Taking Security Over Commercial In Qatar

Introduction

Security is of paramount importance in relation to commercial lending. However, a commercial borrower must be able to carry on its business without the requirement of obtaining the lender's consent on day to day matters.

Under English law, the common form of security is by way of an "all assets" fixed and/or floating charge pursuant to a debenture in favour of the lender. A floating charge is a form of security that may be taken by a lender over a company's present and future assets, whether such assets are identified or not at the time the floating charge is created. The assets can be tangible (raw materials, stock, plant and machinery) or intangible (intellectual property or goodwill). Unlike a fixed charge, under a floating charge the company is generally at liberty to deal with such assets (including selling and adding to the charged assets) until such time when the charge crystallises (usually upon an occurrence of an event of default).

The English law concept of a floating charge is not recognised under Qatari law. By contrast, under Qatari law a series of different forms of pledge may need to be created depending on the type of asset, each such pledge with its own set of creation and perfection requirements.

Qatari Commercial Code - Mortgage over Commercial business

The mortgage over commercial business (or fonds de commerce) is the closest Qatari law embodiment to the English law floating charge. There are practical limitations to the mortgage over commercial business making it a more cumbersome form of taking security in Qatar. One such limitation is that any asset mortgaged under the mortgage over commercial business must be readily identifiable and in existence at the time of creation of the mortgage over commercial business. Future assets cannot be secured under the mortgage over commercial business document, rather, an addendum to the mortgage over commercial business would need to be executed by the parties from time to time to secure the asset.

Articles 53 to 59 of the Qatari Commercial Code Law No. 27 of 2006 set out the relevant provisions relating to mortgages over commercial business.

Article 53 of the Commercial Code states, "The Business can be mortgaged. In the event that the mortgage is not clearly described, the mortgage shall be in respect of the trade name, the right of lease, contact of customers and commercial reputation (goodwill)."

The term "Business" has the following meaning (under Article 36 of...