LEASEUROPE

Making Lease Financing more Widely Available to Developing Countries and Economies in Transition
By M. Stanford, Deputy Secretary General of Unidroit, International Institute for the Unification of Private Law - Open Forum published in LEASEUROPE inside 2

Unidroits proposed model law

As reported in LEASEUROPE inside 1, the International Institute for the Unification of Private Law (Unidroit) is currently engaged in the preparation of a model law, building on the 1988 Unidroit Convention on International Financial Leasing, designed to make leasing more widely available to developing countries and economies in transition. This initiative acknowledges the fact that there are still whole parts of the world where the message of leasing and its potential as an engine of growth have not yet got through. For instance, when, while considering the need for, and feasibility of such a project, Unidroit consulted a number of major economic stakeholders, it heard from the World Bank that there is a very serious shortfall in infrastructure financing in Africa that leasing would be particularly well suited to help with. Whilst it is clear that a legislative framework alone will not create a leasing industry in such countries, it is equally clear that the establishment of a modern legal framework for leasing is absolutely necessary if foreign investors are to feel sufficiently protected to invest in such countries. By providing a modern legislative model, Unidroit is aiming not only to provide such certainty for foreign investors but also to avoid the wheel having to be reinvented each time a country sets out on the path toward the development of a national leasing industry. This initiative was quickly welcomed by the International Finance Corporation, as a valuable contribution to its efforts to establish national leasing industries as a means of creating sustainable private sector development in its member countries, which account for the majority of the worlds developing countries, and which has worked closely with Unidroit in taking the project forward. Other major economic stakeholders, including both Leaseurope and the Equipment Leasing and Finance Association of the United States of America (E.L.F.A.), have also provided valuable input, both participating in the work of the Unidroit Advisory Board that prepared a first draft between October 2005 and April 2006. The Advisory Board included representatives from North Africa and the Middle East, sub-Saharan Africa, Asia and the Pacific region, Europe, the former Soviet Union countries, Latin America and North America and was chaired by Chief Mrs Tinuade Oyekunle (Nigeria), with Mr Ronald DeKoven, Reporter on Article 2A (Leases) of the Uniform Commercial Code (United States of America), as Reporter. Following consideration by the Unidroit Governing Council, the preliminary draft model law established by the Advisory Board was transmitted to Governments and organizations for comments in July 2006 with a view to a first session of governmental experts held, under the auspices of the Government of South Africa, in Johannesburg

from 7 to 10 May 2007. The range of Governments and Organisations submitting such comments testified to the importance attached to the project. Inspired by the opening address given by Mr J.H. de Lange, Deputy Minister of Justice and Constitutional Development of South Africa, in which he stressed the importance of the preliminary draft model law as a means of permitting developing countries to catch up with the practices of the developed world, the Committee of governmental experts in Johannesburg - which brought together experts from the Governments of Angola, Australia, Brazil, Bulgaria, Burkina Faso, Burundi, Cameroon, Chile, China, Gambia, Germany, India, Ireland, Japan, Latvia, Oman, Poland, Portugal, Qatar, Rwanda, South Africa, Sudan, Tanzania and the United States of America and was chaired by Mr I.S. Thindisa (South Africa), with Mr DeKoven again as Reporter sought at all times to ensure the establishment of a balanced instrument. This concern underlays a significant portion of the amendments it agreed to, for instance that in Article 10(1) making both the lessees and the lessors duties irrevocable and independent when the leasing agreement has been entered into, in the case of a financial lease, and allowing the lessor and the lessee to agree to make any of their duties irrevocable and independent (by specifically identifying each duty that is irrevocable and independent), in the case of a lease other than a financial lease. The preliminary draft model law focuses on the private law aspects of leasing, thus steering clear of its fiscal, accounting and supervision aspects. It applies only to commercial leases and, therefore, does not extent to consumer leases, thus focusing on the transactions judged to be most critical to economic development. The preliminary draft model law applies to an extended range of assets, in short encompassing all those categories of assets used in the trade or business of the lessee (and, in particular, plant, land, capital goods, equipment, future assets, specially manufactured assets, plants and living and unborn animals). It covers a broader range of leasing transactions than the 1988 Unidroit Convention, the idea being, while recognising that financial leasing is the most powerful engine of growth in this field, to avoid channeling the development of the industry into any particular category of transaction. Consequently, it applies to both financial leases and non-financial leases. Governmental experts will be meeting for a second reading in early 2008, after which it is intended that, subject to Governing Council approval, the resultant draft model law be laid before the Unidroit General Assembly for approval and promulgation.