This article considers how financing for German-supplied equipment in Iraq should align drawdown conditions with delivery, ownership and warranty rights. A lender may release funds before ownership is properly documented, or a borrower may accept machinery without securing access to warranty remedies, and the gap usually becomes visible only when something goes wrong.
The relevant framework includes the Iraqi Civil Code No. 40 of 1951, which governs sale, transfer of ownership, retention and possessory pledges; the Commerce Law No. 30 of 1984, which regulates commercial pledges and banking operations; the Banking Law No. 94 of 2004 and Central Bank of Iraq regulations; the Companies Law No. 21 of 1997 for corporate authority; the Real Estate Registration Law No. 43 of 1971 where equipment is affixed to land; and the Execution Law No. 45 of 1980 for enforcement.
Keeping payment, delivery, ownership and risk distinct
The Civil Code sets the rules on sale and transfer of ownership, while the transaction documents determine many performance obligations. The financing should identify when the seller must deliver, when the price is due and when ownership passes. Incoterms allocate transport risk and costs but do not, by themselves, answer questions of title or security.
It should also be confirmed that the borrower buying the equipment is the entity that receives the rights. Group structures can separate importer, purchaser, operator and borrower. If the lender expects security over machinery owned by another company, that owner must participate and give the corporate approvals required under the Companies Law; a statement in the borrower’s facility agreement cannot replace them.
Matching drawdown evidence to the funded stage
Advance, shipment and installation payments carry different risks, and conditions should reflect what can actually be shown at each stage. Requiring final installation evidence for an advance needed to manufacture the goods makes little sense, but neither should an advance be described as payment for accepted equipment.
A coherent documentary package typically includes the signed supply contract with milestones, valid corporate approvals for borrowing and security, evidence of the relevant manufacturing, shipment or delivery stage, insurance aligned with each party’s insurable interest, and agreed treatment of defects and disputed acceptance. Independent inspection can support funding, but an inspector’s report does not prove ownership, the absence of competing rights or compliance with Iraqi registration requirements.
Testing the security under Iraqi law
Iraq does not have a modern registry for security over movable assets of the kind found in many other jurisdictions. A pledge of movables under the Civil Code and Commerce Law traditionally depends on possession being transferred to the creditor or a third-party custodian, which is often impractical for operating machinery. A foreign-law security clause in a finance document does not, by itself, create a proprietary right enforceable in Iraq.
Retention of title, leasing and pledge are different structures, and each should be assessed on its own terms. Installation also matters: equipment fixed to land may be treated as part of the real property, bringing the Real Estate Registration Law and the landowner’s rights into play. Existing mortgages and creditor rights should be reviewed before assuming that the lender can remove machinery after default. Enforcement must proceed through the Execution Directorate and the courts, not through self-help.
Customs and import considerations
The identity of the importer of record matters for title evidence and for any customs exemptions granted under an investment licence. If equipment was imported duty-free on the basis of a particular project or licence, transferring or removing it on enforcement may require approval and could trigger duties. Lenders should check these conditions before treating the equipment as freely realisable collateral.
Preserving warranty and operational rights after default
A lender’s position is weak if a replacement operator cannot obtain repairs or essential software. The parties should establish whether warranty rights can be assigned, whether the manufacturer’s consent is needed and whether support depends on other obligations being performed. Under the Civil Code, assignment of rights has its own requirements, and paying the supplier does not make the lender a party to the supply contract.
A direct agreement with the supplier can cover notices, permitted transfers and limited cure rights. It should not suggest that the lender or its nominee can operate a regulated business without the approvals required in Iraq; any replacement operator must meet licensing, employment and site requirements in its own right.
Coordinating documents before funds are released
Supply, finance, security and insurance documents should use compatible milestones and remedies. Otherwise the borrower may owe repayment while its claim against the supplier is uncertain, or the lender may hold security over an asset it cannot practically enforce.
Insurance, loss and the lender’s interest
Insurance should protect the equipment through each stage: manufacture, transit, storage, installation and operation. Policies should name the correct insured parties and, where the lender relies on insurance proceeds, contain a loss payee or assignment arrangement that is effective under the policy and applicable law. Policies issued outside Iraq may need to be coordinated with local insurance requirements for certain projects. The financing documents should also deal with what happens if equipment is damaged before acceptance, so that the borrower is not obliged to keep repaying for an asset that the supplier must replace and the insurer has not yet paid for.
Conclusion & how Etihad Law Firm can help
Equipment finance in Iraq is achievable, but security and drawdown structures need to reflect local law rather than imported assumptions. As Iraq project finance lawyers for German companies, Etihad Law Firm advises lenders, suppliers and borrowers on ownership, security and enforcement under Iraqi law, reviews supply and finance documentation together, and helps structure drawdown conditions around the rights the parties actually intend to create.