IIt cannot be denied that the Philippine economy has been severely affected by the COVID-19 pandemic. The economic downturn was caused by the implementation of nationwide shutdowns, closure of businesses due to severe business losses and financial setbacks, rising unemployment and declining productivity rate in agriculture , services and other industries. While the Philippine government has put in place various relief measures to help all stakeholders on the road to recovery, the irreversible consequences of the pandemic have nevertheless taken their toll on many businesses.
Micro, small and medium enterprises (MSMEs) are one of the recognized drivers of the Philippine economy. As reported by the Asian Development Bank Institute (2021), MSMEs accounted for 99.5% of all enterprises and employed 63.2% of the workforce at the end of 2018. MSMEs remain the most vulnerable to external factors that influence business. climate such as public health emergencies, disasters and other natural calamities.
Now that the government is starting to ease restrictions, it has become difficult for businesses to think about ways to bounce back and move forward. One of the methods that MSMEs can perhaps consider is to avail themselves of the benefits granted under RA No. 11057, otherwise known as the Personal Property Security Act (PPSA). If the Personal Property Security Registry (PPSR) is fully established and operational – which is a prerequisite for the entry into force of the provisions of the PPSA – then these companies will have better opportunities to raise capital by obtaining loans from banks and other financial institutions. with a wider range of objects that can be pledged.
The PPSA’s Implementing Rules and Regulations (IRR) list the variety of collateral over which security may be created, namely: including finance leases and operating leases with a term of at least less than one year; b.) Equipment; c.) Inventory; d.) Deposit accounts; e.) Negotiable securities; f.) Negotiable title deeds; g.) Consumer goods; h.) Intellectual Property; i.) Livestock; j.) Fixtures, Acquisitions and Mixed Goods; or, k.) Future property or subsequently acquired assets (Sec. 2.03, IRR).
The PPSA covers all transactions of any form which secure a chattel bond, except interest in aircraft which is covered by the Civil Aviation Authority Act 2008 and interest in ships by the Mortgages on Ships Order 1978 (Sec. 4, PPSA).
These important developments under the PPSA are a departure from the old laws, giving corporate mortgagors better options on which properties to put up as collateral. Previous pledge and movable hypothec laws were clear in that they only permitted personal property as collateral that belonged in absolute ownership to the pledger or mortgagor. The old laws could not cover future properties in the same way, there was a specific requirement that personal properties be described with particularity, which description must appear in the bona fide affidavit. The same no longer controls under the PPSA because apart from removing the requirement of an AfIfdavit in good faith, the law also now expressly includes future property or property subsequently acquired among those which may be created as security provided that the security over which is “created only when the grantor acquires rights thereto or the power to encumber it” (art. 5[b]PPPA).
In addition, the PPSA also adopts an expanded definition of security as a property interest in security that secures payment or other performance of an obligation, whether or not the parties have named it as security, and regardless of either the type of asset, the status of the grantor or the secured creditor, or the nature of the obligation secured; including the right of a buyer of receivables and a lessor under an operating lease of at least one year (Art. 3[j]PPPA).
It should be noted, however, that the PPSA is designed not only to attract borrowers, but also lenders. An important development under the PPSA that appeals to both parties is the simplified framework for the creation, perfection and enforcement of security interests in personal property. The PPSA paves the way for borrowers such as MSMEs to obtain loans from banks and other financial institutions by simply entering into a written and duly signed guarantee agreement to create the security (Sec. 5[A]PPSA), which is perfected by the registration of a notice in the PPSR and by the possession of the collateral by the secured creditor if it is a tangible asset or the taking of control of it if it is intangible property such as investment property or a deposit account (s. 12, PPSA).
Personal security can be enforced by the creditor in the event of default simply by selling or disposing of the security publicly or privately. The only limitation under the PPSA is that the sale or disposition must be made in a commercially reasonable manner (Sec. 50, PPSA). Under the old rules, it was required that the foreclosure of movable property be made through a notary public in the case of a pledge, while in the case of a chattel mortgage, the sale had to be made only publicly. Thus, the procedure provided for by the PPSA is less cumbersome since the law now authorizes the sale by mutual agreement.
Although it may now be easier for lenders to enforce security under the PPSA, this does not mean that pact commissorium is now sanctioned by law. Commissariat of the Pact is the automatic appropriation by the creditor of things pledged or mortgaged (art. 2088, Civil Code). There is no automatic appropriation under the PPSA, as the law still requires the creditor to sell or alienate the property publicly or privately. Thus, while the PPSA expressly repeals s. 2088 of the Civil Code, pact commissorium remains against public order.
In particular, all the above developments are part of the State’s policy to promote economic activity by increasing access to credit at lower cost, in particular for MSMEs, by establishing a unified and modern legal framework for the securing obligations with personal property (Sec. 2, PPSA).
The PPSA aims to encourage lenders to lend to MSMEs with less risk. This, in turn, enables MSMEs to thrive, promote job opportunities and ultimately contribute to the country’s economic growth and recovery, especially after the devastating effects wrought by the coronavirus pandemic. COVID-19.
The views and opinions expressed in this article are those of the author. This article is for general informational and educational purposes only and is not offered as and does not constitute legal advice or legal advice.
Wildy L. Pahayahay is a partner at the law firms Angara Abello Concepcion Regala & Cruz (ACCRALAW), Davao Branch.