator may also apply to the court to set aside a transaction that is a voidable preference and is made within two years of the commencement of the winding-up. A voidable preference is a transaction (which includes the creation of a security) that: (i) is made at a time when the debtor is unable to pay its due debts and (ii) enables another person to receive more towards satisfaction of a debt by the debtor than that person would receive, or would be likely to receive, in the liquidation.
A security over any property or undertaking of a debtor may also be set aside by the court on the application of a liquidator where the security was given within the two years immediately before the commencement of the winding up and, immediately after the security was given, the debtor was unable to pay its due debts.
A security may not be set aside as a voidable security where the security secures money actually advanced or paid, or the actual price or value of property sold or supplied, or any other valuable consideration given in good faith, by the security holder to the debtor at the time when, or at any time after, the charge was given.
A creditor may also challenge a security where its grant has been made in fraud of its rights. Provided the creditor's rights exist prior to the fraudulent act, they may claim the revocation of the fraudulent act once the prejudice is ascertained and proof of collusion between the debtor and the third party benefiting from the security is established.
5.3 Do bankruptcy/insolvency processes provide for any kind of stay/moratorium on enforcement of lender claims? If so, does the stay/moratorium apply to the enforcement of security interests?
Depending on the type of security, and subject to the order of priority of security interests upon the commencement of insolvency, the right of a secured creditor to take possession of, and realise or otherwise deal with, property of the company over which that creditor has a security will not be affected generally. Where a winding-up order is made or a provisional liquidator is appointed, no action or proceedings may be proceeded with or commenced against the company except by leave of the court and on such terms as the court thinks appropriate.
A security interest may not be enforced during administration, except with the administrator's written consent or with the permission of the court.
Section 6 – Your jurisdiction
6.1 In no more than 200 words, outline any cross-border financing trends specific to your jurisdiction.
In addition to being ideally situated geographically, Mauritius offers an extensive network of double taxation avoidance treaties and investment promotion protection agreements entered into with fellow African countries. It also has a robust independent legal system. Despite uncertainties surrounding alterations to the Indo-Mauritius Double Taxation Avoidance Treaty, the jurisdiction is witnessing increasing interest from both local and overseas financial institutions.
While European and US-based lenders predominantly remain the main sources of cross-border financing, Asian financial institutions are rapidly catching up through the use of Mauritius as a conduit and the setting up of local representative offices and branches. We are also gradually seeing funds seeking to benefit from Mauritius's attractiveness as a jurisdiction for collaterisation to structure the movement of both investments and debt financing into their intended target countries.
First published by our sister publication IFLR magazine. Take your free trial today.
Soo Fon Ip Min Wan
About the author
Soo Fon Ip Min Wan is a partner at GlobaLex Chambers. She is a pioneer in the global business sector and specialises in funds, securities markets and finance transactions. A qualified barrister admitted to the Honourable Society of Lincoln's Inn since 1995 and called to the Mauritius bar in 2002, Soo obtained her law degree from the University of Birmingham, UK. She previously practiced as senior associate in a leading local law firm and earned recognition by IFLR1000. Before that, Soo was the head of legal, trust and compliance at one of the largest management companies in the global business sector.
Vincent Chong Leung
About the author
Vincent Chong Leung is a partner at GlobaLex Chambers. He focuses on cross-border transactions and regularly advises lenders and borrowers on Mauritius-related financing matters. A former partner at a leading local law firm and previously the head of legal at a management company, Leung graduated in English and French law from the University of Kent, UK and Universite Montesquieu-Bordeaux IV, France. He also completed both the legal practice course and the bar vocational course at the Inns of Court School of Law, UK. He is a member of the Honourable Society of Lincoln's Inn and was called to the Bar of England and Wales and that of Mauritius.