MOVABLE PROPERTY SECURITY INTERESTS BILL, 2O16
This Bill seeks to provide for movable property to be used as security for the purpose of obtaining loans.
Clauses 1, 2 and 3
These clauses provide for the short title of the Bill (clause 1), the definition of terms that are used in the Bill (clause 2), and the scope of its application (clause 3).
Clause 4 and 5
The Collateral Registry is established by clause 4 as a department of the Reserve Bank headed by a Registrar chosen by the Governor of the Bank. The purpose and function of the Registry is primarily to enable security interests over movable property to be registered by receiving and storing registered notices with respect to security interests (Clause 5). Members of the public will have access to the Registry.
Clause 6 and First Schedule
This clause and the related First Schedule set out the procedure in connection with the registration of a security interest in an item of movable property. The creation of a security interest is dealt with in paragraph 2 of the First Schedule, and the obligations that may be secured is pruvided for in paragraph 3, In terms of paragraph 2(5) a security interest is perfected only on its registration in the Collateral Registry. Paragraph 4 makes provision forthe description of the assets that are to be encumbered. The extent to which a negotiable document includes within the scope of the security the tangible asset to which it relates is specified in paragraph 5. In terms of paragraph 6 the identiliable proceeds of an asset will be regarded as part of tlre asset. The requirements for the registration of an asset arc spelt out in paragraphs 7 to 18, in parlicular the information that must be in the initial notice (paragraph 11), the debtor identification (paragraph 12), the details relating to a secured creditor (paragraph 13) and the description of the collateral (paragraph 14), and the language ofthe registered notice of security (paragraph 15). The effectiveness of the registration of a notice is provided for in paragraphs 16 and 17. The amendment and cancellation of a notice is set out in paragraphs 19 and 29.
Paragraphs 21 makes provision for searches in the Registry. Errors relating to the registration ofa notice are provided for in paragraph 22. Fees payable to the Registry are provided for in paragraph 25.
Clause 7 and Second Schedule
This clause and the related Second Schedule set out the legal regime pertaining to registered movable propefiy interests. Paragraph 3 provides for how security interests in fungibles (commingled assets of the same kind) are to be secured. Under paragraph 4 the contractual limitations on the creation of a security interest are provided for. Paragraph 6 requires a secured creditor who transfers a security interest to register an amendment notice. The priority of security interests is prrrvided for in Part III of the Second Schedule. The time of registration of several security interests in relation to one debtor will determine the priority of competing security interests in terms of paragraph 7. The priority of security interests in proceeds is set out in paragraph 8. The rights of buyers, other lransferees, lessees or licensees ofcollateral is provided for in paragraph 12. The impact of insolvency or iquidation proceedings or the preference to be accorded to registered interest is provided for in paragraph 13. The rights of non-consensual creditors is set out in paragraph 14. Acquisition security interests are dealt with in paragraphs 15 to 17, while paragraph 18 makes provision for priority of security interests in fungibles.
Part IV of the Second Schedule makes provision forthe rights and obligations of parties. A debtor or a creditor is required by paragraph 21 to take reasonable care to preserve the asset. Under paragraph 21, a secured creditor is required to return the asset to the debtor. Also under that paragraph a debtor has the right to obtain information regarding the secured obligation. Paragraph 24 deals with the effect of notification of security interests with respect to debtors. The defences and rights of set-off of a debtor of receivables is provided for in paragraph 25. Paragraph 27 makes pnrvision for damages.
Part VI deals with the law that is applicable between a debtor and a secured creditor. Under paragraph 37 provides for choice of law and the applicable law in the absence of choice of law. In tenns of paragraph 38 the law of the country in which the tangible asset is located is the applicable law. Paragraph 39 stipulates the applicable law with respect to intangible assets. The meaning of the location of a debtor is provided for in paragraph 42. The law applicable to the relationship of third parties and secured creditors is set out in paragraph 44.
The enforcement of security interests is provided for in this clause and Part V of the Second Schedule. Every registered notice of a security interest will be treated as a liquid document, regardless of the nature of the collateral or of the obligation secured by the registered notice. Paragraph 30 of the Second Schedule makes provision for cases where a debtor fails to make payment to the secured creditor. Under paragraph 31 a secured creditor is emp,clwered to attach the immovable property of a defaulting debtor.
Under this clause registered notices and other entries in Collateral Register are to be conclusive proof of rights and obligations.
This indemnifies the Registrar of the Registry and the Reserve Bank for any loss or damage sustained as a result of the bona fide exercise or perfornance of any function, power or duty conferred or imposed on the person concerned try this Act. However, damage or loss caused by negligence is not indemnified.
This clause will empower the Minister to make regulations to give effect to the provisions of this Bill.
This Clause will provide for consequential amendments to various Acts.
This Clause deals with transitional provisions. It enables the registration of prior security interests by mutual consent of the debtor and creditor.
Note by Veritas: This Bill was gazetted on 28th November 2016.