Upon lending against movable property, a lender should register the interest in the collateral (the security interest) in the Collateral Registry. Registration is effected by filing a ‘financing statement’ – not a ‘financial statement’. Once registered, the security interest is said to have been ‘perfected’. As later discussed, there three alternatives to perfection, the primary one being registration.
A lender whose security interest has been perfected acquires a priority claim over the collateral. Thus, should more than one perfected interest exist in the collateral, priority will be determined by the order of perfection. The date and time of registration is therefore critical.
Details to be submitted on registration are stipulated under section 13 of the Act while section 14 outlines grounds upon which a financing statement may be denied registration. Information required includes adequate description of the collateral, the debtor and creditor, maximum amount for which the secured obligation may be enforced and a declaration that information provided is accurate and compliant with the Act. This information should be inputted in respective fields on the website.
Registration of a financing statement should be made by the creditor. Further to section 12(1), by entering into a security agreement, a debtor is deemed to automatically authorise a lender to register the security interest in the Collateral Registry. Section 12(3) provides nonetheless permits a creditor to register through an agent. However, a financing statement can only be registered before conclusion of the security agreement with the written consent of the debtor
The Collateral Registry is a notice as opposed to a document filing registry. Thus, unlike the register of charges and mortgages under the Companies Act, for example, where mortgage deeds have to be lodged, there is no requirement to submit security agreements. Only pertinent information required under section 13, should be submitted. However, provision has bene made on the website for attaching key documents such a scanned copy of a motor vehicle white book, if so desired
Further to section 12(2), a single financing statement could relate to more than one security agreement.
Registration may relate to newly created security interests or security interests that were created prior to the enactment of the Act – under other laws – or created in other jurisdiction. Security interests created prior to the Act had to be perfected within 6 months of the Act coming into force. Financial and other lenders were requested to provide this information. The information was in-turn migrated onto the Collateral Registry at no cost.
In addition, security interests that had been executed by companies over movable property and registered in the register of charges and mortgages, were automatically migrated. The 6 months period having lapsed, pre-existing security interests cannot longer enjoy the priority the law sought to grant them. They would therefore be treated like any new security interest.
Who Can Transact with Collateral Registry?
While creditors are the principle users of the Registry (as they register, discharge and make alterations to registered financing statements), the Collateral Registry is for both lenders and borrowers. Borrowers may interact with the Registry by conducting searches. No user account is required to conduct a search. Anyone can conduct a search on the Register. To register a statement, a lender should first open a user account. A search may seek to establish whether an asset is encumbered or verify whether a financing statement has been discharged following payment of a debt or performance of the secured obligation
Natural persons, incorporated bodies and unincorporated bodies such as business names or entities registered under the Societies Act can transact with the Registry either as debtors or creditors. Incorporated bodies may be companies incorporated under the Companies Act, trusts registered under the Lands (Perpetual Succession) Act or cooperatives registered under the Cooperative Societies Act of 1998.
Under the Movable Property (Security Interest) Act, a lender need not be a formal, registered or licensed corporate/unincorporated body such as a commercial bank or micro finance institution. Any lender, irrespective of the legal statutes, can protect their security interests by having them registered. The danger of failing or neglecting to register a security interest is that, should the same asset be used as collateral in another transaction and the subsequent lender registers its interest in the collateral, the first lender would be deprived of priority despite being the first to lend against the asset.
As such, it is critical that lenders not only register their interests but also conduct searches in the Collateral Registry before lending to establish whether the asset being put forth as collateral is not subject to other third party interests.
When Should a Financing Statement be Registered?
A financing statement can be registered before or after execution of a security agreement. But as earlier observed, it can only be registered before execution of a security agreement where a creditor wishes to secure interest in the collateral with the consent of the debtor. The general rule is for a financing statement to be registered after execution of the security agreement.
Registration Procedure
As indicated, the first step to transacting in the Collateral Registry is to create a user account. A user account enables the creditor to access records relating to the registered financing statement, through a unique user name and password. When combined, the user name and password constitute the signature of the concerned user. Under regulation 15(2) of SI No. 77 of 2016, any document lodged or transaction made under a user name and password, is deemed to have been signed for by the person or entity allocated the user name and password. It follows that user words and passwords should be kept secret.
Payment can be made per transaction, through a visa enabled card, or through a virtue account, for bulk filers approved by the Agency.
Serial Numbered Goods
Collateral is any asset that can be given by the debtor against the value of a loan. The Act defines Collateral as movable property, whether tangible or intangible, that is subject to a security interest.
Proof of Registration
An applicant for registration of a security interest is issued with a ‘confirmation statement’ as proof of registration. The confirmation statement is also issued electronically. The lender is in-turn required to furnish the debtor with a copy of the confirmation statement within fourteen (14) days of receipt. Section 16 provides: –
16. (1) The Registrar shall, on registration of a financing statement or an amendment to a registered financing statement in the Collateral Registry, provide a confirmation statement electronically to the person who registered the financing statement or amendment to the registered financing statement.
(2) A secured creditor shall, not later than fourteen working days after the day on which the secured creditor received the confirmation statement, give a copy of the confirmation statement to the debtor.
Effect of Registration
Once registered, the security interest to which the financing statement relates is deemed to have been perfected. Perfection entails the security interest becoming binding on third parties i.e. parties that are not party to the security agreement. Perfection is effective from the date and time that the security agreement is registered in accordance with section 15. Section 15 provides: –
15. The registration of a financing statement shall be effective from the date and time when the information in the financing statement is entered into the Collateral Registry and a registration number is assigned to it.
Duration of Registration
Further to section 19, the term of registration for a financing statement is five years. Where the loan or secured obligation exceeds 5 years, the secured creditor has the option of renewing the registration for further periods of five years. The renewal should be made before the expiration of the term, through an amendment.
19. (1) Despite the Law Reform (Limitation of Actions, etc.) Act, a registered financing statement shall remain valid—
- for the term specified in the registered financing statement which shall not exceed five years;
- for a period of five years after the date of registration of the financing statement, commencing on the date of registration; or
- Until the date of discharge and removal of the registered financing statement from the Collateral Registry.
(2) The period of registration of a financing statement may be extended or renewed before expiry of the period of registration by the registration of an amendment to the registered financing statement that indicates a new period of validity which shall not exceed five years’.