Going Portable in Phnom Penh

Up until last year, entrepreneurs in Cambodia who sought to obtain loans to expand their businesses might have found themselves coming up against a brick wall. As the country had no secured transactions law, an entrepreneur—particularly a small or medium-sized one—would likely have found himself with little to offer potential lenders in the way of collateral.

Land was acceptable as collateral—that is, if the entrepreneur was fortunate enough to own any.

Tangible movable property (such as the sewing machines of a clothing maker) was also acceptable—if the entrepreneur handed the property over to the lender. Of course, this would effectively deprive her of her business and negate the whole reason for getting a loan in the first place.

All this changed with the enactment of the country’s new Law on Secured Transactions in 2007. While Doing Business is still evaluating the impact that the new law will have on Cambodia’s score in the Legal Rights index of the Getting Credit indicator, the law looks to be a giant step forward. It creates a Filing Office within the Ministry of Commerce in which lenders can register their security interests in movable property.

This means that lenders can have more assurance to take security interests in collateral without also taking possession, as their security interests can be registered and recorded for competing creditors to see. The law also allows substantially all individuals and companies to grant and take security interests, allows collateral to be described generally, and allows security interests in an expansive range of assets, as can be seen in Article 6 of the new law. 

Where could the law go further? Court fees, attorney’s fees and other professional fees, and liquidation expenses still get paid before secured creditors in an insolvency procedure. And while parties to a security agreement can agree to out-of-court enforcement once the debtor has defaulted, they cannot do so at the time of the security agreement itself. Nevertheless, the Law on Secured Transactions seems to go a very long way in addressing some of the difficulties that entrepreneurs used to face in obtaining loans in Cambodia.