Manual for the

Collateral Registry
and the Law on
Secured Transactions
1.1 What is Secured Transaction Order,2016?
1.2 What are secured transactions?
1.3 What is the collateral Registry System and why do we need it in
Brunei?
1.4 What benefit will this have on our financial systems?
1.5 What principles will this secured transactions framework be
built on?
1.6 Why will the secured transactions framework be adopting a
functional approach?
1.7 What is the Collateral Registry System and what features will it
have?
1.8 Who is the Registrar and what roles do he have?
1.9 When will the STO Commence?
1.10 Key terminologies used in this manual

2.1 What details are required in the registration of a financing

statement?
2.2 What if there has been a dispute relating to an interest in
certain collaterals?
3. Is the Collateral Registry System relevant to your line of business?

4. METHOD OF PERFECTION
5. DISPUTES
6. COLLATERAL REGISTRY SYSTEM DISCLAIMER
7. USER FEES
8. IMPORTANT TAKEAWAYS
1.1. What is the Secured Transactions Order, 2016?

The Secured Transactions Order, 2016 (“STO”) is a new legislation which

provides the framework for obtaining an interest in personal property in order
to secure an obligation. The underlying aim of the STO is to facilitate the
granting and obtaining of credit which it does by lowering the risk of giving
credit and making it cheaper and more efficient for the secured party to be
able to grant credit.

The general structure of the STO is as follows:

Material Provision STO

Reference
(section)
When does the STO apply? 2&3
How does perfection occur? 12
What is the priority of competing security interest in personal 22
property?
Special priority rules apply to certain security interests. 37 to 44
The establishment of an online electronic register of Collateral 7
The establishment of an online electronic register of collateral registry
Registry System
Rules regarding registrations of security interest. 45 to 61
Enforcement of security interest. 62 to 84
Transitional provisions 93 to 102
1.2. What are secured transactions?

The term “secured transactions” refers to credit transactions where a creditor

holds an interest in a debtor’s personal property, sometimes called movable
property, to secure a loan or a debt obligation (“collateral”). The interest in the
personal property is referred to as a “security interest”, “pledge” or “charge”.

Collateral, in the context of secured transactions, facilitates credit by reducing the

potential loss creditors face from loan defaults.
1.3. What is the Collateral Registry, the Register of Personal Property
Security and why do we need it in Brunei Darussalam?

The Collateral Registry is an office established under Section 6 STO. Its principal object is
to maintain a register of security interests in personal property where the property has
been used to secure credit facilities provided by creditors.

The creation of a register of personal property security (“Collateral Registry System”)

addresses the oft-cited credit issue that there are no modernized or effective means of
searching for prior security interests, if any, on collaterals, especially in the context of
lending to Small and Medium-size Enterprises (SMEs). SMEs’ movable assets often
account for most of their capital stock and comprise an especially large share of its
capital. Without such a register, transparency and predictability for creditors would
significantly decrease, causing an increase in the rate of non-performing loans in the
books of creditors.

The new Collateral Registry System and the secured transactions framework will counter
this problem and enable businesses to leverage their assets and obtain credit for growth.

It is important to note at this juncture however that the Collateral Registry system will
not be concerned with the legality of the security interest/transaction, but rather its
ability to display the different security interests, if any, which have been attached to a
particular collateral and to put in order the security interests if there is more than one in
accordance with its date of registration. The system will therefore be akin to that of a
noticeboard and will have two key functions, namely:

1)To notify parties about the existence of a security interest in personal property of
existing security interests, if any; and

2)To establish priority of creditors between creditors.

1.4. What benefits will this have on our financial system?

1. Diversification of assets held by financial institutions, thereby spreading

the risk;

2. Reducing concentration in the financial system, by providing banks with

profitable lending opportunities in the SME sector to increase their
financial market share;

3. Improved liquidity of assets, especially short-term assets such as accounts

receivables; and

4. Decrease in non-performing loans in the event of a default.

1.5. What principles will this secured transactions framework be built on?
1.6. Why will the secured transactions framework be adopting a
functional approach?

Adopting a functional approach to secured transactions will enable all rights in

movable assets, regardless of the type of transaction or terminology used, so
long as they are created by agreement and secure the payment or performance
of an obligation, to be covered by this framework. It is designed to put in place
a framework that limits the practice of ‘false wealth’ amongst businesses and
thus put an end to the practice of secret liens. This will in turn equip creditors
with the necessary information required before they can lend to prospective
borrowers.
1.7. What is the Collateral Registry System and what features will it have?

The Collateral Registry System shall be maintained by the Collateral Registry

pursuant to section 7 STO. It shall be fully electronic and accessible online by
the public 24 hours a day, 7 days a week. Unlike traditional registries where a
copy of the loan or security agreement is required before any registrations are
made, the Collateral Registry System shall be a notice based registry. This
means no documentation is required other than a simple generic form that
records the existence of a security interest, providing the names of the creditor
and the debtor as well
The Registrar for the Collateral Registry is a person appointed under Section 5 STO.

Unlike the conventional role of that of a registrar who would play an active part in the
actual registration, the Registrar in the case of the Collateral Registry will only be
tasked to manage the operation of the Collateral Registry System and to ensure that
the system is available for the public to conduct searches and
register/amend/discharge financing statements.

For the public to conduct a search, or register a financing statement, they will have
to firstly become a registered user. The public must bear in mind that the Collateral
Registry staff are not able to register or maintain financing statements, or conduct
searches on the register on behalf of the user.

Users are forewarned that the priority of a security interest is determined not from
the date the security agreement is signed, but rather the date the security interest
(financing statement) is registered in the Collateral Registry System. It is therefore
advised that where a security interest has been created by a security agreement, the
security interest should be registered online as soon as possible.

Once a security interest is created, the security interest will remain on the register for
a period of 10 years or the expiration of the term specified in the financing statement,
whichever is earlier.

In the event the term specified in the financing statement exceeds the 10 year or
extended period mark, the user must renew his financing statement by paying a
renewal fee. Thereupon, the financing statement shall be valid for another 10 years,
or the remainder of the term specified.

AMBD is currently looking into the possibility of waiving the renewal fee and having
the Collateral Registry System automatically renew the registration of financing
statements for security interests with a term of longer than 10 years.
1.9. When will the STO commence?

The STO will commence on a date notified in the Gazette. This date will be
aligned with the go - live date of Collateral Registry System. There will be a six
months’ transition period during which secured creditors will need to perfect
their security interests in accordance with the STO. Failure to do so by the end
of the transition period will result in the secured creditor’s security interest to
have no priority whatsoever should they wish to enforce their security interest
in the future if it is subject to another registered security interest.
1.10. Key terminologies used in this Manual

The office of the Registrar staffed by humans as opposed to

the online, electronic Collateral Registry System.
Collateral
Registry System
2.1. What details are required in the registration of a financing statement?
2.2. What if there has been a dispute relating to an interest in certain
collaterals?
This may potentially be a costly experience. You will be able to simply conduct a quick
search on the Collateral Registry System to see if any business or person has registered
a claim (security interests) in the van. If there is a security interest registered by the
finance company, you will know that if he purchases the van it will continue to be subject
to the security interest registered by the finance company.

To help you assess the level of risk involved you will be able to check on the Collateral
Registry System to see if other businesses have security interests registered against the
customer’s assets.
A customer with cash flow difficulties asks you for a payment extension or a
loan, offering a vehicle or other goods such as machinery as collateral (security)
for the loan.

You will be able to search the Collateral Registry System to see whether the customer
has already offered the same collateral to other creditors. If it turns out that there are
already other creditors who have registered their security interest in the same collateral
and the customer’s collateral is realized, the amount outstanding which are payable to
the more senior creditors will have priority over you.

You require a customer to sign a lease, hire purchase or trade agreement that
includes a retention of title (Romalpa) clause.

As these documents may create a security interest, registering the security interest in
the Collateral Registry System can give you a better chance of recovering the debt if
the customer defaults. Registering your security interest as soon as possible is
important as this can give you priority over creditors who have not registered their
security interest in the same property, or have registered later than you.
 Now imagine you are a debtor. You will also be able to search the Collateral
Registry System to check who has registered a security interest in any of your
personal property.

Any registrations in the Collateral Registry System may affect the debtor’s credit
rating or ability to raise funds, so you will want to check that the details are accurate.
For example, if you have paid off the debt owing on the car you purchased, has the
creditor (called the secured party) properly discharged (removed) the security
interest from the register within the 15 working days required for discharging a
registration on consumer goods?

If you can relate to some real life examples shown above, then registering to use the
Collateral Registry System when it goes live may be a good idea.

Payment options & fees

During the registration process you will be given the option of setting up a direct debit
facility. Alternatively, you can pay as you go using a credit card. You will only be charged
for services that you use.

Searching - You will be able to search the Collateral Registry System online with payment of a nominal fee (B$ 3.00).
It shall not be the Registrar’s role to resolve any disputes which has arisen between
secured parties, debtors or with any other interested parties regarding an interest in a
collateral. This includes disputes which relates to a debt which has been fully paid by the
debtor and the financing statement has yet to be discharged, or where a financing
statement has been registered in relation to a collateral when in truth the secured party
holds no security interest.

It is not the Registrar’s role to resolve these types of disputes.

For debtors, a demand in writing (change demand) may be served to the secured party
pursuant to section 57 STO if any of the following occurs:

a) All of his obligations under the security agreement have been completed and
there are no more future advances to be made;

b) The secured party has agreed to release part of the collateral;

c) The collateral used in the registration is not part of the collateral described
under the security agreement;

d) No security agreement exists between the parties; and

e) The security interest is extinguished in accordance with the STO.

However, in the event a secured party refuses to register a financing change statement
to discharge or amend a financing statement within 15 days of the change demand, the
debtor may then apply to the courts to issue an order amending or discharging the
registration pursuant to section 58 STO.
The Collateral Registry shall not be held responsible for the accuracy and authenticity of
the data which has been entered into its database and for any inaccuracies and
misrepresentations which may or may not be revealed as a result of any searches.

Debtors must at all times exercise due care and conduct his own due diligence to ensure
that the information is accurate.

The validity of any security agreement between the creditor and the debtor shall not fall
within the responsibility of the Collateral Registry.

7.1. The following are the fees for the PPS Register as contained in the draft
Secured Transactions Regulations:

Registration-B$10.00
Search -B$ 3.00
Discharge-Free
 If you have a security interest in personal property, which is not
excluded under section 2(2) STO, the STO applies.

A security interest includes security interests under the old law

such as charges, fixed and floating, and pledges etc. It also
includes interests which function as security interests such as
hire purchase and retention of title sales.

If you are a debtor, you do not have to do anything.

If you are a secured creditor and your security interest was

created before the commencement date of the STO, you will
need to register a notice of that security interest in the
Collateral Registry System by the end of the transition period
or you will risk losing your priority ranking should you wish to
enforce your security in the future.

What is the commencement The STO has not commenced. The commencement date will be
aligned with the go live date of the Collateral Registry System.
date of the STO and how long The transition period is six months.
is the transition period?

How much does it cost to
register a notice in the
Collateral Registry System?
There are plans to allow secured creditors with a large number of
registered security interests to register a notice before the Collateral
Registry System goes live to avoid the system crashing due to a large
number of users registering at once.
All fees will be contained in the Secured Transactions
Regulations, 2016 which is in the final stages before approval.
The fee for registration is a nominal flat rate fee. Although not
final, the fees for using the Collateral Registry System should be
as follows:
You may request the secured creditor to amend or
discharge the financing statement. If he does not respond
in 15 working days, you may go to court to obtain a court
order requiring the financing statement be amended or
discharged. The Registrar will then amend or discharge the
financing statement in accordance with the court order.
Perfection will most often occur by registration. In some
circumstances, perfection can occur by the secured party keeping
possession or by exercising control over the asset.

You may enforce your security by any means provided in your

security agreement or in the STO e.g. by private auction, public
sale, possession etc. subject to certain safeguards such as first
paying off any secured creditor ranked above you and accounting
for the balance to the debtor.

To enable credit to be given and taken cheaply and quickly by:

 enhancing certainty surrounding secured creditors'

taking security in personal property and thereby
lowering the risk of lending which makes them
more willing to lend. For example, there is certainty
in the types of personal property you are able to
take a security interest in, certainty over whose
interest has priority if there are multiple interests
in the same collateral and certainty over what
happens to your security interest in the event of a
default by the debtor (whether insolvent or not);
and
 reducing costs and inefficiencies in the process of
giving credit. For example, the Collateral Registry
System will be fully electronic, available online and
searchable by users on payment of a fee. There is
no need to wait until office hours to inspect the
register and searches can be done by the users
themselves.
The STO is designed to fix and improve the framework for
granting credit. Certain things, however, are not within the
control of legislation. For instance:

 costs of registration and enforcement are just some

of the costs involved. Other costs include Bank A's
employee costs and overhead costs which the STO
has no control over;
 decisions on whether to grant credit are based on
Bank A's risk assessment and risk appetite. Although
the STO has reduced that risk, Bank A's risk appetite
may be so low that even the reduction in the level of
risk brought about by the STO is still unpalatable for
Bank A. This may happen, for instance, if Bank A is
detrimentally affected by the global business
environment.

This is to ensure that the Collateral Registry System remains

current and to avoid temptation on the part of the secured
creditor to pad the term of his security interest to as long as
possible. For example, if the maximum term was set to 30
years, the secured creditor whose security interest lasts 7
years would be tempted to register his interest for the full 30
years to give himself the longest amount of protection. This
would be detrimental to the objective of having an
uncluttered and accurate Collateral Registry System which
would enable credit to be given and taken easily.

We are mindful of the concerns expressed on the maximum

term in the Collateral Registry System. Prudence requires us to
adhere, at least in the beginning, to global best practice.