On 10^th May 2017, President Uhuru Kenyatta signed into law the Movable Property Security Rights Bill, 2016. The new law is meant to widen access to credit facilities using movable assets, through the new secured transactions legal framework and the establishment of an electronic movable assets register.

The new law will widen financial inclusivity by providing for the use of movable property, including non-conventional tangible assets such as livestock, and household appliances as well as intangible assets such as intellectual property rights, as collateral for credit facilities. Regarding intellectual property, security may be created in the intellectual property (copyright, trade mark, industrial design, patent etc.) as well as in any tangible asset with respect to which the intellectual property is used and the creation of security in one does not extend to the other.

Further, under the new law security rights can also be created over credit purchase transactions, credit sale agreements, floating and fixed charges, pledges, trust indentures, trust receipts, financial leases and any other transactions that secure payment or performance of an obligation and an outright transfer of an asset.

The law provides for the establishment of the office of the Registrar of security rights to facilitate the registration of security rights in movable property. The registration regime is by way of notice. The law sets out the procedure for registering such notices and any subsequent amendments to the notices. Further, the law provides that a notice for the registration of security rights may be effective for a period of not more than ten years which may however be further extended. A notice may be registered before the creation of a security right or the conclusion of a security agreement to which the notice relates. An initial notice shall contain the following information and any other that may be prescribed by the Regulations to the Act:

1. the identifier and address of the grantor;
2. the identifier and address of the secured creditor or its representative;

• a description of the collateral;

1. the period of effectiveness of the registration; and
2. any other information for statistical purposes only

The new law provides for determination of priority between competing security rights. For instance an acquisition security right (defined as a security right in a tangible asset or intellectual property, which secures the obligation to pay any unpaid portion of the purchase price of the asset or other credit extended to enable the grantor to acquire it to) has priority over a non-acquisition security right created by the grantor. Further, an acquisition security right of a seller or lessor has priority over a competing acquisition security right of other secured creditors. The law also allows for the subordination of priority rights in favour of a future or existing competing claimant.

Regarding enforcement of the rights of the parties to a security agreement, the secured creditor may sue for recovery of the loan facility or exercise the right of sale upon giving notice to the grantor whereas the grantor may exercise his/her right of redemption before the final disposition.

The applicable law in case some cases of secured transactions shall be determined by considering factors such as the location of the grantor or the collateral have a relation to a foreign country.

Although financial institutions previously accepted household appliances as collateral for credit, very high interest rates were set for such credit. The practice drastically declined with the setting of the interest caps by the Central Bank of Kenya. Financial institutions no longer viewed household appliance as good security hence locking out many from accessing credit from financial institutions. This may have been due to the lack of a proper registration system for such securities.

With the introduction of the new registration system for all movable securities, financial institutions may now be more willing to offer credit secured by household appliances as the public record established would reveal any other competing interest in those specific assets and the set out enforcement mechanisms will make it easier for the institutions to recover in case of default by the borrowers.

Please contact us at Info@cfllegal.com should you require further information.