The Use of Trust Receipts

Trust receipts assist importers in refinancing their payment obligations upon the maturity of a letter of credit (“LC”). Following payment of the purchase price by the LC issuing bank (or after an agreed period), the importer is required to reimburse the issuing bank. Until such time as the importer reimburses the LC issuing bank, the documents of title relating to the goods imported (e.g. bills of lading) are retained by the bank and this will prevent the importer from on-selling the goods. Law No 27 of 2006 (the “Commercial Code”) states that the LC issuing bank has a lien over the bills of lading until such time as the importer (being the LC issuing bank’s customer) reimburses the LC issuing bank for payments made towards purchase of the goods that have been imported.