Updates in Financial Leasing Laws of Egypt
Recently, in August, President Abdel Fattah el Sisi has ratified Law No. 176 of the year 2018 regulating financial leasing and factoring activities, replacing both the old financial leasing law (Law No. 95 of 1995) and ministerial decree No. 446 of 2003.
The new law lays down the rules and procedures for licensing financial leasing companies. Financial leasing companies own assets and provide financial leases, meaning that they lease them to companies for their use, control, and a share in any economic risk entailed.
In fact, the law clearly sets out which contracts are deemed leasing contracts. The initial contract must entail that after a certain leasing period, the lessee can own the asset for a pre-determined price. Contracts without this option are not considered financial leasing contracts under the new law. Moreover, the asset must be central to the business of the lessee.
Of course, one of the key requirements for obtaining a license under the new law is that the activities of these companies must be limited to financial leasing or factoring activities or both. Moreover, such companies must be joint stock companies with a minimum paid initial capital of ten million pounds, or their equivalent in foreign currency. The law also requires that shareholders with more than 10% shares, board members, and managers have a good reputation with no past criminal judgements or declarations of bankruptcy in the five years preceding the establishment of the company. The managers must have past experience in the sector. The company must also have the necessary technology to maintain its activities.
Moreover, one of the new provisions of the law is that it gives employees of the Financial Regulation Authority judicial seizure status, allowing them to impose this law. Failure of an entity to provide these employees of the paperwork they ask for could lead to a fine or imprisonment.
The law also gives financial leasing company the right to inspect the asset regularly and ensure that the lessee is using it for its planned purpose. The law warns the lessee against selling part of or the whole asset to the third party without receiving written permission from the financial leasing company, deeming any action to that effect null and giving the right to the company to retrieve the asset from the third party. The lessee will also face a fine of no less than half the value of the asset as well as possible imprisonment.
The law also provides appropriate mechanisms for receiving complaints from lessees against such companies. In turn, companies can appeal against decisions taken by the authority. If the issue is taken to court, the Economic Court will have jurisdiction.
Pre-existing companies are required to change their status to comply with the requirements within 6 months and earn the new license under the new law. The FRA may approve to extend this period for up to two times. After this period, the old license will be revoked and the FRA will give it a set period of time to liquidize their assets and give them to a company licensed under the new law. Continuing business activities without a license would lead to both a fine and imprisonment.
All in all, this law is part of a grand scheme of laws aimed at development and growth. This new law supports small businesses, as it regulates their provision of assets necessary for the businesses – especially since they would usually not be able to obtain these benefits from traditional banks. This encourages both foreign and internal investment, creating new employment opportunities.
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