Introduction
This Act came into force on 16 May 2017. The regulations to the Act were subsequently enacted on 2 June 2017.
We highlight the salient features of the Act below:
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Application |
The Act aims at facilitating the use of moveable property as security by both individuals and corporates and to provide for the registration of security rights in moveable property. However, not all moveable property can be used as security under the Act. |
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Introduction of new forms of security |
The Act aims at facilitating the use of moveable property as security by both individuals and corporates and to provide for the registration of security rights in moveable property. Intellectual property and receivables are now registrable forms of security. However not all moveable property can be used as security under the Act. Aircrafts, ships, security rights in book entry securities under the Central Depositories Act cannot be used as security under the Act. |
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Third party security rights |
A security right in any moveable asset is effective against third parties if a notice with respect to the security right is registered with the Registrar. This will make it easier for creditors to enforce their securities. Creditors will not only be able to sue a borrower for the debt but also recover their securities and the proceeds of a secured asset from third parties who may have subsequently acquired rights over the secured asset. |
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Consequential amendments and repeals |
The Act repeals the Chattels Transfer Act (the CTA) and the Pawnbrokers Act. The Act amends certain sections of the Hire Purchase Act, the Companies Act, the Insolvency Act, the Business Registration Service Act, the Stamp Duty Act, and the Agricultural Finance Corporation Act. The key repeals and amendments we wish to highlight are with regards to:
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Conclusion and Recommendations
The Act is an improvement on existing law. It is progressive in that:
- it recognizes intangible assets such as intellectual property (IP) and receivables as possible collateral;
- it enables both legal persons and natural persons to create securities over moveable property;
- it introduces a simpler way of creating securities over moveable property; and
- it introduces alternative ways of recovering debts other than the court process.
However, there are other measures that need to be put in place in order for the Act to be fully applied. For example:
There needs to be put in place a mechanism for the valuation of IP assets so that it can be used as security and existing security registration registries over moveable assets that needs to be synchronized with the collateral registry (an online registry) established under the Act.
This is to ensure that creditors can easily verify if an encumbered asset under the the Hire Purchase Act or the Companies Act.
The Act seems to apply in retrospect with regards to third party effectiveness of security rights created before the coming into force of the Act. It would be advisable for lenders to file notices with the Registrar before the expiry of nine months from the commencement date of the Act for their security rights to remain effective against third parties. However, retrospective application of the law can be challenged in court.
Experience
We have ‘tested the waters’ and registered a number of initial notices and also conducted searches through the online registry which is accessible on the e-Citizen online portal.
We highlight below some of the things that we have noted:
- It is possible to file a notice on behalf of another as there is provision for transferring an application. Lawyers can therefore file notices on behalf of their clients and thereafter transfer the application to the client.
- Currently there are no fees payable for filing an initial notice but the Act gives the Registrar powers to prescribe fees. This may change with time. A fee of KES 500 is payable for a search exclusive of the mobile service provider’s tariff for transmitting funds through their platform.
There are still a few teething issues;
The notices and searches do not have dates and time of registration as prescribed under the Act. Proving priority amongst competing creditors may be a tedious process.
The online registry seems to be relying on digitization of the companies’ registry records for corporate bodies. We have noted that the collateral registry does not seem to have records or accurate records for companies incorporated prior to 2010. If the registry does not recognize the company by the registration number it is not possible to proceed with an application for a search or initial notice and one may have to keep engaging the Registrar in order to get the same sorted out.
Click here to view the Act.