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GLOBAL PRACTICE GUIDE

Banking & FinanceBotswanaDesai Law Group

BOTSWANA

LAW AND PRACTICE: p.3Contributed by Desai Law Group

The ‘Law & Practice’ sections provide easily accessible information on navigating the legal system when conducting business in the jurisdic-tion. Leading lawyers explain local law and practice at key transactional stages and for crucial aspects of doing business.

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Law and PracticeContributed by Desai Law Group

contents1. Loan Market Panorama p.4

1.1 The Impact of Recent Economic Cycles and the Regulatory Environment p.4

1.2 The High-yield Market p.41.3 Alternative Credit Providers p.41.4 Evolution of Banking and Finance Techniques p.41.5 Recent or Expected Legal, Tax, Regulatory or

Other Developments p.5

2. authorisation p.52.1 Requirements for Authorisation to Provide

Financing to a Company p.5

3. Structuring and documentation considerations p.53.1 Restrictions on Foreign Lenders Granting

Loans p.53.2 Restrictions on Foreign Lenders Granting

Security p.53.3 Restrictions and Controls on Foreign

Currency Exchange p.53.4 Restrictions on the Borrower’s Use of Proceeds p.53.5 Agent and Trust Concepts p.53.6 Loan Transfer Mechanisms p.63.7 Debt Buy-back p.63.8 Public Acquisition Finance p.6

4. tax p.64.1 Withholding Tax p.64.2 Other Taxes, Duties, Charges or Tax

Considerations p.74.3 Usury Laws p.7

5. Guarantees and Security p.75.1 Assets Typically Available and Forms of

Security p.75.2 Floating Charges or Other Universal or

Similar Security Interests p.75.3 Downstream, Upstream and Cross-stream

Guarantees p.75.4 Restrictions on Target p.75.5 Other Restrictions p.85.6 Release of Typical Forms of Security p.85.7 Rules Governing the Priority of Competing

Security Interests p.8

6. enforcement p.96.1 Circumstances in Which a Secured Lender

Can Enforce Its Collateral p.96.2 Foreign Law and Jurisdiction p.96.3 A Judgment Given by a Foreign Court p.96.4 A Foreign Lender’s Ability to Enforce Its Rights p.9

7. Bankruptcy and insolvency p.97.1 Company Rescue or Reorganisation

Procedures Outside of Insolvency p.97.2 Impact of Insolvency Processes p.97.3 The Order Creditors Are Paid on Insolvency p.107.4 Concept of Equitable Subordination p.107.5 Risk Areas for Lenders p.10

8. Project Finance p.108.1 Introduction to Project Finance p.108.2 Overview of Public-private Partnership

Transactions p.108.3 Government Approvals, Taxes, Fees or Other

Charges p.108.4 The Responsible Government Body p.118.5 The Main Issues When Structuring Deals p.118.6 Typical Financing Sources and Structures for

Project Financings p.118.7 The Acquisition and Export of Natural

Resources p.118.8 Environmental, Health and Safety Laws p.11

9. islamic Finance p.129.1 Overview of the Development of Islamic

Finance p.129.2 Regulatory and Tax Framework for the

Provision of Islamic Finance p.129.3 Main Shari’a-compliant Products p.129.4 Claims of Sukuk Holders in Insolvency or

Restructuring Proceedings p.129.5 Recent Notable Cases p.13

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desai Law Group has a staff complement of 64 employees, 20 of whom are attorneys. The firm – founded in 2016 and designed to operate in line with the best practices of major international law firms – is located in Gaborone, Botswana, and represents leading corporates, banking and financial institutions, government parastatals and regulators and high net worth entrepreneurs. The firm’s legal professionals

have experience in various areas of banking, finance and fi-nancial services, including, but not limited to: drafting and advising on finance agreements; securitisation; financial markets law and legislation including banking regulation; asset management; asset finance; capital markets and de-rivatives; collective investment schemes; and private equity.

authorsrizwan desai is founding and managing partner at the Desai Law Group and Head of Corporate Commercial. His key practice areas are capital markets, mergers & acquisitions, banking, financial services, private equity and securities; telecommu-

nications are a further area of expertise. Rizwan has been the lead lawyer on many ground-breaking corporate transactions in Botswana and represents many blue chip companies. He is not only qualified as an attorney in Botswana, but also in New York; additionally, he is qualified as a solicitor in England and Wales and in Scotland. He is a former chairman of the Botswana Stock Exchange and Barclays Bank of Botswana.

angelica Bojosi is a partner in the Desai Law Group’s Corporate Commercial Department. Her key practice areas are capital markets, mergers and acquisitions, and banking and finance. She is not only qualified as an attorney in Botswana, but

also as a solicitor in England and Wales, where she worked as in-house counsel for a multinational organisation for a number of years.

1. Loan Market Panorama

1.1 The impact of recent economic cycles and the regulatory environmentAlthough the economy of Botswana has recovered from the effects of the global recession, economic growth rates have still not yet reached their pre-recession levels. Owing to the low levels of inflation that the country has experienced in the recent past, as part of the monetary policy framework, the Central Bank has significantly reduced interest rates in the market, with the prime lending rate declining from 11% per annum in 2010 to 6.5% currently. The low interest rate envi-ronment has, however, had minimal impact on the direction and trends of the loan market in Botswana. Additionally, growth in the lending activities of financial institutions has declined, despite the lower borrowing costs.

1.2 The High-yield MarketThe profitability of the banking sector has experienced de-clining growth rates in the recent past, as a result of a com-bination of narrowing interest margins and an increase in operating expenses. These structural changes have, however, had minimal impact on financing terms and structures. As an example, the bulk of financing from banks is still dispro-portionately skewed towards the household sector, as com-pared to the corporate and public sectors. Some banks have significantly increased limits placed on unsecured lending, however. There is also some gravitation towards longer-term

financing, unlike previously, where banks mostly preferred advancing loans on relatively shorter terms.

1.3 alternative credit ProvidersThere has been growth in alternative credit providers, par-ticularly within the non-bank financial sector. These include statutory financial institutions and asset managers, acting on behalf of pension funds and insurance companies, who decide to place more funds in the economy to comply with the Non-Bank Financial Institutions Regulatory Authority (NBFIRA) regulations on funds invested offshore. Currently, asset managers are allowed to invest only up to 70% of the funds under management offshore. As a result, pension and insurance funds are availing more funds for investment in infrastructure development projects, corporate lending and private equity. As indicated in 1.2 The High-yield Market, however, there have been minimal changes with respect to financing terms and structures.

The bond market has also experienced some level of activity, although the sector is still relatively subdued when compared to the equity market. There has been significant growth in micro lenders, on the other hand, who mainly target small enterprises and the consumer market.

1.4 evolution of Banking and Finance techniquesDue to subdued domestic demand, the economy has experi-enced low levels of inflation, leading to a decline in interest rates over the last couple of years. In turn, banks have had

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to adjust their strategies to provide finance to various sec-tors, while still being mindful of risk. Banks have introduced more technologies, such as online banking, which cater for the retail and corporate sectors. In addition, commercial banks have launched products with enhanced security fea-tures and improved functionality (for example, chip-based debit cards and security-enhanced cheque books). Total advances-to-deposits ratios have also increased steadily over the last couple of years, as a result of a liquidity crunch within the banking sector.

1.5 recent or expected Legal, tax, regulatory or Other developmentsNo legal, tax or other regulatory developments are expect-ed to impact the loan market significantly, apart from the amendment of the Non-Bank Financial Institutions Regula-tory Authority Act of 2016 (NBFIRA Act, CAP 46:08), which is aimed at bringing the regulatory and supervisory structure of non-bank financial institutions in line with international standards. This includes ensuring that all non-bank finan-cial institutions are subject to NBFIRA, particularly in con-sideration of the fact that some previously posed a serious financial risk to the economy. In addition, the Act provides for NBFIRA to be self-reliant in terms of funding, and thus ensures the regulatory authority’s independence from the government.

2. authorisation

2.1 requirements for authorisation to Provide Financing to a companyA bank is required to be licensed in terms of the Banking Act (CAP 46:04) in order to provide banking services. An applicant for a banking licence must be incorporated as a company limited by shares. Furthermore, the Bank of Bot-swana imposes other requirements, in relation to being a fit and proper recipient of a banking licence, which include, but are not limited to, compliance in relation to capital adequacy and the operating model.

The central bank is conferred with the power to set or de-termine different minimum prudential requirements for different classes of banks and shall impose such restrictions as it may deem necessary on the business structures, opera-tions and banking services to be provided by any such class of banks. The minimum required capital for commercial banks is currently the greater of BWP5 million or 15% of the risk-weighted assets and other risk-weighted exposures of the bank.

An application for a banking licence is made in writing to the Bank of Botswana and must be accompanied by certified copies of the applicant’s certificate of incorporation in Bot-swana, the constitution of the company, any other relevant corporate documents, financial documents and data, as well as the prescribed application fee. Before issuing the licence,

the central bank may request supplementary information. The Bank of Botswana is further empowered to conduct any investigations it may deem necessary for the purpose of ascertaining compliance with all applicable laws and regula-tions.

Non-banks – particularly micro lenders, finance and leasing companies that are not licensed banks – are licensed under the NBFIRA Act. An application for a licence under the NB-FIRA Act depends on the proposed line of business of the applicant. An application is made to the regulatory author-ity in the prescribed form, accompanied by the prescribed documents, statements and fees. The regulatory authority may still require the applicant to provide further information in connection with the application where necessary.

In addition, there are statutory financing institutions, which obtain the mandate to provide financing from their found-ing legislation.

3. Structuring and documentation considerations3.1 restrictions on Foreign Lenders Granting LoansForeign lenders are not restricted in granting loans.

3.2 restrictions on Foreign Lenders Granting SecurityThere are no impediments on the granting of security or guarantees to foreign lenders.

3.3 restrictions and controls on Foreign currency exchangeRestrictions and controls regarding foreign currency ex-change apply in relation to engaging in the business of for-eign exchange. A business must be licensed under the Bank of Botswana Act to transact in foreign exchange.

3.4 restrictions on the Borrower’s Use of ProceedsThere are no legal restrictions on the use of proceeds from loans or debt securities. However, a lender may impose cer-tain restrictions in a contract concluded with a borrower in relation to the borrower’s use of proceeds from a loan.

3.5 agent and trust conceptsThe agent and trust concepts are recognised in Botswana. Although it is possible for an agent or trustee to enforce loan documentation, the same cannot be said in relation to en-forcement of security. The Deeds Registry Act (CAP 32:02) prevents the registration of a bond in favour of any person as the agent of a principal. This provision effectively makes it impossible to pass security in the form of a mortgage bond over immovable property, or notarial bonds to a security trustee. In terms of common law, other types of security, such as a pledge or cession in security, require the presence

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of an underlying legally valid and primary obligation owed by the grantor of the security to the recipient. A security trustee would, therefore, lack this nexus with the grantor of the security.

On the other hand, the Companies Act (CAP 42:02), which came into effect after the Deeds Registry Act, specifically permits the issue of debentures and the provision of security for repayment of debentures by way of a mortgage bond, and the holding of that security by a trustee for debenture holders. The definition of “debenture” in the Companies Act includes, inter alia, a written acknowledgement of indebted-ness issued by a company in respect of a loan made or to be made to it and is wide enough to cover profit finance facility agreements. On the basis that later legislation can be inter-preted to amend earlier legislation, use of the provisions of the Companies Act may allow a corporate entity trustee to hold security. The provision does not, however, extend to a corporate entity agent.

A security SPV can be utilised as an alternative to a trust structure. The structure allows for the transfer of security to an SPV, which would then issue guarantees and indemni-ties to the various lenders on the basis that such claims be limited to the value of the security held and the particular lender’s relative exposure to the borrower from time to time. The SPV’s obligation to the lender is in turn guaranteed and indemnified by the borrower. The SPV is usually managed by one of the members of the lending group or consortium, as the case may be. The security SPV structure has not been tested in the courts of Botswana.

3.6 Loan transfer MechanismsThe most common loan transfer mechanisms are novation, assignment and sub-participation. Under novation, the ex-isting agreement between the original lender and the bor-rower is dissolved and replaced by a new agreement. The loan agreement should include the form of transfer certifi-cate used to effect the novation and a provision stating that the borrower has no objection to the original lender selling his or her interest in the loan agreement to a new lender. If the loan is secured, the security is discharged and needs to be renewed each time a novation is executed, which may adversely affect the priority of the security.

Another mechanism that may be utilised is assignment, which involves the transfer of the rights of the lender to an-other party, while retaining the obligations under the loan agreement. The process does not require the registration of new security because the original lender retains his or her obligations under the agreement.

Under sub-participation, an existing lender enters into a sub-participation agreement with a sub-participant on the same terms as the contract between the existing lender and the borrower. The existing lender effectively becomes an in-termediary between the borrower and the sub-participant.

There is, therefore, no transfer of existing rights and the bor-rower need not be aware of the sub-participation arrange-ment.

3.7 debt Buy-backThere are no restrictions on debt buy-back by the borrower, except as may be provided by the contractual undertakings of the parties.

3.8 Public acquisition FinanceBotswana is yet to develop regulations relating to takeovers. The Botswana Stock Exchange (BSE) defers to the South African Takeover Regulations (now contained in the South African Companies Regulations 2011) for guidance in rela-tion to takeovers. The relevant regulation in this regard is Regulation 111(4) of the South African Takeover Regula-tions. When applied in Botswana, it is required that when an offer is wholly or partly in cash, the offer circular must include:

(a) an irrevocable unconditional guarantee issued by a reg-istered bank; or

(b) irrevocable unconditional confirmation from a third party that sufficient cash is held in escrow,

in favour of the holders of relevant securities, for the sole purpose of fully satisfying the cash-offer commitments. A copy of the above documentation must be provided to the BSE.

These regulations only apply in relation to listed entities engaged in a takeover and are therefore not standard provi-sions you would typically find in other acquisition finance transactions.

There is no standard form of documentation for these types of transactions. However, short-form documentation is commonly used. The documentation would be filed at the company’s transfer office and would be available for all in-terested parties to view.

4. tax

4.1 withholding taxThe current withholding tax rates applicable to interest pay-ments are 10% for residents and 15% for non-residents.

Withholding tax is not applicable in relation to payments of interest to an International Financial Services Centre Com-pany, a banking company or a financial institution receiving such interest in its ordinary course of business.

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4.2 Other taxes, duties, charges or tax considerationsThe only other tax consideration is corporate tax, which is levied on income generated in Botswana at a rate of 22%.

4.3 Usury LawsBotswana does not have a law on usury or any other rules limiting the amount of interest that can be charged.

5. Guarantees and Security

5.1 assets typically available and Forms of SecurityA wide range of assets may be used as collateral to lenders, including immovable and movable property, intangible as-sets such as shares, receivables, and cash held in bank ac-counts, stock in trade, machinery, etc.

Immovable property, which may comprise freehold land and land held by way of long-term lease (exceeding ten years) which is registered in the Deeds Registry, including all the improvements made thereon, can be secured by way of a mortgage bond, which grants a real right of security in the insolvency/bankruptcy of the borrower. A mortgage bond is perfected by registration with the Registrar of Deeds, must be prepared by a conveyancer and is subject to prescribed conveyancing fees.

Movable property and receivables may be secured by a gen-eral notarial bond, a deed of hypothecation in terms of the Hypothecation Act (CAP 46:01), or a pledge.

A general notarial bond is a mortgage by a borrower of all its tangible movable property in favour of a lender, as security for a debt or other obligation. The main shortcoming of a general notarial bond is that it does not (in the absence of at-tachment of the property before insolvency) make the lender a secured creditor of the borrower. Instead, a general notarial bond only provides the creditor with limited statutory pref-erence above the claims of concurrent creditors in respect of the free residue of the debtor’s estate on insolvency. A general notarial bond must be registered with the Deeds Registry. Furthermore, it must be prepared by a notary public and is subject to prescribed notarial fees.

A deed of hypothecation is a form of statutory pledge and must be effected in the form prescribed by the Hypotheca-tion Act. The deed of hypothecation must be prepared by a notary or conveyancer and must be registered at the Deeds Registry in order to be effective. To be able to use the deed of hypothecation, a lender must be an authorised creditor. Application is made to the Minister of Finance and Eco-nomic Development for the lender to be designated as an authorised creditor, the approval of which is published in the Government Gazette. The deed of hypothecation is subject to prescribed notarial fees.

A pledge is a charge or mortgage over movable property given by a borrower in favour of a lender. For a pledge to be valid and effective, the pledged movable must be transferred to, and controlled by, the lender. There are no registration requirements for a pledge.

IP, receivables, cash in bank and other rights may be secured by way of a cession over such assets in the creditor’s favour. Botswana law recognises two types of cession, an out-and-out cession and a cession in security (cession in securitatem debiti). In terms of an out-and-out cession, title to the prop-erty is transferred to the cessionary (chargor), subject to the cedant’s right to have the property transferred back to it by the cessionary once the debt owed to the cessionary has been discharged. The cession does not require registration and is not subject to conveyancing or notarial fees.

Under a cession in securitatem debiti, on the other hand, the title to the property remains with the cedant and the cession-ary would not be free to collect the receivables in the absence of default by the cedant. A cession in securitatem debiti that is granted in respect of receivables (book debts, rentals, etc) does not require registration and does require delivery for its perfection. Such delivery has in case law been interpreted to mean delivery of documents evidencing the debt.

5.2 Floating charges or Other Universal or Similar Security interestsThe laws of Botswana recognise a universal or similar secu-rity interest over all present or future assets of a company. This can be done in the form of a general notarial bond or a deed of hypothecation.

5.3 downstream, Upstream and cross-stream GuaranteesIt is possible to give downstream, upstream and cross-stream guarantees in Botswana, subject to restrictions relating to the provision of assistance by the company for the acquisition of its shares.

5.4 restrictions on targetA target company is permitted to provide guarantees or se-curity for the acquisition of its shares, provided that it com-plies with the provisions of the Companies Act in relation to provision of financial assistance. In terms of Section 76(2) of the Companies Act, a company may give financial assistance for the purpose of, or in connection with, the acquisition of its own shares only if the board has previously resolved that giving the assistance is in the interests of the company, the terms and conditions on which the assistance is given are fair and reasonable to the company and to any shareholders not receiving that assistance, and immediately after giving the assistance, the company is able to satisfy the solvency test.

Further, if the amount of any financial assistance approved by the board together with the amount of any other finan-cial assistance given by the company that is still outstanding

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exceeds 10% of the company’s stated capital, the company shall not give the assistance, unless it first obtains from its auditor or, if it does not have an auditor, from a person quali-fied to act as its auditor, a certificate confirming that the person has inquired into the state of affairs of the company and is not aware of anything to indicate that the opinion of the board in relation to the provision of financial assistance is unreasonable.

The Companies Act considers financial assistance to include “giving a loan or guarantee, or the provision of security.”

5.5 Other restrictionsThere are no statutory restrictions, save for those set out in the Companies Act in relation to financial assistance, as out-lined above in 5.4 restrictions on target.

5.6 release of typical Forms of Securityin the case of the Secured creditorIn terms of mortgage bonds and general notarial bonds, the secured creditor must obtain a court order directing the sheriff of the High Court to attach the relevant property. The secured creditor can then obtain a sale of the attached assets and apply the proceeds of the sale towards discharging the principal obligation.

With respect to a pledge, the pledgee realises his or her se-curity by obtaining a court order authorising the sale and execution of the secured asset.

To realise the security in the form of a deed of hypotheca-tion, the secured creditor files a statement with the Registrar of the High Court, as outlined in the Hypothecation Act, setting out the breach and describing the pledged asset(s), to which statement he or she must attach the deed of hypoth-ecation. A copy of the statement must be sent to the debtor by registered post. Once filed with the Registrar of the High Court, the statement has the effect of a civil judgment. A notice is thereafter issued to the debtor notifying him or her that a writ of execution is to be issued by the court unless he or she can demonstrate that he or she is not in breach. Following the expiry of 14 days after the lodging of the state-ment, a writ of execution may be issued, unless the debtor has demonstrated that he/she is not in breach.

A cession in securitatem debiti requires a court order au-thorising the realisation of the security.

in the case of the debtorA debtor with a bond or a deed of hypothecation with a bank or financial institution who has settled their loan in full, would need to inform the bank to release the security documents to its lawyers for the cancellation process. If the debtor wants to sell the property and there is an unsettled balance to be paid on the property, then the buyer’s bank will provide an undertaking to the seller’s bank that the balance will be settled. Once the undertaking is received, the bank

will release the security documents to the lawyers handling the transfer.

To cancel the mortgage bond, the following documents must be lodged with the Deeds Registry office:

•a board resolution of the mortgagor authorising its direc-tors to sign a consent for the cancellation of the mortgage bond;

•a consent letter from the mortgagor authorising cancella-tion of the security;

•the title deed relating to the mortgaged property; and •the security document which will be endorsed as cancelled.

In relation to cancellation of a deed of hypothecation, the following documents must be lodged with the Deeds Reg-istry office:

•a board resolution of the authorised creditor authorising its directors to sign a consent for the cancellation of the deed of hypothecation;

•a consent letter from the authorised creditor to the hy-pothecator consenting to the cancellation of the deed of hypothecation and instructing a conveyancer to effect the cancellation;

•a letter from the conveyancer to the Deeds Registry office instructing them to cancel the deed of hypothecation;

•the original deed of hypothecation which will be endorsed as cancelled.

A pledge or cession is not registered in the Deeds Registry office. This type of security is generally released once the principal obligation of the borrower is discharged. Any fur-ther formalities will be dependent on the contractual agree-ment between the parties to the security documents.

5.7 rules Governing the Priority of competing Security interestsWhere the registration of securities is a requirement, priority is given to the first registered security, or otherwise to the first effected security, unless the security was subsequently subordinated. Deeds of subordination are commonly used and there are no restrictions on contractually varying the priority of security interests. Contractual subordination pro-visions do not survive the insolvency of a borrower, how-ever. Insolvency in Botswana is regulated by the Companies Act and the Insolvency Act, which prescribes the order of preference of creditors. Any subordination provisions that are contrary to the regulations will not be upheld unless the creditors whose rights will be affected by the subordination provisions agree.

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6. enforcement

6.1 circumstances in which a Secured Lender can enforce its collateralIn terms of Botswana laws, outside the context of insolvency proceedings, all real security must be enforced through the courts. The court must be approached for an order author-ising the attachment and sale (usually by public auction) of the security interests. The proceeds of the sale may then be utilised towards discharging the debt or existing obligation. Botswana laws do not recognise self-help or parate executie as a way of enforcing security interests, unless this was spe-cifically agreed by the parties.

6.2 Foreign Law and JurisdictionThe courts of Botswana will uphold choice of foreign law, jurisdiction and waiver of immunity clauses in contracts. However, where the law of a foreign jurisdiction is chosen, the court will require expert evidence on the foreign law to be applied. In the event that no expert evidence is adduced before the court as to the effect of the foreign law, the court will determine the dispute between the parties in terms of Botswana law.

6.3 a Judgment Given by a Foreign courtBotswana courts will, in general, accept and enforce a judg-ment of a foreign court through a registration process un-der the Judgments (International Enforcement) Act (CAP 11:04). The Judgments (International Enforcement) Act extends to countries that are recognised by the president though a statutory instrument. Section 4(1) provides that the Act extends to every country to which the United Kingdom Judgments Act applied immediately before the commence-ment of the Judgments Act in Botswana (in 1981).

Under the Judgments (International Enforcement) Act, reg-istration by the court is subject to the following conditions:

•the foreign court that issued the judgment must be the su-perior court of the relevant country;

•the judgment must be final and must be for a sum of mon-ey;

•substantial reciprocity must exist between the country in which the judgment was pronounced and Botswana;

•the judgment must not have been obtained through fraud-ulent means; and

•the judgment must not be contrary to Botswana’s public policy.

Additionally, certain minimum standards must be complied with, such as the impartiality of the court, reasonable notice and opportunity having been afforded to the affected per-sons to defend the action.

The enforcement of foreign judgments through the process of registration under the Foreign Judgments (International Enforcement) Act has been found to be not very effective,

however (due to administrative inefficiencies of the court). Botswana courts recognise a common law system whereby the enforcement of foreign judgments is carried out by way of a fresh action instituted through provisional sentence or summary judgment.

Where the judgment emanates from a country that does not have the necessary reciprocity arrangement with Botswana, the judgment can be enforced through an original action by way of summons, with the judgment as the cause of action.

In relation to foreign arbitral awards, Botswana is a party to the New York Convention on the Recognition and Enforce-ment of Foreign Arbitral Awards, and, to this effect, it has passed the Foreign Arbitral Awards Act (CAP 06:02). The Act provides that an arbitral award made in any country that is a party to the Convention shall be binding and may be enforced in Botswana in accordance with the Convention and in such a manner as an award may be enforced under the provisions of the Arbitration Act. This means that on ap-plication to the High Court, a foreign arbitral award, as is the case with a local award, may be made an order of the court.

6.4 a Foreign Lender’s ability to enforce its rightsThere are no other matters besides those already discussed that might affect a foreign lender’s ability to enforce its rights.

7. Bankruptcy and insolvency

7.1 company rescue or reorganisation Procedures Outside of insolvencyCompany rescue or reorganisation outside insolvency pro-ceedings includes judicial management and compromise agreements with creditors. Judicial management commences with an application being made to the High Court, which will place the company under judicial management if it is of the view that, notwithstanding any present inability of the company to meet its obligations, or the existence of any other fact or circumstance alleged in the application, there is a reasonable probability that if the company is placed un-der judicial management, it will be enabled to meet such obligations and to remove the occasion for liquidation or dissolution.

In terms of the Companies Act, the board, a liquidator or creditor of a company may propose a compromise if the per-son or entity has reason to believe that the company is, or will be, unable to pay its debts. A company may enter into a compromise agreement or arrangement with its creditors, and provided that this is accepted by at least 75% of the vot-ing creditors or class of creditors to whom the compromise is proposed, the compromise will be binding.

7.2 impact of insolvency ProcessesOnce winding-up or judicial management proceedings have commenced, a secured creditor cannot commence enforce-

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ment or attachment proceedings and a creditor holding movable or immovable property as security cannot realise that security itself, but must deliver it to the liquidator for realisation. Secured creditors are paid before other creditors and will be paid in respect of the realisation proceeds of the sale of the asset that is the subject of the security, after the deduction of liquidation costs. The creditor is responsible for those costs, which represent the costs of maintaining, con-serving and realising the property. Where secured creditors have security over the same asset, the creditor granted secu-rity earlier has a higher-ranking claim in respect of that asset. Secured creditors include holders of a mortgage bond, deed of hypothecation, cession in security and pledge. A notarial bond does not afford secured creditor status, but merely a preference in respect of the free residue.

7.3 The Order creditors are Paid on insolvencyAfter the payment of the liquidation costs, the order of pref-erence in which creditors rank is as follows. First to be paid are secured creditors, who are paid from the proceeds of the sale of the secured assets. Where a secured creditor’s claim is not secured in full, the unpaid balance is treated as a concur-rent claim. Next to be paid are preference creditors, who do not hold security for their claim, but rank above the claims of concurrent creditors. Preference creditors are paid from the proceeds of unencumbered assets in a pre-determined order. Among preference creditors are company employees and the Botswana Unified Revenue Service. Finally, concur-rent creditors may be paid from the free residue, if any, from unencumbered assets. Concurrent creditors are paid in pro-portion to the amounts owed to them.

7.4 concept of equitable SubordinationThere is no concept of equitable subordination in Botswana.

7.5 risk areas for LendersThe main risk area for lenders if a borrower, security pro-vider or guarantor becomes insolvent is that the security may be realised at a value that is not sufficient to cover the whole amount of the debt or principal obligation. Addition-ally, competing security interests may arise, where the same security is passed in favour of more than one creditor.

8. Project Finance

8.1 introduction to Project FinanceProject finance in Botswana is mainly associated with the development of commercial properties, infrastructure, and the mining and energy sectors, particularly in relation to coal mining and electricity generation projects. Some of the major projects that have been undertaken in the recent past include the Morupule B Power Plant, the Academic Hos-pital at the University of Botswana, the Kazungula Bridge project, roads and infrastructure projects, as well as the new central business district in Gaborone. There is no legislation

that specifically regulates the project finance sector in the country.

8.2 Overview of Public-private Partnership transactionsThe government of Botswana adopted a Public Private Part-nerships (PPP) Policy and Implementation Framework in 2009. The policy is based on National Development Plan 9, through which the government announced that PPP would be used extensively as a form of procuring and financing infrastructure projects in the public sector, with the goal of ensuring sustainable investment in infrastructure and building strong public finances. The PPP Policy considers PPP to be a specialised form of procurement; albeit one that involves a detailed procurement process and substantial fi-nancial commitment on the part of the government over a longer timeframe. The procurement process is therefore regulated in terms of the Public Procurement and Asset Dis-posal (PPAD) Act (CAP 42:08). Greenfield and brownfield projects are permitted depending on the acquisition of the requisite ministerial or governmental authorisation.

The main objective of the PPAD Act is to regulate the pro-cess of awarding tenders for the delivery of works, services and supply-related services to central government and any other institutions specified under the Act. Furthermore, the Act provides for the registration and grading of contractors who wish to do business with the government, which is in-tended to ensure that projects are prudentially managed in order to obtain value for money in the procurement and disposal of government assets. Through the Act, contactors are classified in terms of their capacity to undertake differ-ent types of contracts, which places some restrictions on the eligibility of contractors to tender for government contracts. The main challenge in relation to the PPAD Act is the slow turnaround times in obtaining relevant approvals and the consequent delays and cost overruns associated with most government projects.

Some of the projects constructed through the PPP Model include the Office of the Ombudsman and Land Tribunal, as well as the Southern African Development Community (SADC) Headquarters. A PPP Unit has also been established in the Ministry of Finance and Economic Development to co-ordinate the implementation of PPP.

8.3 Government approvals, taxes, Fees or Other chargesNo government approval is required in relation to the fi-nancing of a project unless the project involves some form of public procurement or financing, which is regulated under the PPAD Act as outlined above in 8.2 Overview of Public-private Partnership transactions. Development projects are, however, expected to comply with building control laws and, where applicable, environmental laws. Building control laws require that development projects and plans should be approved by the relevant local authorities, while the Envi-

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ronmental Assessment Act (CAP 65:07) and the regulations thereto outline which projects requirean environmental im-pact assessment (EIA) before the project or activity may be undertaken. Taxes are payable on any income generated by the project within the borders of Botswana.

8.4 The responsible Government BodyThe oil, power and mining sectors fall under the care of the Ministry of Mineral Resources, Green Technology and En-ergy Security. The ministry is divided into different depart-ments, with oil and power being the responsibility of the Department of Energy, and mining being the responsibility of the Department of Mines. The Botswana Power Corpora-tion (BPC) has been established for the purpose of generat-ing and supplying electricity.

Botswana does not currently produce any oil or gas prod-ucts. There is, however, a Petroleum (Exploration and Pro-duction) Act (CAP 67:01) which makes provision for the exploration and exploitation (in the event that there is a discovery) of petroleum resources.

Power is regulated under the Electricity Supply Act (CAP 73:01). Regulations promulgated under the Electricity Supply Act are Electricity (Supply) Regulations, 1988 and Electricity Supply (Licensing) Regulations, 1993. The BPC is regulated under the Botswana Power Corporation Act (CAP 74:01).

The key legislation relating to the mining sector is firstly, the Mines and Minerals Act (CAP 66:01) and secondly, the Mines, Quarries, Works and Machinery Act (CAP 44:02). Regulations under the Mines and Minerals Act include:

•Mines and Minerals (Demarcation of Mining Lease Areas) Regulation;

•Mines and Minerals (Health, Mortality and Labour Re-turns) Regulations;

•Mines and Minerals (Prospecting and Leasing Charges) Regulations; and

•Mines and Minerals (Restriction of Prospecting Activity for Coal) Order.

8.5 The Main issues when Structuring dealsSector ministries are primarily responsible for the initiation of projects within their sectors. However, a PPP Unit has been established in the Ministry of Finance and Economic Development, which has been tasked with the overall co-ordination of the implementation of PPP projects, project planning, approval of financing and processes of PPP pro-jects. The government has a history of owning most of the infrastructure developments, and PPPs are fairly new in Botswana. The government has, in the past, mostly been inclined towards normal procurement of works.

8.6 typical Financing Sources and Structures for Project FinancingsFinancing sources may include:

•commercial banks (whether local, international, or both);•the Botswana Development Corporation – a development

finance institution founded by the government of Bot-swana (as its sole shareholder) which provides both debt and equity financing in all sectors of the economy, except large-scale mining;

•the National Development Bank – a development finance institution established under the National Development Bank Act (CAP 74:05) which funds individuals (Botswana citizens) and companies registered in Botswana within the agriculture, property, education, retail, commerce and in-dustry sectors;

•the Citizen Entrepreneurial Development Agency – a company established by the government of Botswana to provide financial and technical support for citizen-owned businesses;

•Regional and international development banks such as the African Development Bank and the World Bank; and

•Grants and loans from other governments – for example, the Kazungula Bridge project referred to in 8.1 introduc-tion to Project Finance above, has been financed by the Japanese International Cooperation Agency (JICA) and an EU – Africa Infrastructure Trust Fund grant (the African Development Bank being the third financier).

8.7 The acquisition and export of natural resourcesThe main issues that need to be considered when structuring a project finance deal include the purpose of the project, the availability of funding, the parties involved and, particularly, the availability of the project offtaker. The most common structure of the project company is an SPV, which is usually established as a limited liability company. Funding is usually in the form of a combination of debt and equity. Depending on the objectives, the common project finance structure is the engineering, procurement, construction (EPC) contract. There are no restrictions on foreign investment in project finance, and there are no relevant treaties.

The acquisition and exportation of most natural resources requires a permit or licence from the relevant authorities. As an example, a rough diamond export permit must be obtained from the Ministry of Mineral Resources, Green Technology and Energy Security to allow non-producing diamond-dealing companies to export rough diamonds to other countries.

8.8 environmental, Health and Safety LawsVarious environmental, health and safety laws apply to pro-jects. The Environmental Assessment Act and its regulations specify situations where an EIA must be carried out before any project or activity may be undertaken. The Department of Environmental Affairs in the Ministry of Environment,

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Wildlife and Tourism is mandated to ensure compliance with the Act in that regard.

The Factories Act provides for the regulation of conditions of employment in relation to the safety, health and welfare of workers, and makes provision for the safety and inspection of plants and machinery. The Act applies to various work environments, such as places where there is construction, reconstruction or repairs of locomotives or vehicles; where mechanical power is used in connection with sewage works; where solids, liquids or gases, or any combination thereof, are made, altered, repaired, ornamented, finished, cleaned, washed, broken up, demolished or adapted for sale; where persons are employed in connection with the generation of electricity or supply of water, or any railway line or sid-ing used in connection with or for the purpose of a factory; where any railway line or siding is being constructed, and the construction, structural alteration or repair (including repainting) or the demolition of any tunnel, bridge, viaduct, waterworks, reservoir, pipeline, aqueduct, sewer, sewage works, or gas holder; or where there is some hoisting and lifting in non-factory premises, other than private dwellings.

The Department of Occupational Health and Safety in the Ministry of Labour and Social Security is mandated to over-see the implementation of the requirements of the Factories Act and, among other things, the department is tasked with assessing the suitability of designs of factories, the registra-tion of factories, the inspection of factories and other places of work, as well as the registration and inspection of plants and machinery.

The Mines, Quarries, Works and Machinery Act (CAP 44:02) provides for the safety, health and welfare of persons engaged in prospecting, mining and quarrying operations, including any works that are part of, and ancillary to, the aforementioned operations. The Department of Mines in the Ministry of Mineral Resources, Green Technology and Energy Security is responsible for enforcing the provisions of the Act.

9. islamic Finance

9.1 Overview of the development of islamic FinanceThe Islamic finance industry in Botswana is relatively new and quite underdeveloped, which is due to a number of fac-tors, including a small Muslim population and a general lack of understanding of Shari’a-compliant banking and finance principles amongst the general public. This lack of under-standing of Islamic finance products causes some people to regard them with a certain degree of scepticism and opt to use more familiar, conventionalbanking products for their finance solutions.

There are no government policies dealing particularly with Islamic finance products or the development of the Islamic finance industry. Islamic finance products are, however, reg-ulated in Botswana in much the same way as conventional banking products (and along the same guidelines). The Bank of Botswana and the Non-Bank Financial Institutions Reg-ulatory Authority (NBFIRA) are the regulators of banking and insurance products in Botswana and they engage with entities wishing to introduce Islamic finance products to the market, to ensure that these products are compliant with the prevalent local standards.

9.2 regulatory and tax Framework for the Provision of islamic FinanceThe Banking Act (CAP 46:04) provides for the licensing, control and regulation of banks. It is the practice that infor-mation relating to any products offered by a bank licensed by the Bank of Botswana is provided to the Bank of Botswana. Additionally, in terms of the NBFIRA Act (CAP 46:08), all non-bank financial institutions are regulated by NBFIRA; accordingly, practices such as takaful insurance are regulated by NBFIRA.

No tax framework is specifically targeted at Islamic banking. Value Added Tax (VAT) does, however, apply to the purchase of a vehicle or asset from a VAT-registered service provider in Botswana. Furthermore, in terms of the Income Tax Act (CAP 52:01), all income that is generated by a company in Botswana, including from Islamic finance products, is tax-able.

9.3 Main Shari’a-compliant ProductsDue to the low levels of interest in Islamic finance in Bot-swana, there are only two local institutions which offer their clients limited Islamic finance solutions, First National Bank Botswana (FNBB) and Botswana Life Insurance Limited (BLIL). FNBB’s product offering is limited to vehicle and asset finance, and BLIL provides Shari’a-compliant insur-ance products.

FNBB and BLIL are still testing the Botswana market to determine whether there is scope for the introduction of a more comprehensive Islamic finance offering. Outside these institutions, there has been little interest from local banks and financial institutions in the development of Botswana’s fledgling Islamic finance industry.

9.4 claims of Sukuk Holders in insolvency or restructuring ProceedingsIn Botswana, claims in insolvency proceedings are dealt with in accordance with the Insolvency Act CAP 42:02.

According to the Insolvency Act, after the payment of certain expenses, the proceeds of the estate are paid out to secured creditors first. A secured creditor is one who holds security for his or her claim in the form of a special mortgage, legal hypothec, pledge, or right of retention.

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If the sukuk holder holds security (over the underlying asset of the sukuk) in the form of a mortgage or a legal hypothec, the sukuk holder will be regarded as a secured creditor, and will receive payment from the proceeds of the sale of the as-set by the liquidator before the unsecured creditors.

In Botswana, sukuk instruments would be regarded as an equity instrument.

9.5 recent notable casesThere have been no recent notable cases on jurisdictional is-sues, the applicability of Shari’a or the conflict of Shari’a and local law relevant to the banking and finance sector.

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Tel: +267 3162727Fax: +267 3162737Email: info@desailawgroup.co.bwWeb: www.desailawgroup.co.bw