Parliament to Debate Law Allowing Movable Assets as Loan Collateral

TDT | Manama

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On Tuesday, Parliament will debate a new and comprehensive draft law aimed at facilitating business loans through the use of movable assets as collateral. This bill, titled the Law on Secured Transactions, seeks to introduce a new method for businesses, especially smaller firms, to secure loans without relying solely on property-based collateral.

The proposed law, which spans 60 articles, would allow businesses to use receivables, stock, equipment, and even future crops as security for loans, without the need to hand over these assets to the lender. A key component of this law is the creation of a new electronic registry where businesses and lenders can register their claims on movable assets. This registry would make it easier for lenders to recover debts in case of borrower defaults.

In addition to facilitating lending for smaller businesses, the new law also offers solutions to improve the enforcement of security rights and the public inspection of asset claims. Lenders will be able to register their rights to movable assets, making them enforceable against other parties, including competing lenders. This provision ensures that lenders who have registered their rights first will be given priority in case multiple claims are made against the same asset.

The law is also designed to simplify cross-border transactions, outlining the rights of creditors when dealing with international agreements. It defines how security rights are created, enforced, and the obligations of borrowers and lenders involved in these transactions. Furthermore, the law ensures that the terms of these rights, such as the description of the assets and the written agreement, are clear and transparent.

Parliament's Financial and Economic Affairs Committee has already backed the bill, supporting its approval in principle. The committee has endorsed the drafted articles and chapters of the bill, including provisions on how assets — both present and future — can be used as collateral. According to Article 6, a written agreement is required for these transactions, with a detailed description of the item in question.

The new registry, as outlined in Article 7, will be accessible to the public, allowing for the inspection of registered claims. This will serve as the foundation for determining the priority of claims when multiple lenders are involved. Additionally, Article 9 addresses the ranking of payments, ensuring that tax dues and court costs take precedence over other claims.

With the backing of Parliament's committee, the law is expected to move closer to approval, offering businesses in Bahrain a modern and flexible approach to securing financing.