You are on page 1of 2

Advocates: Ruth Mabele-Kinara KN Law LLP (Reg. No.

KN Law LLP Nairobi Office: Mombasa Office:

Mugambi Nandi Emmanuel Kubo LLP/2012/06) is a Limited
Advocates, Notaries Public 5th Floor, The Pavilion, Westlands 8th Floor, Cannon Towers II
Sisule Musungu Eric Omondi Liability Partnership
& Patent Agents Lower Kabete Road Moi Avenue
Peter Munyi Johnson Kariuki Registered under the P. O. Box 27547 – 00100 P. O. Box 4055 – 80107
Kevin Junior Mutulis Danson Mugo Limited Liability Partnership Nairobi, Kenya Mombasa, Kenya
Josephine Oyombe Act, 2011


 Use of movable assets as collateral for credit

 Security rights over immovable property to be

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.


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:
only. It is not intended to create an advocate-
client relationship between the sender and the
receiver. It does not constitute legal advice or + 254 20 386 1305/ 1306/ 1307
legal opinion. You should not act or rely on any + 254 729 891 421/ 738 891 421
information contained in this legal update
without first seeking the advice of an advocate. Follow us: @KNLawLLP

Introduction Validity of Security Rights Creation of Subsequent Security

Tangible assets include all types of goods
The Act seeks to improve access to credit like the motor vehicles, crops, machinery as For security rights over movable property to
facilities by enhancing the ability of well as livestock. Intangible assets include Competing security rights may be registered
be valid and enforceable under the Act, the
individuals and entities to access credit receivables, deposit accounts, electronic where a single movable property is used for
security agreement should be in writing, duly
using movable assets as collateral. The Act, securities and intellectual property. securing credit facilities from different lenders or
signed by both parties and should:
which repeals the Chattel Transfer Act (Cap has been used by more than one person. The
(a) clearly identify the parties, the secured
The Act establishes the Registry of Movable obligation in such competing security rights is
28, Laws of Kenya), also intends to create obligation, the collateral, the proceeds
Property Security Rights and the Office of determined according to the time of registration.
consistency and certainty in secured where the lender is entitled to identifiable
the Registrar. All securities entered into The higher ranking lender whose security rights
financing relating to movable assets. A proceeds from the collateral; and
where the collateral is a movable asset will have priority over other lenders has the right to
borrower may use either tangible or (b) spell out the obligations and rights and
be registered with the Registrar. take over the enforcement process.
intangible assets to secure the credit. remedies of each party.
Registration of Security 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
Rights other collaterals not effective against third
parties, for them to be enforceable against
third parties; and

All secured lenders have the obligation to register the securities. (d) where the borrower transfers to a third
The borrower’s consent to the registration is required, though the party, the borrower must register with the
security agreement is a sufficient authorization. The lenders Registrar an amendment notice adding the
should file with the Registrar: buyer as a new grantor of the security rights.

(a) an initial notice, with regard to the security rights secured;

Compliance with the Act
(b) an amendment notice, where the initial registered notice
contained information exceeding the borrower’s scope of To comply with the Act upon
authorization, the security agreement has been revised, there Upon default in the repayment of the secured amount by the operationalization, the lenders will be required
is transfer of collateral to a third party or there are changes on borrower, the lender has the right to sue for the money to:
the borrower’s identity details; defaulted, appoint a receiver, lease, sell or take possession of
(a) create a user account to access or submit
(c) a cancellation notice, where: the movable asset, or pursue other remedies in the security agreement or information to the Registry;
written law.
 the registration of an initial notice was not authorized by (b) align the existing securities to the third-
the borrower; Procedurally, the lender will be required to issue: party effectiveness requirements;

 the authorization to the registration of an initial notice has (a) notice to the borrower to pay the outstanding amount; (c) register both the existing and new
been withdrawn; or securities;
(b) 5 working days’ notice of disposition of the collateral; and
 the security right to which the notice relates has been (d) confirm actual registration by conducting
extinguished and the lender has no further commitment (c) notice of acquisition of the collateral, if the lender has the intention to an official search;
to the borrower. acquire/buy the collateral.
(e) ensure that the Registrar has issued the
Obligations and Rights Effect of the Act on Existing Securities secured creditor with a search certificate;

With respect to the security rights, the lender has: 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;
(a) the duty to take reasonable care to preserve the assets, if
security commences before the Act comes into effect. and
in possession;
If the existing securities are effective against third parties, they will be (g) register an amendment notice or
(b) the right to inspect collateral, if in possession of the
effective up to a period of 9 months after the Act comes into force. The cancellation notice on termination of
borrower or third party; and
lender shall be required to align the existing securities with the third party security rights in the collateral.
(c) the right of set-off as a defence in any civil action during effectiveness requirements by:
enforcement of the security rights.
(a) giving the debtor of the receivable an adequate notice within a
Where the borrower transfers the collateral to a third party, reasonable time that the security right in a receivable has been
the buyer will acquire the interest if the lender has consented created;
or the buyer proves that it had no knowledge of the security
(b) giving notice to the Registrar with respect to the security rights
rights over the collateral.
>> END