The collateral manager is responsible for the physical possession and control of the funded assets and is legally responsible for their storage, security and monitoring. After receipt of the financed goods, he issues a storage receipt on the order of the lender and can only release it on the instructions of the lender. Mac Z, as the borrower, has agreed to enter into a collateral arrangement for the goods and products (the “Pledge”) in support of its obligations to Scipio under the Facility Agreement. The undertaking was subject to Moroccan law. In addition, Scipion and Mac Z have entered into a Collateral Management Agreement (CMA) with Vallis Group Limited (“Vallis”). This was regulated by English law. As part of the CMA, Vallis has agreed to act as a collateral manager and to receive, store and hold inventory and products in a warehouse in Skhirat, Morocco (the “Site”). Vallis has also agreed to issue inventory receipts and provide Scipio with reports on the total quantity and value of inventory and products at the site. These goods, “the guarantee,” can be more or less anything, but usually include metals, a wide range of commodities and, of course, petroleum products. In this article, we review two key tools available to a lender to mitigate the risks associated with inventory financing: collateral management agreements (AMAs) and inventory monitoring agreements (AMAs). “Technology can never replace your own compliance and due diligence procedures regarding your customers` knowledge. If a client intends to take you with them and not repay your investment, they will find a way, regardless of the caliber of the warranty management team on site,” Meyer explains. General Control offers warranty management services for the following products: Rusch of Bongani Consulting explains that banks often lack sufficient knowledge about physical processes in warehouses, factories or processing plants.

While collateral management agreements bring a number of benefits to a transaction, they do not highlight the potential for bad behavior: a well-formulated GAC is simply not enough. Missing or stolen inventory, corruption, fraud, defaults or food rot in silos are some of the risks that lenders and collateral managers must manage. To combat this, guarantee managers often employ managers from expatriate countries in their key locations: someone who did not grow up in the place and did not have the opportunity to establish relationships with people looking for collusion. Staff rotations are also recommended. This decision recalls the importance of abortion when it comes to ensuring the safety of stored goods. In cases where the security that Scipio should have had under the pledge agreement was not available, the success of Scipio`s action depended on its ability to prove that there was a security deposit on CMA`s terms under which Vallis had deducted from Scipio and agreed to hold the goods on Scipio`s behalf. “Where are the goods harvested? How is it transported to the silo or warehouse? All of these phases could pose a risk if you don`t know about them. “For example, if wet grain is harvested and placed in a silo, it could contaminate and rot everything,” he explains. While commodity structured bankers operating in sub-Saharan Africa have been using collateral management agreements (AMAs) in their transactions for many years, the requirements of the Basel III Regulation, which comes into force this year, increase their importance as useful risk mitigation agents. “Many warranty managers work with clients, so there is a tendency for collusion or fraud on the part of employees.

In recent years, there have been only a few cases. It`s always a risk management of millions of dollars in stock by a person who earns a meager salary in comparison. There are a lot of checks and balances that need to be maintained,” said Dheerie Govender, CEO of Global Collateral Control (GCC). In a recent judgment 1, the English Commercial Court ruled that a lender can claim damages from a guarantee administrator on the basis of its right to possession of goods, even if a foreign lien on the goods has been declared invalid. Technology cannot completely eradicate the weaknesses of human nature. Instead, it should be used in collaboration with lenders who really know who they are dealing with on the ground and at the warehouse or factory door. You are less at risk if the collateral manager you designate: Selecting the collateral management company with the best practices to combat the risk of fraud or corruption is crucial As part of an inventory monitoring agreement (SMA), an inspection company monitors the situation in the warehouse and makes it available to SMA counterparties on a daily basis. weekly or monthly inventory reports.

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