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Josephine Oyombe Act, 2011

LEGAL BRIEFING, JUNE 2017

HIGHLIGHTS OF THE MOVABLE PROPERTY
SECURITY RIGHTS ACT KN Law LLP Newsletter JUNE 2017 EDITION
 Use of movable assets as collateral for credit
facilities

 Security rights over immovable property to be

registered
In our May issue, we highlighted the Competition Authority’s recently published
Leniency Programme Guidelines. In this issue, we highlight the impact of the Movable
Property Security Rights Act, 2017, assented to by the President on May 10, 2017. The
Act is yet to be operationalized, but has notable impact in the lending business.

DISCLAIMER:

This briefing is a highlight of legislative and policy Please contact us should you need
changes and is intended to be of general use further advice:
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receiver. It does not constitute legal advice or + 254 20 386 1305/ 1306/ 1307
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information contained in this legal update
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Introduction Validity of Security Rights Creation of Subsequent Security

The Act seeks to improve access to credit
facilities by enhancing the ability of
individuals and entities to access credit
using movable assets as collateral. The Act,
which repeals the Chattel Transfer Act (Cap
28, Laws of Kenya), also intends to create
consistency and certainty in secured
financing relating to movable assets. A
borrower may use either tangible or
intangible assets to secure the credit.
Tangible assets include all types of goods
like the motor vehicles, crops, machinery as
well as livestock. Intangible assets include
receivables, deposit accounts, electronic
securities and intellectual property.
The Act establishes the Registry of Movable
Property Security Rights and the Office of
the Registrar. All securities entered into
where the collateral is a movable asset will
be registered with the Registrar.
Rights
For security rights over movable property to
Competing security rights may be registered
be valid and enforceable under the Act, the
where a single movable property is used for
security agreement should be in writing, duly
securing credit facilities from different lenders or
signed by both parties and should:
has been used by more than one person. The
(a) clearly identify the parties, the secured
obligation in such competing security rights is
obligation, the collateral, the proceeds
determined according to the time of registration.
where the lender is entitled to identifiable
The higher ranking lender whose security rights
proceeds from the collateral; and
have priority over other lenders has the right to
(b) spell out the obligations and rights and
take over the enforcement process.
remedies of each party.
>> CONT. PAGE TWO
Registration of Security
Rights
>> CONT. FROM PAGE ONE
All secured lenders have the obligation to register the securities.
The borrower’s consent to the registration is required, though the
security agreement is a sufficient authorization. The lenders
should file with the Registrar:
(a) an initial notice, with regard to the security rights secured;
(b) an amendment notice, where the initial registered notice
contained information exceeding the borrower’s scope of
authorization, the security agreement has been revised, there
is transfer of collateral to a third party or there are changes on
the borrower’s identity details;
(c) a cancellation notice, where:
 the registration of an initial notice was not authorized by
the borrower;
 the authorization to the registration of an initial notice has
been withdrawn; or
 the security right to which the notice relates has been
extinguished and the lender has no further commitment
to the borrower.
Obligations and Rights
With respect to the security rights, the lender has:
(a) the duty to take reasonable care to preserve the assets, if
in possession;
(b) the right to inspect collateral, if in possession of the
borrower or third party; and
(c) the right of set-off as a defence in any civil action during
enforcement of the security rights.
Where the borrower transfers the collateral to a third party,
the buyer will acquire the interest if the lender has consented
or the buyer proves that it had no knowledge of the security
rights over the collateral.
En f orc e me n t o f th e Se cu ri t y R ig h ts (c) giving an amendment notice to the Registrar
for registration of encumbered proceeds of
other collaterals not effective against third
parties, for them to be enforceable against
third parties; and
(d) where the borrower transfers to a third
party, the borrower must register with the
Registrar an amendment notice adding the
buyer as a new grantor of the security rights.
Compliance with the Act
To comply with the Act upon
Upon default in the repayment of the secured amount by the operationalization, the lenders will be required
borrower, the lender has the right to sue for the money to:
defaulted, appoint a receiver, lease, sell or take possession of
(a) create a user account to access or submit
the movable asset, or pursue other remedies in the security agreement or information to the Registry;
written law.
(b) align the existing securities to the third-
Procedurally, the lender will be required to issue: party effectiveness requirements;
(a) notice to the borrower to pay the outstanding amount; (c) register both the existing and new
securities;
(b) 5 working days’ notice of disposition of the collateral; and
(d) confirm actual registration by conducting
(c) notice of acquisition of the collateral, if the lender has the intention to an official search;
acquire/buy the collateral.
(e) ensure that the Registrar has issued the
Effect of the Act on Existing Securities secured creditor with a search certificate;
The Act will apply to securities issued under the repealed legislation except (f) issue relevant statutory notices before
where there is ongoing dispute resolution or the enforcement of the exercising its rights in case of any default;
security commences before the Act comes into effect. and
If the existing securities are effective against third parties, they will be (g) register an amendment notice or
effective up to a period of 9 months after the Act comes into force. The cancellation notice on termination of
lender shall be required to align the existing securities with the third party security rights in the collateral.
effectiveness requirements by:
(a) giving the debtor of the receivable an adequate notice within a
reasonable time that the security right in a receivable has been
created;
(b) giving notice to the Registrar with respect to the security rights
created;
>> END