Kamal Habachi and Salima Bakouchi of Bakouchi & Habachi – HB Law Firm assess the options and framework for parties raising capital in Morocco
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?
Under Moroccan law, lenders must absolutely have a licence that is provided by the national central bank, Bank Al Maghrib. Only banks and financial institutions that have the licence from Bank Al Maghrib can make loans.
If the lender is a not a bank, the lender or financial institution can practise only the activities specified in the licence or in their own law or regulations.
1.2 Are any exemptions available and/or are any techniques typically used to structure around such requirements?
There are no exemptions available.
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
The above listed assets may be used as securities in Morocco.
The most common used documentation and formalities are: contracts (assignments, pledges, mortgages); registration taxes; registration before the trade register and register of transfers; deposits before the bank; and notification to creditors and the land registry.
2.2 Highlight any issues with securing obligations that may arise in the future.
There are different issues that may arise in the future, depending on each security. However, the most likely issue to arise is where a mortgage is created on a property that is a security for more than one mortgage and the value of the property cannot satisfy all those mortgages. In this situation, the first mortgage takes priority, followed by the others according to their date of creation.
2.3 Can a universal security agreement be used to grant security over all assets in this jurisdiction?
A universal security agreement can be used to grant security over all assets.
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, security can be granted to the benefit of different classes of creditors under the same agreement, the security agreement or the intercreditor agreement (generally banks) can provide different classes of creditors.
In adopting this approach, creditors should be aware that there is an order of priority over such securities. The agreement may allow priority for creditors; for example, senior creditors rank first, followed by other creditors.
2.5 Can security trustee or security agent structures be used in this jurisdiction to secure obligations that are owed to fluctuating creditor classes?
There are no provisions regarding security trustees or security agent structures under Moroccan law.
2.6 Briefly outline any issues to consider when transferring loans and accompanying security interests between lenders.
The transfer of loans and accompanying security interests can be done through: (i) the assignment of rights where a transfer is notified to the debtor and is enforceable by the third party; and (ii) novation, whereby the creditor should expressly reserve the security and guarantees attached to the secured debt.
In principle, security interests are automatically transferred with the debt. Therefore, an assignment will be valid against the assignor's creditors without the need for any registration of the transfer of security. However, many issues can arise in the future. It all depends on the type of loan and security. If a security is a real property, the mortgage must be registered.
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?
Security can be granted by third parties. It is generally a deed of guarantee executed by the guarantor in favour of the borrower (le cautionnement). If the borrower is insolvent, the third party (la caution) will execute the obligation.
The guarantor (third party) who has lawfully paid the debt will be subrogated to the rights and privileges of the creditor against the principal debtor, depending on the amount they have paid.
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 the consequences of non-registration.
Registration is required for certain types of securities such as mortgage and pledge. The timing and expense depends on the type of securities; expenses are generally a percentage based on the amount of the debt. The consequences of non-registration will affect the enforceability of the securities, especially vis-à-vis third parties.
2.9 Briefly outline any regulatory or similar consents that are required to create security (other than board/shareholder approvals).
There are no other regulatory or similar consents other than board and shareholder approvals that are required to create security.
Section 3 – Guarantees
3.1 Briefly explain the downstream, upstream and cross-stream guarantees available, with reference to any particular restrictions or limitations.
There are no provisions under Moroccan laws that prohibit such guarantees. These guarantees have different appellations; they could be letters of credit or a lettre de confort for example. They are generally accepted by lenders as a further guarantee along with the traditional guarantees.
3.2 What regulatory or other consents are required to grant downstream, upstream and cross-stream guarantees (other than board/shareholder approvals)?
Other than board and shareholder approvals, no other consents are required.
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).
Generally, such guarantees include the transfer of money overseas. Therefore, authorisation by the exchange office is required under the rule governing the transfer of money. Further, the company providing a guarantee to the parent company receives an appropriate remuneration for the guarantee (which could be subject to 10% withholding tax).
Section 4 – Enforcement
4.1 Do the local courts generally recognise and enforce foreign-law governed contracts?
Yes. There are no provisions under Moroccan law that prohibit the enforceability of a contract that is governed by a foreign law. Parties are free to determine the law that will govern their contract.
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?
Decisions taken by foreign courts are enforceable in Morocco after being endorsed by the exequatur of the court of first instance in the domicile or residence of the defendant; failing that, the place where the enforcement is to be performed.
The court must ensure: (i) the legality of the act; and (ii) the jurisdiction of the foreign court which issued it. The court will verify that no stipulation of the decision affects Moroccan public order.
4.3 Will the local courts recognise and enforce an arbitral award given against the company without re-examining the merits of the decision?
Morocco is a signatory to, and has ratified, the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which entered into force on June 7 1959. According to Moroccan law ratifying the Convention, no reservations or declarations were made.
However, Morocco applies the New York Convention only to the recognition and enforcement of awards made in the territory of another contracting state, with the choice of a reciprocity reservation as provided in Article 1, Paragraph 3 of the New York Convention.
Morocco is also a party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, which was ratified by a royal decree dated October 31 1966.
Arbitral awards given against the local company will be recognised and enforced by Moroccan courts subject to the provisions of the Civil Procedure Act.
However, the Morocco courts may refuse to recognise or enforce an award in accordance with the provisions of Law 08-05 relating to arbitration that amended and supplemented Dahir 1-74-447 on Civil Procedure Code.
It should be noted that any arbitral award which is delivered in breach of any Moroccan public policy provision cannot be enforced.
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 enforcement procedure depends on the nature of the security. In most cases, holding a public auction, and court involvement are necessary.
4.5 Are there any restrictions that apply specifically to foreign lenders when taking enforcement action?
There are no restrictions that apply specifically to foreigners when taking enforcement action.
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.
The insolvency proceedings in Morocco are carried out through: (i) internal and external prevention of business difficulties (internal prevention is carried out by the director of the company and external prevention is carried out by the president of the commercial court); (ii) receivership; and (iii) winding-up under the supervision of the court, the bankruptcy judge and the trustee in the bankruptcy.
When the debtor files a notice in court of his inability to pays his debts (cessation de paiements) he must provide the list of all the debtors and creditors with an indication of their residency, the amount of their rights, debts and guarantees at the date of cessation of payments.
Creditors can declare their debts, after the publication of the judgment that initiates the procedure, in a journal of legal notices and the official gazette and as a controller.
The creditor could be appointed by the judge to be a controller in the entire insolvency and bankruptcy process. The timeframe for bankruptcy or insolvency depends on the schedule of the court. Further, it should also be noted that the procedure can be opened after the application of one creditor, regardless of the nature of its debt.
5.2 Are there any preference, fraudulent conveyance, clawback, hardening periods or similar issues or preferential creditor rights that lenders should be aware of?
All debts arising after the judgment that initiates the procedure should be paid in preference over all other debts either backed by securities or not.
One of the main provisions under Moroccan bankruptcy law is that, despite any statutory provision or contractual clause, no indivisibility, cancellation or termination of the contract can result merely because of the opening of bankruptcy.
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?
The judgment opening the insolvency or bankruptcy process suspends or prohibits any legal action on the part of all creditors whose claims originated prior to this judgment. Such actions include: an order to the debtor to pay a sum of money and the resolution of a contract for non-payment of a sum of money. It also prohibits any means of enforcement on the part of these creditors on furniture and on buildings. Deadlines under a penalty of forfeiture of rights or resolution are therefore suspended. Accordingly, enforcement proceedings for the realisation of collateral for claims secured by any kind of guarantee cannot be used. The security interest guaranteed by a third party could be executed; the guarantor third party may not invoke the benefits of the insolvency or bankruptcy process.
Section 6 – Your jurisdiction
6.1 In no more than 200 words, outline any cross-border financing trends specific to your jurisdiction.
There are no specific cross-border financing trends.
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HB Law Firm
About the author
Kamal Habachi is a corporate partner at HB Law Firm. He has significant experience in M&A, commercial contracts and restructuring, and specialises in corporate, financial, contract, and securities law. He received his PhD from a French University, and is admitted to the Casablanca Bar Association.
Habachi speaks Arabic, French, English and Spanish.
HB Law Firm
About the author
Salima Bakouchi is a partner at HB Law Firm. She was admitted to the Casablanca Bar Association in 1995, and worked in one of the leading law firms in Morocco, where she gained valuable experience as a legal advisor in different sectors.
Bakouchi has handled a wide range of transactions in various sectors and conducted numerous seminars in copyright, and consumer and competition law both in Morocco and abroad. She specialises in IP, banking and finance, and corporate, administrative, labour, commercial and competition law, and alternative dispute resolution.
Bakouchi speaks Arabic, French and English.