Recently, the Court of Appeal of Kenya (“CoA”) in the case of Standard Chartered Financial Services Limited vs. King Woolen Mills Limited and 2 others (Civil Application Number. E001 of 2023) rendered an intriguing decision that has a significant impact on Kenya’s lending sector, particularly with regards to the securitization debate.
The main issue is whether subsequent loans to the same borrower, even if the existing securities have not been discharged, are guaranteed by those original securities. The CoA recognized that this issue is a matter of great public interest. Subsequently, the matter is now scheduled for a hearing before the Supreme Court of Kenya which will now hear the arguments and provide a definitive decision.
This case highlights a scenario where the Financier extended further advances to an existing borrower without registering new security instruments and relied solely on the existing ones. The CoA observed two schools of thought on this issue:
- The first suggests that the existing securities should be discharged and fresh securities perfected concerning the fresh advance.
- The second favors accommodating the fresh advance within the confines of the already perfected securities.
The Supreme Court’s judgement on this issue will be useful and will fill in the gap regarding the two schools of thought and whether future advances can be covered by existing securities. Please note that this matter will now be heard at the Supreme Court and we shall keep you posted on any developments in this regard.
Should you require any further information, do contact us at info@cfllegal.com .
