The main steps and procedures for the perfection of different security interests are as follows.
Real estate assets
Pursuant to the Egyptian Civil Code No. 131 of 1948, the security over registered land and buildings may be created by virtue of an official mortgage agreement or possessory mortgage agreement. In all cases, the real estate mortgage agreement must be duly registered with the Notary Public Authority. Additionally, in the case of a possessory mortgage, the creditor must be in possession, whether physical or constructive, of the land and buildings subject to the mortgage.
Unlike land and buildings, in relation to which official mortgages are possible, security over movables may only be taken subject to a possessory mortgage agreement. The creditor must be in physical or constructive possession of the mortgaged assets at the time of creation of the mortgage and must maintain such possession until the final payment of the secured debt in order to ensure the validity of the relevant possessory mortgage agreement.
Fonds de commerce
Pursuant to the fonds de commerce Sale and Mortgage Law No. 11 of 1940, the security over fonds de commerce may be created by an official mortgage agreement duly registered with the Notary Public Authority. The mortgage must be duly recorded with the Commercial Registry Authority and annotated in the commercial register of the mortgagor.
Aircraft and vessels
The Aircraft Law No. 26 of 1976 stipulates that mortgages over aircraft may only be perfected through an official document being written and executed before the administrative authority entrusted with the registration of the aircraft. Registration of the mortgage in the aircraft register is required. The interest rate in a loan agreement secured by official mortgage over an aircraft may not exceed 12 per cent. With regard to maritime mortgages, the Maritime Commerce Law No. 8 of 1990 provides that vessels and vessels under construction may only be subject to an official mortgage, which must be registered at the designated register in the vessels’ registry.
Shares in Egyptian companies may be subject to a pledge. A share pledge is created through the conclusion of a share pledge agreement although perfection requirements for listed and unlisted shares and unlisted shares deposited with the MCDR differ.
With regard to shares that are not listed on the EGX and are not deposited with the MCDR, in order to perfect a pledge, share certificates must be transferred to the lender or a third-party custodian. The share pledge will then be annotated on the share certificates and the shareholders’ ledger.
With regard to shares that are listed on the EGX and therefore deposited with the MCDR, or unlisted shares which are deposited with the MCDR, different procedures apply, In order to create a pledge, the lender’s custodian must notify the MCDR of a share pledge in order for the MCDR to annotate said share pledge on the MCDR’s records. Consequently, the debtor may not dispose of the pledged shares.
Upon the issuance of the Pledge over Movables Law, a pledge of bank accounts has become permissible under Egyptian law. However, in order to perfect the security interests created over a pledge of bank accounts, such an interest must be recorded in the electronic register referred to above. Historically, a pledge over bank accounts has been deemed as a possessory mortgage. As a matter of practice, bank accounts and cash deposits were subject to a pledge and assignment, which is effected by virtue of a pledge and assignment agreement duly executed by the parties. The account bank must annotate the pledge in its records and must acknowledge the terms of the assignment. Such an assignment must bear a certified date in order to ensure enforceability with regard to third parties.
Claims and receivables
Claims and receivables may be assigned from the debtor (assignee) to the creditor (assignor) by virtue of an assignment agreement. In order for the assignment to be enforceable, the debtor of the assignee must either approve or be notified of the assignment. Such an assignment or approval must bear a certified date. In order to ensure the enforceability of an assignment with regard to third parties, either a notice of assignment must be served through court bailiff or the acknowledgement must bear a certified date. In relation to the assignment of rights under letters of guarantee, the beneficiary may assign its rights under the letter subject to the approval of the issuing bank as so instructed by the applicant. Such approval must bear a certified date.
Financial instruments may be pledged through an endorsement stating that purpose. The pledged financial instruments are subsequently to be delivered to the creditor.
Pursuant to the Intellectual Property Law No. 82 of 2002, trademarks, patents, designs and industrial models may be pledged by agreement of the parties. In order for the pledge to be valid, it must be annotated in the designated register. Subsequently the pledge of the trademark, patents, designs and industrial models will be published in the Journal of Trademarks, Designs and Industrial Models issued by the office of trademarks, designs and industrial models. It is worth noting that a fonds de commerce mortgage may include a pledge of a trademark, subject to the agreement of the parties.
If a bank fails to perfect the security interest, the bank will be deemed as non-secured creditor. Accordingly, all other secured creditors, whether by law or by agreement, will have a priority over the unsecured creditor. Furthermore, and after the settlement of the secured debts from the enforcement proceeds received from the sale of the secured assets, the remaining proceeds will be divided between the unsecured creditors and secured creditors, if their debts have been partially settled, pro rata to their debts to the total unsettled debts. The court may, during the bankruptcy proceedings, decide that any mortgage or pledge registered after the payment suspension date is unenforceable provided that said pledge or mortgage is registered after the lapse of 30 days from the date of the mortgage or the pledge agreement.
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