The Movable Property Security Rights Act, 2017 aims at facilitating the use of moveable property as security by both individuals and corporates and to provide for the registration of security rights in moveable property. It also improves the ease of doing business by enabling the instant, remote and efficient registration of security rights of movable properties through an electronic platform. The Act came into force on 16th May, 2017, with the Movable Security Rights (General) Regulations, 2017 coming into force on 2nd June, 2017.
OBJECTIVES OF THE ACT.
The objectives of the act are listed in Section 3 of the Act which are to:
- promote consistency and certainty in secured financing relating to movable assets;
- enhance the ability of individuals and entities to access credit using movable assets; and
- Establish the office of the Registrar and a Registry to facilitate the registration of security rights in movable assets.
SCOPE OF THE ACT.
The Act governs secured transactions between a borrower and a lender where in return for a loan advanced, the borrower gives movable property as security or collateral. It applies to security rights in movable assets including every transaction that secures the payment or performance of an obligation, chattel mortgages, credit purchase transactions, credit sale agreements, floating and fixed charges, pledges, trust indentures, trust receipts and financial leases.
PROCEDURE FOR REGISTRATION.
The secured creditor has the obligation of registering the initial notice under the Act so as to secure their interest in the collateral in case of default. As a prerequisite, anyone intending to register any security in the Collateral Registry must have an E-Citizen account. For more details on the registration process you can visit our offices for guidance.
As at the time of registration, a time stamp is generated in real time and serves to notify the entire world that the applicant is the secured creditor over the registered collateral. It is important to note that priority among competing security rights is determined according to the time of registration of the initial notice.
JOINT REGISTRATION AND SEARCHES IN REGARDS TO MOTOR VEHICLES.
The Act is important to lenders and/or financiers in that it provides for the use of motor vehicles which are commonly used as a form of security. Prior to the enactment of the MPSR, financiers were jointly listed as owners on the NTSA TIMS portal. The search would reveal whether there are other co-owners of the vehicle such as a bank, a micro-finance institution or other creditor such as a motor vehicle dealer. Currently, it is still possible for financiers to be registered as co-owners where the borrower charges the vehicle to secure a loan.
With the enactment of the MPSR Act, there was established a collateral registry in which securities secured over movable assets are registered. Motor vehicles fall under this category. Any financier advancing a loan to a borrower with a vehicle as security ought to conduct a search in the collateral registry to ensure that there are no encumbrances on the vehicle and more importantly to register the initial notice so as to become a secured creditor.
POSSIBLE REFORMS.
While the enactment of the MPSR can be hailed as marking a new dawn by enabling the use of movable assets to secure financing, that is not to say there are no teething issues. The NTSA TIMS platform and the Collateral Registry operate as two independent platforms despite dealing with registration of interests in motor vehicles. In an ideal situation, there should be information exchanged between the two registries in regards to ownership and creation of securities over motor vehicles however that is not happening at present. The fact that it is possible for financiers to register security rights on both platforms means there is a duplication of that role. Perhaps this presents an opportunity to clearly define the mandate of each registry so that the NTSA TIMS search reveals true ownership on the one hand and the MPSR search reveals any secured transactions with respect to the motor vehicle in question on the other.
CONCLUSION.
With that in mind and out of abundance of caution, it would be prudent for a financier to conduct both NTSA TIMS and MPSR searches prior to advancing loans to borrowers to reveal any secured transactions. Similarly, if the Grantor is in default, due diligence should include both searches prior to attachment of the motor vehicle.
