Kenya has recently enacted into law the Movable Property Security Rights Act, 2017 (the “Act”) which is yet to become operational. This Act will come into force once a notice is published by the Cabinet Secretary in the Kenya Gazette confirming the commencement date. The Act shall apply to every transaction that secures payment or performance of an obligation where the collateral (that is the security) is a movable asset. A movable asset is personal property that is not attached to land and is movable, i.e. it can be carried from one location to another. It takes both a tangible and intangible form. Examples of movable assets covered by the Act include motor vehicles, crops, machineries, livestock, receivables (amounts which are owed to a business and regarded as assets), choses in action (for example right to sue for damages for an injury or rights of an employee to unpaid wages), deposit accounts, electronic securities and intellectual property rights.
The Chattels Transfer Act (Cap. 28) (Now Repealed) and The Hire Purchase Act (Cap. 507) have been the legislations dealing with movable property in Kenya. However, the Act repeals the laws relating to chattels mortgages and pawnbroking (i.e. the Chattels Transfer Act and the Pawnbrokers Act (Cap 529), respectively) and amends 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. The main objective of repealing and amending these laws was to provide consistency with regard to the use of movable assets as collateral and to centralize the registry for security rights in movable assets. For instance, section 832(3)(c) of the Companies Act, 2015 is amended by the Act to provide that the register of companies shall comprise certificates of registration of company security rights. This will require a secured creditor to first register the security right at the registry of security interests and then after submit the certificate of registration of company security rights register at the register of companies. This appears to be a duplication of functions but the benefit or appropriateness of this arrangement shall become clear once the Act is operational.
An interesting aspect of the Act is that it applies the party autonomy rule. The Act allows parties to a security agreement creating a security right over a movable asset the liberty to choose which rules will govern that security agreement other than the provisions of the Act. Only sections 5(2), 6, 8, 56, 57 and 80 to 87 of the Act are mandatory. We are keen to see the practicability of this arrangement, more particularly whether the Act will achieve its objective to provide consistency and to centralize the registry for security rights in movable assets if parties are permitted to derogate from the non-obligatory provisions of the Act.
The proponents of this new law projected that reforms on legislation dealing with personal property security would improve the confidence of lenders and in effect expand access to finance. This shall be tested when the Act becomes operational and also by the nature of reception it will receive from lenders.