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A Brief Outline of the Newly Enacted Movable Property Security Rights Act 

by Lorna Mainnah, Caroline Thuo

Published: July, 2017

Submission: July, 2017


1.0 Introduction

The Moveable Property Security Rights Act 2017 (the “Act”) was assented to by the President of Kenya on 10th May 2017 and came into operation on 16th May 2017.

2.0 Objective of the Act

The objective of the Act is to facilitate the use of movable property as security for credit facilities by creating the office of the Registrar of Security Rights providing the mode of registration of security rights in movable property and the realisation process.

3.0 General Outline of the Act

The Act is divided into nine parts.

Part I provides for preliminary matters such as the title, objective, interpretation and scope of the Act.

Part II of the Act deals with the manner in which security rights are created through security agreements but it does not provide for the form of the security agreement. This will create uncertainty and inconsistency in the form that security agreements may take.

Part III of the Act provides for the registration of security rights over movable property with the Registrar of Security Rights which would in effect constitute a notice of the security interest to third parties.

Part IV of the Act establishes the office of the Registrar of Security Rights and sets out the procedure for conducting searches and registering notices, amendments and discharges. The Act provides for a maximum period of effectiveness of ten years which may be extended only within the six months preceding its expiry.

Part V of the Act provides for the priority among competing security rights. This part provides that a grantor may create more than one security right over a single collateral.

Part VI of the Act provides for the rights and obligations of parties to a secured transaction.

Part VII of the Act provides for the enforcement procedure for a party under a secured transaction.

Part VIII of the Act recognises the fact that a movable asset may be located in a different jurisdiction and provides for the applicable laws for secured transactions.

Part IX of the Act provides for general provisions including amendments and repealing of laws.

The schedule to the Act repeals the Chattels Transfer Act and the Pawn Brokers Act and also amends/repeals certain provisions of the Agricultural Finance Corporation Act, the Stamp Duty Act, the Hire Purchase Act, the Business Registration Services Act, the Companies Act (2015) and the Insolvency Act (2015).

4.0 Definition of movable property and grantor

Movable property is defined to mean tangible and intangible assets. A tangible asset is defined to mean all types of goods and includes motor vehicles, crops, machinery and livestock whereas intangible assets include receivables, deposit accounts, electronic securities and intellectual property rights.

A grantor is defined to mean a person who creates a security right to secure his own obligations or that of another person, a buyer or transferee, lessee, or licensee of a collateral that acquires rights subject to a security right and a transferor in an outright transfer of a receivable.

The definition of a grantor now encompasses all juristic persons including companies. The Act therefore applies to all movable security rights created by all juristic persons and is not limited to individuals.

5.0 Definition of Security Rights

The Act applies to security rights in moveable assets, including:

a) Every transaction that secures payment or performance of an obligation, without regard to its form and without regard to the person who owns the collateral;

b) Without limiting the generality of paragraph (a) above, a chattel mortgage, credit purchase transaction, credit sale agreement, floating and fixed charge, pledge, trust indenture, trust receipt, financial lease and any other transaction that secures payment or performance of an obligation; and

c) An outright transfer of a receivable subject to some qualifications contained in part VII of the Act.The Act provides for a credit purchase transaction which is termed as a hire-purchase agreement, a conditional sale agreement, a chattel leasing agreement or a retention of title agreement.The Act further provides for a credit sale agreement which is defined as an agreement for the sale of goods under which payment of the whole or a part of the purchase price is deferred and a security interest in the goods is created or provided for in order to secure the payment of the whole or a part of the purchase price.

The Act goes further to describe a financial lease as a lease under which at the end:-:a) The lessee automatically becomes the owner of the asset that is the object of the lease;b) The lessee may acquire ownership of the asset by paying no more than a nominal price; orc) The asset has no more than a nominal residual value.

In order for a moveable property to be used as a collateral, there must be a security agreement which is an agreement regardless of whether the parties have denominated it as a security agreement, between a grantor and a secured creditor that provides for the creation of a security right; and an agreement that provides for the outright transfer of a receivable.

A security right is created by a security agreement provided that the grantor has rights in the asset to be encumbered or the power to encumber it. The security right in an asset is created only at the time when the grantor acquires rights in it or the power to encumber it.

A security agreement must:a) be in writing and signed by the grantor;b) identify the secured creditor and the grantor;c) except in the case of an agreement that provides for the outright transfer of a receivable, describe the secured obligation; andd) describe the collateral in a manner that reasonably allows its identification.

6.0 Creation and Registration of a Security Right

A security right shall be registered with the Registrar of Security Rights by lodging an initial notice or an amendment notice which may be lodged with the Registrar before the creation of a security right or the conclusion of a security agreement provided that there is written evidence of the grantor’s authorization.The Act does not provide for the form of the notice.

The Act provides that the procedure for registration of notice, access to information by the public, conduct of searches and assigning of unique identifiers to grantors and secured creditors shall be as prescribed by Regulations.Although the Act has now come into operation, the Regulations under the Act are yet to be gazetted. Accordingly, the practical operation of the Act which would enable secured grantees register their interests in movable property is yet to be provided for. There is therefore urgent need for the Cabinet Secretary to pass the Regulations and operationalise the Act.

7.0 Enforcement of a security right

With respect to the enforcement of a security right, once the debtor fails to pay or perform a secured obligation, the grantor and the secured creditor may exercise any right:-a) under Part VII of the Act; b) provided in the security agreement; or c) provided under any other written law. The exercise of a post – default right with respect to the collateral does not prevent the exercise of a post-default right with respect to the secured obligation. Similarly, the exercise of a post-default right with respect to the secured obligation does not prevent the exercise of a post- default right with respect to the collateral.

The grantor and any other person that owes payment or other performance of the secured obligation may not waive unilaterally or vary by agreement any of its rights under Part VII of the Act before default.It is important to note that if the security right has been created under a hire purchase agreement, the secured creditor may enforce its rights only in accordance with the Hire Purchase Act.

The applicable law is the law chosen by the grantor and a secured creditor and in the absence of a choice of law the applicable law is the law governing the security agreement.The law applicable to a security right in a tangible asset is the law of the country in which the asset is located while the law applicable to an asset of a type ordinarily used in more than one country is the law of the country in which the grantor is located.

8.0 Conclusion

The Act has deleted the provisions on the creation of the Registrar of Hire Purchase Agreements under the Hire Purchase Act and accordingly, hire purchase agreements are now to be registered in accordance with the provisions of the Act.

The Act has also amended certain provisions of the Companies Act by introducing securities in addition to charges which are created by way of security rights. The Act has therefore provided for a double obligation on companies to register charges on movable property in accordance with the terms of the Companies Act and to also register security rights under the Act. Companies are also mandated to keep registers of charges and of security rights created pursuant to the Act.

Although the Act has made provisions for the creation of multiple securities over one movable asset, the practical application of this provision would be challenging. The Act has made no provision regarding the handling of ownership documents of movable assets. The current practice is for grantees to be registered as joint owners with the grantor.

If this system is to continue, it would be difficult to include a third grantee as a co-owner with the grantor and the initial grantee as the initial grantee would be regarded as a grantor and would be required to execute the security agreement with the subsequent grantee. In the event that a subsequent grantee is also not co-registered, it would be difficult to enforce the security by way of sale of the movable asset where the asset is in the joint names of the grantor and the initial grantee.


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