Vol 4 (2007) - Issue 6

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Secured Transactions Reform: Peru’s Slow Road to Change

Introduction

On 30 May 2006, the new law on secured transactions in Peru came into force. This statute – which was the result of approximately five years of discussion – intended to modernise and bring under one umbrella Peru’s secured transactions system. Prior to the reform, Peru’s system had remained fragmented with over 20 types ofcurity interests and 17 registries. The purpose of this article is to provide readers with an overview of some of the important factors that played a role in the passage of the law.


The new law introduced a number of important changes. First, the pool of assets that can be used as security was expanded, and important assets such as accounts receivable, changing pools of assets, future assets and inventory were allowed to be used as collateral without the need to be defined specifically in the security agreement. Secondly, the new system allowed parties to agree to extra-judicial enforcement mechanisms in their security agreements (Pacto Comisorio). Finally, any legal entity was granted the right to create security interests.

The reform in Peru follows a pattern of discussion in the region surrounding amendments to the secured transactions law. Peru was the second country in Latin America that substantially reformed its secured transactions system since the turn of the century. However, this process of reform and its implementation were beset with delays as a result of lobbying efforts by special interest groups and substantive criticisms of the law. Foreign advisors and organisations – who also had their particular vision for the new system – added another level of complexity to the process. The outcome was a statute that despite having many of the important features of an effective secured transactions law, contains serious flaws that could negate its potentially positive impact.

Reform at a glance – Peru and the region

Reforming secured transactions systems has been a live topic of discussion in Latin America for the past number of years. Many draft legislations are still under discussion, and a few have been enacted into law. From Mexico in North America, to Nicaragua, Guatemala, Honduras, and El Salvador in Central America, and Ecuador and Peru in South America, the topic of reforming secured transactions laws has been a source of serious debate. This may partially be the result of the activities of various international organisations including the Organisation of American States, the Inter-American Development Bank (IADB) and the World Bank, as well as the active involvement of a number of NGOs that have advocated for such reforms in the region. This momentum has pushed the political will forward, and in all the countries mentioned earlier, draft laws have been developed and discussed. Most of these draft legislations have been inspired by the model law of the Organisation of American States which the drafters have hoped ill satisfy the specific needs of the region. However, despite the external drive to push this type of reform forward, so far only two countries in the region – Mexico and Peru – have passed new laws that have resulted in substantive change. Mexico’s reform – which occurred in two phases in 2000 and 2003 – has struggled with deficiencies, and it appears that there is a new momentum underway to revisit the current system. Peru, on the other hand, underwent reform of its secured transactions system on 30 May 2006, when a new law came into force. Despite the message from the advocates that modifying the secured transactions system could bring substantial economic benefits to Peru, there was a strong domestic passiveness by the government and the banks to drive this type of reform forward.