Financial Lease Regulations, 2013
The Regulations came into force on 25 April 2013 and were published in the Government Gazette under Legal Notice 39/2013.
The Regulations were published in terms of the Financial Institutions Act of 2012 and as such any financial leasing company will have to comply with the Regulations and the Act.
They will regulate the financial lease environment and defines a “financial lease” as:
“a contract between Lessor and Lessee, having as its main purpose the conveyance of use of an asset, with or without an option to purchase all or part of the asset, a sub-lease, a sale and lease back transaction and micro lease”.
The finance leasing company will be required to be licensed in terms of Regulation 29 read together section 27 of the Financial Institutions Act.
The Regulations provide for a provisional license, this is aimed at leasing companies already operating in Lesotho and it will allow a company to operate under such a license for a period of 24 months, thereafter it may apply for a permanent license.
Regulation 29(6) deals with the requirements for the granting of a provisional license and regulation 29(7) with the requirements for a permanent license.
These regulations will apply to a “financial lease transaction” if;
- the asset is within the territory of Lesotho; or
- the centre of main interest of a lessee is within Lesotho; or
- a lessor is located outside Lesotho and the lessee has its centre of main interest in Lesotho.
The Regulations will not apply to hire purchase agreements and the Hire Purchase Act will still apply.
Regulation 5 contains a list of all the characteristics a financial lease must contain and agreements of this sort must comply with these.
The lessor is entitled to file with the Commissioner in a “record registration system” (this term is not defined in the Regulations), certain information regarding the financial leases and these are contained in Regulation 16. This seems to offer a choice as it is not compulsory.
A further important development is that the Regulations allow the aggrieved party to give notice to a defaulting party. This is said to be in the form of an affidavit which is then filed with the Commissioner. Notice must be given and then an affidavit thereafter filed that the notice was given by enclosing a copy of the notice. The affidavit is then filed with the Commissioner and the Commissioner will then register such an affidavit. It also allows the defaulting party to contest such a notice, and that notice will also be filed in a registration system. Once this default notice is given to the defaulting party, the defaulting party will not be able to claim or get an interdict through the courts in the event the defaulting party fails to contest the affidavit.
After such a notice is given to the defaulting party, the aggrieved party; in the instance where it is the lessor, shall have a right to dispose of an asset without prejudice or without delays.
Where the Lessor has taken possession of the asset the lessee can only claim damages from the lessor unless the lessee has filed an affidavit contesting the default notice. Without such an affidavit the lessee will not be able to approach court for intervention. Unless it is a case where the lessee is not contesting the affidavit.
As with all the new regulations, it places a burden on the leasing company to comply with a set of new compliance procedures, including risk management, credit risk management, residual risk management, liquidity risk management, market risk management, operational risk management, legal risk management, reputational risk management and strategic risk management.
Another compliance issue is highlighted in Regulation 45 under the heading “Transparency” – a financial leasing company shall report on a monthly basis, to the Commissioner, financial information, including balance sheet, profit and loss statement, portfolio composition, past due accounts and delinquency, inventory of assets repossessed or returned, funding information, terms and conditions of borrowing facilities to name but a few.
For more information regarding the requirements in terms of the Financial Lease Regulations, please feel free to contact us.