Overview of the Movable Property Security Rights Act, 2017


This Act repealed, among others, the Chattels Transfer Act (Chapter 28 of the Laws of Kenya) which was the Act used to create chattels mortgages in Kenya i.e. securities for lending using movable property as collateral. It applies to security rights created in movable assets, through a variety of transactions, including a chattel mortgage, credit purchase transaction, credit sale agreement, floating and fixed charge, pledge, trust indenture, trust receipt, financial lease and any other transaction that secures payment or performance of an obligation as well as the outright transfer of a receivable. However, liens and charges created under other laws are expressly excluded.

Basic Principle

Section 6 of the Act lays out the bare bones of the entire legislation which is basically that a security right is created by a security agreement. However, this security right can only be created at a time when the grantor of the asset has rights in the asset to be encumbered or the power to encumber it i.e. they must own it at the time of giving it as collateral.

Requirements of the security agreement under the Act

This security agreement must be in writing and signed by the owner of the asset sought to be encumbered. It must clearly identify the creditor and owner of the asset to be secured. It must describe the secured obligation and it must also describe the collateral i.e. the asset to be secured, in a manner that reasonably allows for its identification. If the item used as collateral has a serial number, then it is to be described by the serial number, the make, and the name of the manufacturer.

Under section 9, the right created in a security, also extends to any identifiable proceeds or income arising from that asset unless such income is expressly excluded in the security agreement. Similarly, if this income is deposited in an account where it commingles with other monies such that it is no longer separately identifiable, then the security right will also extend to those commingled assets unless expressly excluded. However, you can breathe a sigh of relief here because the security right will be limited to the amount of the proceeds immediately before they became commingled assets.

Non-traditional assets

One of the noteworthy introductions of this Act is that it now recognizes intellectual property as an asset that can be securitized. Thus, under section 11, income or receivables arising from intellectual property are able to be used as collateral. Similarly, the intellectual property itself can be used as collateral.

Registration requirements

Under section 15 of the Act, if the security right is registered with the Registrar of security rights then it has effect against third parties. This is in the sense that you can stop any other party, who was not a party to your agreement with the owner of the property, from exercising any right in that property until the owner’s obligation to you is satisfied. However, if it is not registered, it only applies between you and the owner meaning others are able to claim a superior right over the asset at the risk of your security i.e. the owner is able to sell it and the person buying it will have a superior right over yours as long as they did not have any notice of the security you have in that asset. Thus you risk losing that security interest.

Regulation 3 of the Movable Property Security Rights (General) Regulations 2017 (hereinafter the Regulations) expressly provides that the Registry shall be electronic. Accordingly, the submission of a notice and a search request to the Registrar is by electronic means and the person submitting the notice must create a user account. All this can be done at accounts.ecitizen.go.ke.

Registration is achieved by registering an initial notice in the prescribed form (Form 3 of the First Schedule to the Regulations) or an amendment notice (Form 5 of the First Schedule to the Regulations) where you are seeking to add collateral that was not included in the initial notice.

Under section 30 of the Act, the maximum amount of time that you can hold a security interest over a movable asset is 10 years.

Now once you submit the registration notice in the required form, the Registrar is supposed to enter the information in the notice into the records in the Registry without delay after the notice is submitted and in the order in which each notice was submitted. Interestingly the Act fails to give a timeline within which this must be done leaving it open to the usual abuses that have plagued physical document registries. This is especially critical because the registration only takes effect from the date and time when the information is entered into the records in the Registry under section 29 of the Act.

Once this entry is done, the Registrar then provides to the registrant, a copy of the information contained in the notice, indicating the date and time when the registration became effective and the registration number. The registrant must then send a copy of this notice to the owner of the asset within ten (10) working days of receiving it. Failure to do this is an offence under the Act that can lead to a fine of up to Ksh. 5,000.

It will be vital for the person submitting the notice (likely to be the secured creditor under the circumstances) to pay key attention to the details that they are entering into the notice as certain wrong information has the ability to render the notice ineffective. Section 35 of the Act states that an error in the grantor identifier (which will be the national identity card number or passport number or certificate of incorporation or registration number of the owner of the asset) or the description of the collateral entered by the registrant in a notice renders the registration of the notice ineffective. Other details may not as long as such wrong details do not lead to a serious misrepresentation or deception of the facts but the identifier and the description of the collateral are key.

Should the grantor identifier change after registration, it will also be of vital importance to submit an amendment notice reflecting this change within sixty (60) days of that change to avoid other interests registered in the interim with that new grantor identifier obtaining priority before your interest.


As with all other security registration regimes, the priority of one interest over another in a case of competing security rights, is determined by the time of registration.

Priority and Possessory liens under the Act

Despite the above general rule, it is noteworthy that a possessory lien on goods has priority over a security right in the goods as long as the holder of the possessory lien remains in possession of the goods.

A possessory lien is a lien which secures payment or performance of an obligation for services or materials furnished with respect to goods by a person in the ordinary course of the person’s business.

Priority and Acquisition Security Rights

Similarly, an acquisition security right in consumer goods, equipment, inventory, or intellectual property has priority as against a competing non-acquisition security right created by the grantor. This is provided that a notice with respect to the acquisition security right is registered with the Registrar before the grantor obtains possession of the asset or acquires a right in intellectual property.

An acquisition security right is 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 the extent the credit is used for that purpose.

Furthermore, an acquisition security right of a seller or lessor has priority over a competing acquisition security right of a secured creditor other than a seller or lessor.

When it comes to inventory and intellectual property, where the acquisition security right is to extend to proceeds and those proceeds comprise of receivables, negotiable instruments, or rights to payment of funds credited to a deposit account, the acquisition secured creditor only obtains priority over non-acquisition secured creditors to those proceeds if the acquisition secured creditor notified the latter that it has registered a notice with the Registrar before those proceeds were generated.

Transferability of assets used as collateral

Under section 37, an asset bearing a security right can still be transferred to a new owner. This is provided the new owner is taking the asset together with the obligations of the security right. The secured creditor must also register an amendment notice adding the transferee as a new grantor within ten (10) working days after the secured creditor acquires knowledge of the transfer and the transferee’s identifier.

Security Rights in Receivables

Under section 60 of the Act, notification of a security right in a receivable is effective when received by the debtor of the receivable if it reasonably identifies the encumbered receivable and the secured creditor. Unless the debtor receives this notification, there is nothing stopping them from discharging the debt by paying it in accordance with the original contract. But once received, the debt can only be discharged by paying the secured creditor or by paying as instructed in the notification or in any subsequent communication by the secured creditor in writing.

If the debtor receives notification of more than one security right in the same receivable created by the same grantor, the debtor is only obliged to comply with the first notification received. The debtor is also entitled to request the secured creditor to provide, within a reasonable period of time, adequate proof that the security right in a receivable has been created. Until this proof is provided, the debtor can still pay the grantor directly despite having received the notification.

Under section 61, the debtor is not precluded from raising any defences or rights of set off it may have against the grantor in the amount to be paid, and to claim those against the secured creditor, despite the creation of the security interest. The only defence that cannot be raised is a defence of breach of contract predicated upon a clause that sought to limit the grantor from creating a security interest (section 11 of the Act). The grantor will still be held contractually liable for that breach but it does not affect the rights of the secured creditor. The debtor must still perform the contract in accordance with its terms and the notification by the secured creditor.

And if the grantor fails to perform its obligations under the contract, the debtor cannot seek to recover monies paid to the grantor or the secured creditor pursuant to a notification, in breach of the contract. This is prohibited under section 63 of the Act.

Enforcement of Security Rights

Section 66 to 78 of the Act deal with how a secured creditor may enforce its rights in the event of default by the grantor of the security. First they must write a demand letter that complies with the requirements of section 67 of the Act. If the grantor does not comply with the demand notice, then the secured creditor may: (i) sue for the payment; (ii) appoint a receiver over the asset; (iii) lease the asset; (iv) take possession over the asset; (v) sell the asset; or (vi) take any other action provided in the security agreement or under any other written law.

Under section 73, if the secured creditor opts to dispose of the asset, then they must give a notification of the disposal, in the requisite form, prior to the sale, lease or license of the asset. (At the time of writing this article, no requisite form had been developed for giving this notification). This notification is to be given to the grantor and the debtor at least five (5) working days before the sale, lease or license. The notification must also be given to any other secured creditor who has registered a notice with respect to the collateral, at least five (5) working days prior to the notice to be given to the grantor. However, the notification need not be given if the collateral may perish before the end of ten (10) working days after the secured creditor obtains its possession and may decline in value quickly.

Choice of Applicable Law

Under section 79 of the Act, the grantor and the secured creditor may choose what law they want to apply to them and to govern the security agreement in the agreement itself. However, the law applicable to the creation, effectiveness against third parties and priority of a security right in a tangible asset will be the law of the country in which the asset is located. If the asset is of a type ordinarily used in more than one country, then the law applicable to the creation, third-party effectiveness and priority of that asset will be the law of the country in which the grantor is located.

Where the asset is intangible, then the governing law as pertains to the creation, third-party effectiveness and priority of a security right in that asset will be the law of that country in which the grantor is located.

Where the security right is in a right to payment of funds credited to a deposit account, as well as to the rights and obligations between the financial institution and the secured creditor, the governing law will be that of the country in which that financial institution has its place of business, and if the institution is in more than one country, then it will be the law of the country in which the branch maintaining the deposit account is located.

If the security right is in an electronic security, then the governing law will be the law of the country in which the issuer of that security is located and if in intellectual property, then the law of the country where that intellectual property is protected.


The whole thinking and rationale behind this Act is to aid in improving the ease of doing business in the country by removing bureaucracy and several step processes to effecting registration of securities.

Accordingly, by going electronic, it enables a secured creditor to lodge a notice of a security interest from the comfort of their office without having to visit the registry office. Similarly, it dispenses with the need to stamp and lodge physical documents as a precondition to registration. Finally, it has whittled down the cost of security perfection under this Act to a mere Ksh. 500.

In so doing, it has the trickle-down effect of encouraging financiers to give securities based on movable property because of the ease of protecting and securing these security rights.

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