An Opinionated Proposal for Reforming Cambodia’s Secured Transactions Law

Cambodia stands at a critical juncture in its economic development.¹ While significant progress has been made, the nation’s ambition to achieve upper middle-income status by 2030 is constrained by structural challenges, most notably the limited access to affordable credit for the private sector. Small and Medium Enterprises (SMEs), which form the backbone of the Cambodian economy, are systematically hindered from growth and innovation due to a legal framework for secured transactions that is outdated, fragmented, and unfit for the demands of a modern market economy. Lenders, faced with legal uncertainty, are hesitant to accept movable assets such as inventory, equipment, and receivables as collateral, forcing an over-reliance on immovable property and effectively locking the majority of SMEs out of the formal credit market.

This proposal presents a comprehensive diagnosis of the current legal framework and proposes a fundamental reform designed to unlock Cambodia’s economic potential. The core of the problem lies in a confusing and conflicting dual-track system where both the Law on Secured Transactions of 2007 (LST) and the Civil Code of 2011 govern the same subject matter. This duality, inadequately bridged by the Law on Implementation of the Civil Code, creates significant legal risk and increases the cost of credit. Furthermore, the LST itself is foundationally flawed, being based on an obsolete version of international models. It critically lacks modern features essential for a vibrant credit market, including the use of deposit accounts as primary collateral, the concept of ‘control’ for perfecting security in financial assets, and efficient, commercially reasonable self-help enforcement remedies.

The proposed reform is built on two guiding principles:

1. A Bifurcated Legal Architecture: This proposal advocates for separating commercial and non-commercial transactions. A new, modern, and standalone Law on Commercial Secured Transactions should be enacted to govern transactions where the debtor is a business entity. This flexible, specialized law would be designed to facilitate commercial lending with efficiency and predictability. Transactions involving individuals as debtors should remain under the purview of the Civil Code to ensure robust consumer protection. This separation avoids the trap of embedding dynamic commercial law within a static, all-encompassing civil code, a problem observed in other civil law jurisdictions.

2. Adoption of International Best Practices: The new commercial law should be modeled on the UNCITRAL Model Law on Secured Transactions. This framework is the global standard, offering a comprehensive and proven set of rules that directly address the deficiencies in Cambodia’s current system. It provides for a broad scope of collateral, modern perfection methods including ‘control’, clear priority rules, and balanced, efficient enforcement mechanisms.

Implementing this reform will require a coordinated effort, including the drafting of the new law, targeted amendments to the Civil Code, the establishment of a modern electronic notice-filing registry, and a robust capacity-building program for the judiciary, legal professionals, and the financial sector. This proposal provides a detailed roadmap for this process, including essential transitional provisions to ensure a smooth and fair migration from the old regime to the new.

This reform is not merely a technical legal adjustment; it is a critical economic policy initiative. By replacing a fragmented and uncertain legal framework with one that is modern, clear, and predictable, Cambodia can unlock the vast economic potential currently trapped in the movable assets of its businesses, fueling SME growth, job creation, and sustainable economic diversification for decades to come.

The Economic Case for Reforming Cambodia’s Secured Credit Framework#

The Nexus of Secured Credit and Economic Growth for SMEs#

It is a globally recognized principle that access to affordable credit is a primary catalyst for private sector development and, by extension, national economic growth.² For Small and Medium Enterprises (SMEs), which are the engine of innovation, employment, and economic diversification in most economies, this access is not merely beneficial — it is essential for survival and expansion. A modern and efficient secured transactions law is the critical legal infrastructure that underpins a robust credit market. By reducing the risks associated with lending, such a law directly influences the availability, cost, and efficiency of credit, making it possible for businesses to leverage their assets to obtain the capital needed for investment, operation, and growth.²

The ability to use movable assets — such as inventory, accounts receivable, equipment, and intellectual property — as collateral is particularly crucial. Unlike large, established corporations, most SMEs do not own significant immovable property (land and buildings). Their value is concentrated in their operating assets.³ A legal framework that facilitates the use of these movable assets as security is therefore a direct mechanism for financial inclusion, enabling a broader range of businesses to participate in the formal credit system and unlock their full economic potential.

The Current State of Access to Finance in Cambodia#

Despite Cambodia’s impressive economic growth over the past two decades, the nation’s private sector is characterized by a structural imbalance known as the “missing middle”.⁴ The economy is dominated by a large number of micro-enterprises and a small number of large firms, with a conspicuous scarcity of the SMEs that are vital for building a resilient and diverse economic foundation. This is not a mere market anomaly; it is a direct symptom of a critical market failure in the provision of credit.

Evidence overwhelmingly indicates that access to finance is a primary barrier to SME growth in Cambodia.⁵ SMEs constitute 99.8% of all companies and are responsible for 70% of employment, yet they consistently struggle to secure the financing necessary for scaling up, modernizing, and competing in regional and global markets.⁶

The root of this credit gap lies in the historical and persistent over-reliance of the Cambodian banking sector on immovable property as the only acceptable form of collateral. Lenders in Cambodia predominantly require land titles, often located in major urban centers, to secure loans.⁴ This practice effectively excludes the vast majority of SMEs, whose most valuable assets are movable. Businesses with valuable inventory, a steady stream of receivables, or essential machinery are often unable to leverage this wealth. This constraint not only starves them of growth capital but also contributes to Cambodia having some of the highest costs of financing in the ASEAN region, further hampering competitiveness.⁷

The Royal Government has launched commendable initiatives like the Cambodia SME Scheme (CSS) and the Cambodia Women Entrepreneurs Scheme (CWES) to address this financing gap.⁶ These programs, however, are fundamentally palliative measures. They treat the symptom — the lack of finance — without addressing the underlying disease: a dysfunctional legal framework for collateral that makes commercial lending against movable assets too risky for the private sector. A fundamental legal reform represents a more sustainable, market-driven solution. By creating a secure and predictable environment for lending against movable assets, the reform would empower the private financial sector to fill the credit gap efficiently, reducing the long-term need for state-subsidized interventions and fostering a more dynamic and self-sufficient market.

The High Cost of Legal Uncertainty#

The reluctance of Cambodian financial institutions to lend against movable assets is a rational response to a legal environment fraught with ambiguity and risk. When lenders cannot be certain of their ability to create a valid security interest, make it effective against third parties (perfection), and enforce it efficiently in the event of default, they perceive the risk to be unacceptably high.

This legal uncertainty, which will be detailed in the following section, manifests in several ways that are detrimental to the economy:

• Credit Rationing: Lenders simply refuse to consider movable assets as collateral, regardless of their value.⁸

• Higher Interest Rates: For the few loans that are secured by movable assets, lenders price in the high legal risk, resulting in exorbitant interest rates that many SMEs cannot afford.⁷

• Over-Collateralization: Lenders demand collateral (typically land) valued at a significant multiple of the loan amount, often requiring 200-300% coverage, to compensate for the perceived risk and potential difficulties in enforcement.⁸

This vicious cycle — where legal uncertainty creates lender risk, which in turn restricts credit access for the very enterprises that drive growth — is a primary constraint on Cambodia’s economic development. The experience of numerous developing countries has shown that implementing a clear, modern, and comprehensive secured transactions law can dramatically increase credit availability, lower its cost, and stimulate private sector growth.³ Reform is therefore not simply a matter of legal tidiness; it is an economic imperative.

Diagnosis of the Current Legal Framework: A System in Conflict#

The core deficiency of Cambodia’s secured transactions regime is its fragmentation and internal contradiction. Rather than operating under a single, coherent law, lenders, borrowers, and legal practitioners must navigate a confusing dual-track system where the 2007 Law on Secured Transactions (LST) and the 2011 Civil Code coexist uneasily. This legislative dissonance stems from an uncoordinated reform process and has resulted in a framework that is ambiguous, outdated, and fundamentally unfit for the purpose of promoting a modern credit economy.

The Dual-Track System: A Legacy of Uncoordinated Reforms#

The current legal conflict is a product of its history. The LST was enacted in 2007, based on models from the Asian Development Bank and principles of the U.S. Uniform Commercial Code (UCC), representing an initial move towards a modern, functional approach to secured credit.⁹ However, this specialized commercial law was developed in a partial vacuum. The comprehensive new Civil Code, heavily influenced by Japanese and French civil law traditions, was enacted in the same year but only became fully effective in 2011, after the LST was already in force.⁹ This parallel, unintegrated development of two laws with fundamentally different legal philosophies created an immediate and inherent conflict.

The Law on Implementation of the Civil Code (LICC) was subsequently passed in an attempt to bridge this divide.⁹ However, instead of establishing a clear hierarchy where the specialized LST would govern commercial secured transactions, the LICC introduced further ambiguity. Two articles are particularly problematic:

• Article 75 of the LICC establishes a default rule: in any transaction occurring after the implementation date, if there is ambiguity as to whether the LST or the Civil Code applies, it is assumed to be governed by the Civil Code.⁹ This creates a “chilling effect” on the use of the more commercially-oriented LST, as lenders face the risk that their modern security agreements could be reinterpreted by a court under the more rigid and archaic principles of the Civil Code. This incentivizes lenders to revert to traditional security devices like land hypothecs, defeating the very purpose of the LST.

• Article 76 of the LICC creates a priority rule for resolving conflicts between security interests created under the two laws. It states that priority is determined by “the time that such transactions are enforced against the third parties”.⁹ This standard is dangerously ambiguous and a significant departure from the clear “first-to-file-or-perfect” principle that provides predictability in all modern secured transactions systems. It introduces uncertainty about when priority is actually established, making it impossible for a prospective lender to reliably assess its risk.

Foundational Flaws of the 2007 Law on Secured Transactions#

Even if the LST were to operate in isolation, it is no longer fit for purpose. It was a “legislative orphan,” drafted before its “parent” laws like the Civil Code and the Law on Financial Lease were finalized, and based on an outdated version of international models.⁹ Its key deficiencies render it incapable of supporting a modern, diversified credit market.

An Outdated Model#

The LST is modeled on an older version of UCC Article 9.⁹ While it represented an improvement over the traditional pledge-based system, it was already behind global best practices at the time of its enactment in 2007. Secured transactions law is a dynamic field, and the LST lacks the critical innovations of the last two decades.

A Narrow Collateral Base#

A modern economy thrives on the ability to collateralize a wide range of assets, especially liquid financial assets. The LST severely restricts this by explicitly excluding key asset classes. Article 2(4)(e) of the LST states that the law does not apply to “an interest in a deposit, checking account, savings account, passbook or other cash account, except as provided as to the proceeds”.⁹ This exclusion of bank accounts as a form of primary collateral is a profound weakness. In modern finance, the ability to take a security interest in a business’s operating bank account is a cornerstone of cash-flow lending. The UNCITRAL Legislative Guide, representing the current international standard, explicitly provides for security interests in such rights to payment ⁹ [Rec. 2(a), Rec. 26].

Ineffective Perfection#

Perfection is the process by which a security interest is made effective against third parties, and it is the foundation of priority and certainty. The LST provides only for perfection by public filing or by taking physical possession of the collateral.⁹ It critically omits the modern concept of ‘control’. ‘Control’ is a method of perfection that gives a secured party direct legal power over a financial asset, such as a bank account or investment property, without needing to take physical possession. For example, a lender achieves ‘control’ over a debtor’s bank account when the bank agrees to follow the lender’s instructions regarding the funds in the account.⁹ This is the only practical way to perfect a security interest in such assets. The absence of ‘control’ as a perfection mechanism in the LST renders it practically impossible for lenders to take a reliable and enforceable security interest in one of the most important classes of modern commercial collateral ⁹ [Rec. 34(a)(v); 12].

Inefficient Enforcement#

The ultimate test of a security interest is its enforceability. A secured creditor must have access to efficient, predictable, and cost-effective remedies upon a debtor’s default. The LST fails this test by creating significant procedural obstacles to enforcement.

While the law notionally allows for non-judicial remedies, its provisions on repossession are cripplingly inefficient. A secured creditor may only take possession of collateral without a court order if the debtor gives explicit written consent after the default has occurred.⁹ This single requirement effectively negates the entire purpose of an efficient self-help remedy. A non-cooperative debtor — the very situation for which enforcement is designed — can simply refuse to consent, forcing the creditor into a lengthy, uncertain, and expensive judicial process to reclaim the collateral.⁸ During this delay, the asset is likely to depreciate, be damaged, or disappear entirely.

Modern frameworks, such as the UNCITRAL Guide, permit extrajudicial repossession provided it can be done without a “breach of the peace”.⁹ This standard effectively balances the creditor’s need for an efficient remedy with the public interest in maintaining order, and it is a critical feature that the Cambodian system lacks. This deficiency is further compounded by direct conflicts between the LST and the Civil Code on the right of repossession, creating a landscape of profound legal uncertainty for lenders considering enforcement action.⁸

The Law on Implementation of the Civil Code: An Unstable Bridge#

The LICC, far from resolving the underlying conflict between the LST and the Civil Code, has cemented the confusion. By establishing a default rule that favors the more archaic Civil Code in cases of ambiguity (Article 75) and introducing a novel and unpredictable priority rule (Article 76), the LICC has created an unstable and unreliable legal bridge. It forces practitioners and financial institutions to contend with two parallel and often contradictory legal regimes, increasing transaction costs, prolonging disputes, and ultimately deterring the extension of secured credit against movable assets. The current framework is not a dual system; it is a dysfunctional one.

The Proposed Architecture: A Modern, Bifurcated Secured Transactions Regime#

To remedy the diagnosed failures of the current legal framework, a fundamental restructuring is required. The proposed reform is not a mere amendment but a strategic redesign of Cambodia’s secured credit laws, based on the clear separation of commercial and consumer transactions and the wholesale adoption of modern, international best practices. This new architecture will provide the legal certainty and commercial flexibility necessary to foster a dynamic credit market.

The Guiding Principle: Differentiating Commercial and Consumer Transactions#

The foundational principle of the proposed reform is the creation of a bifurcated system. The inherent differences between sophisticated commercial entities and individual consumers demand distinct legal regimes.

A Flexible, Standalone Law on Secured Transactions (Commercial)#

All secured transactions where the debtor is a business entity, whether it is a sole proprietorship, partnership, or company (i.e., B2B and B2C transactions), should be governed by a new, modern, and standalone Law on Secured Transactions (Commercial). Commercial parties require a legal framework that is flexible, efficient, and prioritizes predictability to facilitate complex financing arrangements. Embedding such a dynamic area of law within a general, and necessarily more rigid, Civil Code has proven to be a structural impediment to reform and market responsiveness in other civil law jurisdictions like Vietnam and Japan.⁹ A standalone commercial law can be updated more nimbly to accommodate new forms of assets and financing techniques, ensuring the legal framework remains relevant and supportive of economic innovation.

Retaining Consumer Protections within the Civil Code#

Conversely, transactions where the debtor is an individual acting for personal, family, or household purposes, and the collateral consists of consumer goods, should remain under the governance of the Civil Code. The Civil Code is the appropriate legislative instrument for housing robust consumer protection rules, which are essential to shield individuals from potentially predatory lending practices and to ensure fairness in transactions where there is a significant imbalance of power and sophistication between the parties ⁹ [p.24, 78; 12, Art. 4(3)].

This bifurcated approach provides the best of both worlds: a highly efficient and flexible regime for commercial credit that fuels economic growth, and a protective, stable regime for consumer credit that upholds social welfare.

The Blueprint for Modernization: The UNCITRAL Model Law on Secured Transactions#

For the new Law on Secured Transactions (Commercial), Cambodia need not reinvent the wheel. The UNCITRAL Legislative Guide on Secured Transactions and its companion UNCITRAL Guide on the Implementation of a Security Rights Registry provide a comprehensive, internationally accepted, and proven blueprint for reform.⁹

Adopting the UNCITRAL model is the most effective and lowest-risk path to a world-class secured transactions system. Its advantages are manifold:

• International Consensus: It represents a global consensus on best practices, harmonizing key principles from both common law and civil law traditions.

• Designed for Development: It is specifically designed to meet the needs of developing and emerging economies, providing clear and practical guidance on creating a legal framework that stimulates credit access.

• Comprehensive Solution: It directly addresses every major deficiency identified in Cambodia’s current system, offering ready-made solutions for scope, collateral, perfection, priority, and enforcement.

• Reduced Legislative Cost: By adopting a proven model, Cambodia can significantly reduce the time and resources required for drafting and debating a new law from scratch.

The following comparative analysis provides a clear comparative analysis, illustrating the profound advantages of moving from the current fragmented system to a modern framework based on the UNCITRAL model ⁹.

• Scope & Approach: The current Cambodian framework uses a dual-track system (LST & Civil Code) with conflicting rules and formalistic distinctions, often defaulting to the Civil Code due to ambiguity. In contrast, the proposed UNCITRAL-based Law offers a single, comprehensive law for commercial transactions based on a functional approach, prioritizing substance over form and treating all transactions securing an obligation as security interests. This reform eliminates legal uncertainty and inconsistency, lowering transaction costs by removing the need to navigate multiple legal regimes and device-specific rules.

• Collateral: The current framework expressly excludes deposit accounts as a primary form of collateral under the LST. The proposed law explicitly includes them as a valid form of collateral (the right to payment of funds credited to a bank account). This change unlocks a major source of liquid collateral for businesses, enabling modern cash-flow based lending and expanding credit availability.

• Perfection: The current system relies solely on filing or possession and lacks the concept of ‘control,’ making perfection of security in deposit accounts impractical. The proposed law introduces ‘control’ as the primary and most effective method for perfecting security interests in deposit accounts and other financial assets. This provides a secure and practical method for lenders to take security over financial assets, a critical component of a modern financial system.

• Priority: The current framework has an ambiguous rule based on “time of enforcement against third parties” when the LST and Civil Code conflict. The proposed law introduces a clear and predictable “first-to-file-or-perfect” rule, where priority is based on the earliest time of registration or perfection, offering absolute certainty to lenders. This creates a predictable credit market, allowing lenders to reliably assess their priority position before extending credit, which reduces risk and lowers interest rates.

• Enforcement: Extrajudicial repossession in the current framework requires the debtor’s written consent after default, rendering it ineffective against a non-cooperative debtor. The proposed law permits extrajudicial repossession without a court order, provided there is no “breach of the peace,” and all enforcement actions must be “commercially reasonable.” This drastically reduces the cost and time of enforcement, creates a credible deterrent to default, and allows for the efficient realization of collateral value, benefiting both creditors and debtors.

Core Components of the Proposed Law on Secured Transactions (Commercial)#

The new law, guided by the UNCITRAL model, should be built upon the following core components:

A Broad Functional Scope and Expanded Definition of Collateral#

The law must adopt a functional approach, applying to any transaction, regardless of its form, that serves the function of securing an obligation. This includes treating devices like financial leases, consignments for security purposes, and sales with retention of title as security interests subject to the law’s provisions.⁹ The definition of collateral must be all-encompassing, explicitly covering all types of movable assets — tangible and intangible, present and after-acquired — and must include a modern, expansive definition of proceeds and, most critically, deposit accounts as primary collateral.⁹

Modern Perfection Methods: Integrating ‘Control’ and a Modernized Public Registry#

The new law must establish a clear and comprehensive system for perfection. While retaining perfection by filing and possession, it must introduce ‘control’ as the key method for perfecting security interests in deposit accounts and other financial assets.⁹ Furthermore, it should provide for automatic perfection of security interests in proceeds and, in certain circumstances, for purchase-money security interests (PMSIs), which streamlines common financing transactions.⁹ This system will be supported by a fully electronic, notice-based public registry, operated on a cost-recovery basis to ensure low-cost access for all users.⁹

Predictable Priority Rules for a Competitive Credit Market#

Certainty in priority is the bedrock of a competitive credit market. The new law must replace the current ambiguity with a clear hierarchy of priority rules. The default rule must be the simple and universally understood “first-to-file-or-perfect” principle.⁹ This will be supplemented by a set of commercially sensible special priority rules, including “super-priority” for qualifying PMSIs to facilitate the acquisition of new assets, protection for buyers who purchase goods in the ordinary course of a seller’s business, and superior priority for security interests perfected by ‘control’ over financial assets.⁹

Efficient and Balanced Enforcement: Codifying ‘Commercially Reasonable’ Self-Help#

The law must empower creditors with efficient remedies while protecting the rights of debtors. The central reform here is the codification of the right to extrajudicial self-help repossession, allowing a secured creditor to take possession of collateral upon default without a court order, provided this can be done without a “breach of the peace”.⁹ This right must be balanced by an overriding, non-waivable duty on the secured creditor to act in a “commercially reasonable” manner in all aspects of enforcement, from repossession to the final disposition of the asset.⁹ This flexible standard ensures fairness and maximizes the value realized from the collateral, while holding creditors accountable for their actions. The law will also include clear rules for the distribution of proceeds, the debtor’s right to any surplus, and liability for any deficiency, creating a complete and balanced enforcement regime.⁹

A Roadmap for Implementation#

A truly successful reform of Cambodia’s secured transactions framework necessitates a comprehensive approach that extends far beyond the mere drafting of a new law. It mandates a meticulously planned and strategically sequenced implementation strategy, encompassing several critical pillars: robust legislative action, targeted institutional development, extensive capacity building, and the careful management of the transition from the antiquated legal regime to the modernized and more efficient framework.

Legislative and Regulatory Action Plan#

The legislative process should be undertaken in two parallel and coordinated phases to ensure a coherent outcome.

Phase 1: Drafting and Enactment#

The first priority is the drafting of two key pieces of legislation:

1. The New Law on Secured Transactions (Commercial): This will be a new, standalone law based on the UNCITRAL Model Law. It will govern all secured transactions involving business debtors and will incorporate the modern features of scope, collateral, perfection, priority, and enforcement as outlined in Section 4.
2. The Law on Amendments to the Civil Code and Related Legislation: This law is equally crucial. It will amend the 2011 Civil Code to clearly remove commercial secured transactions from its scope, limiting its application to consumer-debtor transactions. Critically, it must repeal the conflicting and ambiguous provisions of the Law on Implementation of the Civil Code, particularly Articles 75 and 76, which create the current legal uncertainty. It will also repeal the 2007 Law on Secured Transactions, which will be entirely superseded by the new commercial law.

The concurrent drafting of these two crucial laws is essential to establish a seamless and unambiguous legal framework. This synchronized approach will prevent the emergence of legal lacunae or redundancies, thereby creating a precise and distinct division of legal responsibilities and applications. Furthermore, it may be necessary to introduce amendments to existing legislation, such as financial lease laws and land laws. These amendments would serve to eliminate any potential overlaps or conflicts with the newly enacted laws, ensuring comprehensive legal consistency and clarity across the entire legal landscape.

Phase 2: Registry Enhancement#

Concurrent with the legislative drafting, work must begin on the enhancement of the existing electronic, notice-filing registry. This process should be guided by the detailed recommendations of the UNCITRAL Registry Guide.⁹ Key enhancement include:

• Technical Specifications: Develop technical specifications for the online platform, ensuring its security, reliability, and 24/7 accessibility.
• Electronic Forms: Design simplified, standardized electronic forms for the submission of initial, amendment, and cancellation notices, requiring only information essential for security filing.
• Fee Structure: Establish a fee structure based on the principle of cost-recovery, rather than revenue generation, to ensure the registry remains low-cost and promotes widespread adoption.

Institutional and Judicial Capacity Building#

The enactment of a new law is meaningless without the capacity to implement and interpret it correctly. A comprehensive and sustained capacity-building program is essential for the reform’s success.

• Training for the Legal and Financial Sectors: An intensive training program ought to be developed for all key stakeholders, including judges, court clerks, notaries, lawyers, and bank loan officers.¹⁰ This should also extend to other related private entities, such as auction houses and debt collection agencies, to ensure a complete ecosystem of secured transactions. This training must transcend a mere recitation of the new statute, focusing instead on imparting a profound comprehension of the commercial logic and economic principles underpinning a modern, functional secured transactions system. This is particularly crucial in a civil law jurisdiction, where there may be a proclivity to revert to older, more formalistic concepts. The training should incorporate practical case studies and underscore the paradigm shift from a “form-based” to a “function-based” approach.⁹

• Public Awareness and Business Education: A targeted public awareness campaign is needed to educate the business community, especially SMEs, on the new opportunities the reform creates.¹¹ Workshops and accessible materials should explain in clear terms how businesses can now use their inventory, receivables, and other movable assets to secure loans, empowering them to engage with financial institutions with greater confidence.

Transitional Provisions#

To ensure a fair, orderly, and predictable transition from the current dual-track system to the new bifurcated regime, the new Law on Secured Transactions (Commercial) must include a detailed chapter on transitional provisions. These provisions should be guided by the principles laid out in Chapter XI of the UNCITRAL Legislative Guide.⁹

The core principles of the transition should be:

1. Effective Date: The new law will apply to all transactions and legal issues arising from its specified effective date.

2. Validity of Pre-existing Rights: Security interests that were validly created between the parties under the prior law (either the LST or the Civil Code) will remain effective between those parties.

3. Grace Period for Perfection: A crucial element is a grace period of a specified duration (e.g., 12 to 24 months) from the effective date. During this period, holders of security interests that were perfected under the old system must take the necessary steps to perfect their interests under the new law (e.g., by filing a notice in the new electronic registry). If they do so within the grace period, their perfection will be deemed continuous, preserving their original priority date.

4. Resolution of Priority Disputes:

   • For priority disputes where all competing rights were created before the effective date, the prior law will continue to govern, unless the priority status of one of the rights changes after the effective date (e.g., by lapsing or being re-perfected).

   • For all other priority disputes, particularly those involving at least one right created after the effective date, the clear and predictable priority rules of the new law will apply.

These transitional rules are essential to protect the vested rights of existing creditors while ensuring a swift and complete migration to the new, superior legal framework.

Conclusion: Unlocking Cambodia’s Economic Potential Through Legal Certainty#

The reform of Cambodia’s secured transactions law is not a peripheral legal issue; it is a cornerstone of the nation’s future economic strategy. The current legal framework — a fragmented, outdated, and contradictory mix of the 2007 Law on Secured Transactions and the 2011 Civil Code — acts as a direct impediment to credit access, chokes the growth of Small and Medium Enterprises, and constrains the country’s potential for sustainable and diversified development. The high cost of capital and the over-reliance on immovable property as collateral are not simply market conditions; they are the direct and predictable outcomes of a legal system that fails to provide the certainty and efficiency that a modern credit economy demands.

The proposed reform, centered on a bifurcated system with a modern, standalone commercial law based on the UNCITRAL Model Law, offers a clear and proven path forward. By separating commercial and consumer transactions, Cambodia can create a flexible and responsive legal environment for business finance while preserving essential protections for individuals. By adopting the comprehensive and internationally respected UNCITRAL framework, Cambodia can leapfrog decades of piecemeal legislative development and implement a world-class system that:

• Expands the pool of available collateral to include the full range of movable assets, most notably deposit accounts, that are the lifeblood of modern businesses.

• Introduces modern and efficient methods of perfection, such as ‘control’, which are essential for facilitating lending against financial assets.

• Establishes clear, predictable priority rules that reduce lender risk, lower the cost of credit, and foster a competitive financial market.

• Provides for balanced and efficient enforcement remedies, including commercially reasonable self-help, which make secured lending a credible and effective tool for creditors.

Implementing this reform will require political will and a coordinated effort across ministries, the judiciary, and the private sector. However, the economic dividends will be substantial. A modern secured transactions regime will empower Cambodian SMEs to leverage their assets, access affordable capital, and become the robust engine of growth and employment that the nation needs. It will attract greater domestic and foreign investment by providing a transparent and reliable legal framework. Ultimately, this reform is a fundamental investment in the rule of law as a driver of economic prosperity, unlocking the vast potential of Cambodia’s private sector and securing a more resilient and inclusive economic future.

Disclaimer: The information provided is for general informational purposes only and does not constitute legal advice. It is essential to seek the advice of a competent legal professional for your specific circumstances. Relying on this information without professional legal guidance is at your own risk.

Works cited#