IMPORTANT DEFINITIONS AND CONCEPTS

DEFINITIONS

“Collateralized loans”– Collateral is a synonym for security provided in order to secure an obligation. Bankers ask for collateral on a loan as a measure of added security. This is to give the Bank’s claim against the enterprise a preferred position with respect to repayment if the enterprise should fail to honour the loan.

“Pledge”– This is the act of depositing property of some sort with a lender with the intention that it be held by the lender as collateral to insure repayment of the loan. When a borrower furnishes the lender collateral to strengthen a loan and provides security for its obligations under the financing extended by the lender, the borrower, is said to have pledged the collateral to the lender. In that:

• The person depositing the property with the lender, (the borrower) is referred to as the pledgor, while the person in whose favor the pledge is executed is called the pledgee (the lender).
• There can be no pledge without obligation. The pledge is the agreement which relates a certain deposit property to a certain obligation, as a result of which that property becomes collateral to that obligation.
• In order to render the pledge effective and to perfect the lien thereunder, the borrower must place the goods into the constructive possession of the lender, whether directly or where agreed, with an independent third party (such as a collateral controller acting on behalf of the Bank) under and pursuant to the legal principles of Bailment.

“Bailment” – The transfer of the possession of Goods by the owner (bailor) to another (the bailee) which shall thereafter maintain notorious, continuous and exclusive possession of all the Goods, for particular purposes such as hiring, financing, pledge of goods, and the delivery of Goods for carriage, safe custody or repair.

Notorious possession is evidenced by numerous conspicuous signs placed by ACE GLOBAL DEPOSITORY at the storage premises.; Continuous and exclusive possession is assured by the fact that ACE GLOBAL DEPOSITORY has one of its employees or agents or representatives on duty at all times when the premises are unlocked and that anyone permitted to enter the premises does so only at the will of ACE GLOBAL DEPOSITORY or with its consent.

The foregoing steps accomplish an effective change in the possession of the goods and premises. Thereafter, warehouse receipts may be issued at the borrower’s premises in respect of Goods stored therein and the constructive possession of the Goods is maintained by ACE GLOBAL DEPOSITORY for and on behalf of the Bank/Lender throughout the duration of the financing and till the goods are required to be released.

“Lien” – The right to retain possession of a property until all charges against it are paid.

Types of Liens

“Possessory Lien “-When one person holds the possession of another’s property and has to perform services upon it for which he is entitled to remuneration, the said person automatically obtains, by the general principles of law, the right to retain possession of the property until all charges against it are paid. This right is known as a lien.

• The lien does not give the creditor any rights other than that of retaining possession until the charges have been paid, (unless specifically provided by the agreement).
• However, some countries do provide a provision to creditors, or lienor, the right to sell property after a reasonable period in order to get funds with which to pay off the amount owed by the owner of the goods.

“Bank – Pledgee’s lien”- The pledge creates the collateral relationship between the deposited goods and the loan by creating a lien upon the goods in favor of the lender . A Bank-Pledgee’s lien differs from a regular lien in that when a property has been pledged specifically for the purpose of securing an obligation the creditor has the legal right, upon default of the debtor, to sell the property in order to obtain funds with which to retire the debt

“Warehouseman’s lien/ Collateral Controller’s lien” – The warehouseman/ collateral controller is automatically given a lien upon goods stored under a non-negotiable receipt for all lawful charges for the storage and preservation of the goods; and for the sale of the goods where default has been made in satisfying the warehouseman’s lien. Until his lien is satisfied the warehouseman/ collateral controller may refuse to deliver the goods. If he releases the goods he loses his lien upon them. The lien is limited to the charges arising in connection with the goods covered by a particular receipt.

“Depositor” and/or “Borrower” – The Company which deposits the commodity purchased from its own funds or through financing provided by the bank.

“Goods and/or Products” –Goods which are or shall be deposited upon execution hereof in the Storage Facilities, and which the Borrower has pledged in favour of the Bank;

“Warehouse Receipt” – A non-negotiable warehouse certificate issued by ACE GLOBAL DEPOSITORY pursuant to a relevant Collateral Control Agreement and signed by an authorized official thereof and co-signed by the storer of the warehouse constituting the Storage Facility where applicable and required, and given by notice to the Bank, which certifies:

i) the receipt into storage of a Consignment of the Goods in good order which specifies the Goods, together with the [quality where agreed to be applicable], quantity and weight thereof; and

ii) the details of the supplier and the Storage Facilities into which the Goods have been accepted; and

iii) the manner of storage of the Goods (such as in bales, drums, bags or in bulk); and confirmation that the Goods will be delivered on demand upon receipt of written release instructions from the Bank.

Depending on the transaction, the Warehouse Receipt will be adapted to fit the transaction specifics, especially for In Situ and equivalent export (if a processor is involved), and will show relevant validity and margins taken.

“Final Release” – The last release issued by the Bank, which will bring the balance Warehouse Receipt weight minus cumulated releases to nil;

“Misappropriation” – Unauthorized, fraudulent or dishonest appropriation or use, or unexpected or unforeseen or unexplained loss of the Goods under collateral management / Field Warehousing and /or monitoring and/or storage supervision by ACE GLOBAL DEPOSITORY and shall, inter alia, include the risk association with fraud, defalcation, misapplication, embezzlement, fraudulent transfer of ownership from the insured interest and dispossession thereof, except that which solely results from a governmental intervention.

“Field Warehouse” Essentially a bespoke collateral control structure created on the borrower’s premises where the borrower has his own premises being used for storage/ processing and wants to keep the inventory or store goods being financed on his own premises. The inventory serving as collateral is physically segregated from the borrower’s other inventory and is strictly supervised by a third party collateral controller appointed exclusively by the Bank in order to take possession and control, and to manage the collateral (either existing inventory or a new consignment) within the borrower’s premises.

“Bonded Warehouse” – A secured facility supervised by customs authorities, where dutiable landed imports are stored pending their re-export, or release on assessment and payment of import duties, taxes, and other charges. This may also be called a customs warehouse.

“Public Warehouse” – A warehouse operated independently by a warehouseman who has no ownership interest in the stored goods and provides his service for a set fee. Should the warehouseman own some of the goods stored, that fact must be plainly stated on any warehouse receipt covering those goods. It is much easier to establish that bailment exists when the warehouse is public.

“Terminal Warehouse” – A warehouse that is separate and distinct and consists usually of a large storage area serving a number of different businesses and is at a separate location owned and operated by an independent warehouse company. A terminal warehouse is used by businesses that require additional storage capacity since a terminal warehouse is geographically removed from the depositor’s place or business.

“Liability of the Warehouseman (acting as a storer)” – If the warehouseman as storer, does not fulfill his lawful obligation to deliver the goods he may be held liable to make payment to the depositor to reimburse him for his loss. Such a liability may arise, however, only if it can be shown that the loss or damage resulted from the negligence of him and/or his employees.

“Full Outturn Guarantee / FOG” – The insurance coverage extended to differences and shortages in quantities of any Goods under specific terms and conditions.

“Full Outturn Quality / FOQ” – The insurance coverage extended to defects and differences in quality parameters and/or specifications in any Goods under specific terms and conditions.

“In Situ” – Stocks which were not constituted under supervision of the Collateral Controller and are therefore already existing in the approved Storage Facility at the time the Collateral Controller deployed its staff to commence the operations ;

“Net Weight” – The weight (in metric tons or in any other applicable weighing standard) of a Consignment determined in terms of the Class and Grading Rules;

“Shortage and/or Defect”- Any Goods weight discrepancy and/or any defects or differences in the quality and/or specifications of the Goods which occurs between Intake and Dispatch, measured during the term of the relevant Agreement;