How To
Register a Financing Statement
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.
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.
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.
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.
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.
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.
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.
Information Required for Registration
Section 13 stipulates information required and provides: -
13. (1) A secured creditor who intends to register a financing statement in the Collateral Registry shall ensure that the financing statement contains the following information: - (a) in the case where the debtor is a natural person, the name, date of birth, identification number and address of the debtor; (b) in the case where the debtor is a corporate or unincorporated body, as the case may be, the name, address, registration or incorporation number of the corporate or unincorporated body and the name or job title and contact details of the person acting on behalf of the corporate or unincorporated body; (c) in the case of a natural person, the name, date of birth, identification number and address of the secured creditor; (d) in the case of a corporate or unincorporated body, as the case may be, the name, address, registration or incorporation number of the corporate or unincorporated body and the name or job title and contact details of the person acting on behalf of the corporate or unincorporated body; (e) a description of the collateral; (f) the date of effectiveness, perfection or any prior registration under any other written law; (g) the maximum amount for which the secured obligation may be enforced; (h) the term of effectiveness of the registration which shall not exceed five years; (i) a statutory declaration certifying that the information registered is true and complies with the Act; and (j) any other appropriate information under this Act or as prescribed by regulations issued under this Act. (2) Collateral, other than that which is described by a serial number as prescribed, shall be described as contained in a security agreement provided for in section thirty-four.
Section 13 is supplemented by regulations 6 to 9 of SI 77 of 2016. Regulations 6 outlines particulars to be provided where there are joint debtors or secured creditors. It states: -
6. Where a financing statement involves more than one debtor or secured creditor, the particulars of each debtor or secured creditor shall be entered in separate designated fields on the financing statement’.
Regulation 7 prescribed particulars to be provided where the debtor or creditor is a natural person. These include date of birth, address, national registration number or passport for foreign nationals. Address is defined as including a physical address, post office box number and postal Code; village and district address; or an electronic address. Regulation 7 states: -
7.(l) The details for the identification of a natural person in a financing statement under section 13 of the Act shall include the debtor’s or secured creditor’s. (a) full names as they appear on the relevant official identification documents; (b) national registration card number in respect of Zambian citizens or residents and identification numbers for non- Zambian citizens as they appear on official identification documents; (c) date of birth; and (d) address. (2) For the purposes of this regulation, an official identification document includes a national registration card, passport or driver’s licence. (3) Where a debtor or secured creditor is not a citizen or Zambian resident, the debtor’s or secured creditor’s official identification documents shall be the passport or other similar documents issued by a foreign government and approved by the relevant Zambian authority.
In the case of a body corporate, information required includes the name, job title and particulars of the person acting on behalf of the corporate body. Regulation 8 provides: -
8. Where a debtor or secured creditor is a body corporate, the financing statement shall include (a) (the name of the body corporate and the registration number specified in a document constituting the entity under the relevant laws of Zambia or laws of another jurisdiction; (b) the name, job title, capacity and other details of the person acting on behalf of the body corporate; and (c) the physical address of the body corporate.
In the case of a debtor or creditor that is an unincorporated body, information required is similar to that required for a body corporate. The only difference is the additional requirement to indicate the name, date of birth, identification number and address of the proprietor or the person with an interest in the unincorporated body. This is stipulated under regulation 9, thus: -
9. Where a debtor or secured creditor is an unincorporated body, the financing statement shall include the following information: (a) he name of the unincorporated body and the registration number specified in a document constituting the entity under the laws of Zambia or laws of another jurisdiction; (b) the name, job title, capacity and other details of the person acting on behalf of the unincorporated body; (c) the name, date of birth, identification number and address of the person registered as proprietor or with an interest in the unincorporated body; and (d) the physical address of the unincorporated body.
Regulation 10 of SI No. 77 stipulates as follows in relation to information required when re-perfecting security interests perfected in other jurisdictions: -
10. Where a financing statement relates to a security interest which was perfected or made effective against third parties under, another law before the commencement of the Act, the following information shall be provided in the financing statement: (a) the date of creation of the prior security interest; (b) the nature and type of the prior security interest, whether floating charge, fixed charge or similar interest; (c) the date of perfection or prior registration of the security interest; and (d) the law under which the security interest was perfected or made effective against third parties.
Obtain Certificate of Status
A certificate of status may be obtained as proof of the status of the concerned registration. While a search report and certificate of status contain identical information, a certificate of status may be preferred where a party intends to use it as evidence in a court of law as is it sealed. In addition, further to section 28, it constitutes conclusive evidence of the information it relates to.
28. (1) The Registrar may, upon request and payment of a prescribed fee, issue a certificate of status of a registered financing statement which conclusive evidence of the existence of the information in the Collateral Registry as of the date and time of the issuance of the certificate of status or a certified copy’. (2) The Registrar shall, on the payment of the prescribed fee, provide a secured creditor or any other person with a certified copy of any document, stored in the Collateral Registry, which the secured creditor or any other person seeks to obtain. The procedure for requesting for a certificate of status is prescribed under regulations 18, thus: - 18. (1) A request for a certificate of status under section 28 of the Act shall be in Form VI set out in the First Schedule. (2) The certificate of status shall be issued electronically in Form VII set out in the First Schedule.
A party seeking evidence for use in legal proceedings may also, under section 27, request the Registrar to certify a document issued by the Registry as a true copy thereof. Such certified copy shall be admissible in evidence and constitute conclusive evidence of information stated therein.
Invalidity of Registration of a Financing Statement
Section 17 outlines the errors or irregularities that render a registration of a financing statement invalid. These include errors relating to the name and identification number of the debtor or the serial number of the collateral. It should however be noted that under subsection 2, the invalidity only extends as far as the respective debtor or the collateral concerned. In addition, further to subsection 3, an error in the description of the name and identification of debtor does not nullify the registration if the serial number of the good is correct.
Further, under subsection 4, errors relating to the description of the collateral, other than the serial number, only apply if the error is seriously misleading while subsection 5 excludes errors relating to incorrect description of collateral which forms part of collateral that has is adequately described or particulars voluntarily entered by the secured creditor. Invalidity of a registration does not entitle the applicant to repayment.
Section 17 prescribes: -
17. (1) Notwithstanding section eighteen, and subject to subsection (2), the registration of a financing statement or amendment to the registered financing statement shall be invalid if the registered financing statement or amendment to the registered financing statement has a defect, irregularity, omission or error in the— (a) name and identification number of the debtor; or (b) serial number of the collateral, if the collateral is of a kind that is required to be described by a serial number. (2) A defect, an irregularity, omission or error in a registered financing statement or amendment to the registered financing statement relating to the— (a) name and identification number of a debtor shall render the registration invalid only with respect to that debtor; or (b) serial number of the collateral shall render the registration invalid only with respect to the collateral identified by the serial number. (3) A registered financing statement or amendment to the registered financing statement that contains a defect, an irregularity, omission or error in the name and identification number of the debtor but correctly indicates the serial number of the collateral remains valid with respect to that collateral. (4) A defect, an irregularity, omission or error in a registered financing statement or amendment to the registered financing statement of the description of the collateral, other than the serial number, shall render the registration invalid with respect to that collateral if the error may seriously mislead a person. (5) The following shall not render invalid the registration of a financing statement or amendment to a registered financing statement: (a) an incorrect description of some collateral which is part of other collateral adequately described; or (b) a defect, an irregularity, omission or error in— (i) the name, identification number or address of the secured creditor; (ii) the address of the debtor; or (iii) any other information voluntarily entered by the secured creditor. (6) Despite any other provision of this Act or other written law, a fee paid for the registration of a financing statement or an amendment to a registered financing statement shall not be refunded if the registration is invalidated in accordance with this Act’.
Section 18 outlines additional circumstances under which irregularities in information submitted may not invalidate a registered financing statement. Under this section, the error must not be of a ‘material nature’ and ‘seriously’ misleading. It provides: -
18. (1) Subject to section seventeen, the validity of a registered financing statement is not affected by any defect, irregularity, omission or error in the financing statement, unless the defect, irregularity, omission or error is of a material nature and is seriously misleading as specified in section seventeen. (2) For the avoidance of doubt, in order to establish that a defect, irregularity, omission or error is of a material nature and is seriously misleading, it shall not be necessary to prove that a person was actually misled by it. (3) The failure to include a description of any item or kind of collateral in a financing statement or amendment to a registered financing statement or an inadequate description of the collateral shall not affect the validity of the registered financing statement in respect of the description of another collateral included in the registered financing statement or amendment to the registered financing statement.
Any party aggrieved with the decision of the Registrar is at liberty to appeal against such decision within 30 days. The Act does not however specify the court to which the appeal lies. Accordingly, it may be either the subordinate court or the high court, depending on the amounts involved. Section 29 stipulates: -
29. A person aggrieved by a decision of the Registrar may appeal to a court against the decision, within thirty days after the date on which the person is notified of the decision, and the court may confirm, reverse or vary the decision or make such order or give such directions in the matter as are appropriate.
A search is defined as an electronic examination of the records contained in the Collateral Registry . Any person can conduct a search in the registry. Two types of searches are available, official and none official search. A non-official search does not attract payment but only provides basic information. Conversely, an official search is more detailed. Section 26 provides, in relation to searches: -
26. The Collateral Registry office shall be open to the public at reasonable working hours and any person may search the Collateral Registry electronically and obtain a copy of the search results in accordance with this Act and regulations made by the Minister and upon payment of such fee as may be prescribed for the search.
Section 26 is complemented by regulation 17 of the Statutory Instrument No.77 of 2013, the Movable Property (Security Interest)(General) Regulations, 2016. Regulation 17 prescribes the procedure for conducting searches and imposes and places an obligation on the Collateral Registry to keep records of expired or discharged financing statements for six months. Thereafter, the records are not publicly searchable. As the registry is electronic, the Form VI by a search is made, has been embedded in the website.
It is also noteworthy that even where the search does not yield the desired result e.g. no registered financing statement is found, the search is still be deemed to have been conducted. Thus, the applicant for a search cannot use that as a basis for claiming refund of search fees. Regulation 17 provides: -
17. (1) A person may conduct a search of the Collateral Registry in Form VI set out in the First Schedule without providing reasons or justification for the search. (2) A search may be conducted by search criteria that allows the specific identification of a debtor, serial number, collateral, financing statement registration number or generation of statistical information. (3) The Collateral Registry shall maintain a record of financing statements that have expired and make them publicly searchable for six months from the date of the expiration of the financing statements. (4) Any records relating to expired or discharged financing statements shall not be publicly searchable after six months of the discharge or expiration of the financing statement and shall be archived. (5) A search shall be deemed to have been conducted irrespective of the outcome’.
Priority of SI
Priority is dependent on whether the security interest has been perfected or not and if so, when it was perfected. A perfected interest has priority over an unperfected interest while an earlier perfected interest has priority over an interest perfected later. Therefore, in the case of interests perfected by registration, the prior registered interest enjoys priority. Section 52 provides: -
52. Priority between security interests is determined as follows:
(a) a perfected security interest shall have priority over an unperfected security interest;
(b) as between two or more perfected security interests, priority shall be determined by the order of the following actions, whichever first occurs:
(i) the registration of a financing statement;
(ii) the secured creditor, or another person acting on the secured creditor’s behalf, taking possession of the collateral; or
(iii) the secured creditor, or another person acting on the secured creditor’s behalf, acquires control of the collateral; and
(a) between unperfected security interests in the same collateral, priority shall be determined by the order in the date of creation of the security interest.
It noteworthy that further to section 3 of the Schedule to the Act, the Movable Property (Security Interest) Act applies to priorities of competing security interests irrespective of the law they are perfected under In essence, recourse in cases of conflicts in priority, should be to the Act. The Act provides: -
3. (1) This Act applies to priorities of competing security interests whether perfected under this Act or under any other law.
(2) The priority of a prior security interest is calculated from the date that it was perfected or made effective against third parties under any other law.
Priority ranking in proceeds is the same as in the original collateral. Thus, if the security interest was second in ranking, the security interest in the proceeds will equally rank second. This is in accordance with 53 which provides: -
53. The priority of a security interest in original collateral is the same priority that shall be accorded to its proceeds.
Under section 54, transfer of a security interest does not affect priority. Section 54 provides: -
54. A security interest that is transferred has the same priority as it had at the time of the transfer.
Section 56 clarifies that a security interest has the same priority in both current and future obligations and advances. An example may be collateral acquired after execution of a security agreement (after acquired property). Section 56 provides: -
56. A security interest has the same priority in respect of all secured obligations and advances, whether existing or future.
A secured creditor may subordinate a prior perfected security interest to a later competing interest. The subordination is effected by registering an amendment to the registered financing statement. Only a party consenting to the subordination is affected by the subordination
A purchase money security interest is defined in the following terms : -
‘(a) a security interest in collateral taken or retained by a seller or financial lessor to secure all or part of the purchase price of the collateral;
(b) a security interest taken by a person who provides credit to enable a debtor to acquire the collateral if such credit is in fact so used;
(c) an interest of the lessor under an operating lease with a term that exceeds one year; or
(d) an interest of a consignor who delivers goods to a consignee under a commercial consignment, excluding a transaction of sale and lease back to the seller’.
A purchase money security interest (pmsi) and its proceeds have priority over a non-purchase security interest created by the same debtor where the purchase money security interest is perfected when the debtor receives the collateral. As for a purchase money security interest in inventory, it enjoys priority only if perfected before the debtor takes possession of the inventory and the secured creditor has notified other parties with interests perfected by registration, of the intention to take a purchase money security interest. Section 57 provides: -
57. (1) A purchase money security interest in collateral and its proceeds have priority over a non-purchase money security interest in the same collateral created by the same debtor if the purchase money security interest is perfected when the debtor receives the collateral.
(2) A purchase money security interest in inventory and their proceeds has priority over any other security interest in the same collateral given by the same debtor to a secured creditor only if the purchase money security interest is perfected before the debtor receives possession of the inventory and the secured creditor notifies any other secured creditor with a registered financing statement against inventory of its intention to take a purchase money security interest.
A purchase money security interest in goods, in favour of a seller lessor or consignor, has priority over other purchase money security interests in the same collateral not given to any seller, lessor, or consignor of the collateral.This is per section 58 which provides: -
58.A purchase money security interest in goods or their proceeds taken by a seller, lessor or consignor of the collateral, has priority over any other purchase money security interest in the same collateral given by the same debtor to a secured creditor that is not a seller, lessor or consignor of that collateral.
Termination could be on account of expiration of the period of registration or abrogation of the security agreement.
A purchase money security interest in fixtures enjoys priority over existing rights in fixed assets (immovable property) as long as the security interest is perfected by registration before another party acquires rights in the property. Section 59 in that regard provides: -
59.A purchase money security interest in fixtures has priority as against a third party which has existing rights in the immovable property provided that the financing statement is registered in the Collateral Registry before the third party acquires rights in the immovable property.
The Act provides guidance with respect to priority vis-à-vis goods prior to accession, processed or commingled goods, bank accounts, transferred assets, payments, purchase of negotiable instruments, investment security and negotiable documents, assignment of accounts receivables, liens in goods and judgements.
A security interest perfected before accession has priority over later interests made in respect of the asset embodying the accession. Accession is defined as goods that are physically attached to other goods without losing the identity of each group of goods which maintain their original identity.Section 60 to this end provides: -
60. A security interest in goods that is created and perfected before the goods become an accession has priority over a claim to the goods as an accession made by a person with an interest in the whole.
Commingled goods are goods are mixed with goods of the same kind to become part of a product or mass so as to have lost their original identity in the product or mass . A perfected interest is not lost on account of the goods being commingled with other goods. Where more than one perfected interest exists in commingled goods, the security interests rank equally in proportion to the value of goods at the time they became part of the product or mass. Section 61 states: -
61.(1) A perfected security interest in goods that subsequently become part of a product or mass continues as a perfected security interest in the product or mass, if the goods are so manufactured, processed, assembled or commingled that their identity is lost in the product or mass.
(2) If more than one security interest is perfected in the goods before they become part of a product or mass, the security interests rank equally in proportion to the value of the goods at the time they became part of the product or mass.
A security interest in a bank account perfected by control has priority over other competing interests perfected by registration even if the perfection by registration was earlier. Section 62 provides: -
62. (1) A security interest in a bank account perfected by control has priority as against a competing security interest perfected by registration, irrespective of the time when control was acquired.
(2) If a bank or Corporate/Unincorporated Body perfected its security interest by acquiring control automatically, such security interest has priority as against any other security interest in the bank account.
A perfected security interest in collateral that is transferred while subject to the perfected interest enjoys priority over any other interest created by the transferee. This is as provided under section 63 thus: -
63. If a debtor transfers an interest in collateral which, at the time of the transfer is subject to a perfected security interest, that security interest has priority over any other security interest created by the transferee.
A recipient of funds from a bank receives the money free of any security interest provided there is no collusion with the debtor against the rights of the secured creditor. Section 64 thus stipulates: -
64. A recipient of money or funds from a bank account shall receive such money or funds free of a security interest, unless the recipient acts in collusion with a debtor in violating the rights of a secured creditor.
An investment security is defined a security as defined in the Securities Act and includes an instrument issued in bearer or registered form as a type commonly recognised as a medium for investment and a share or other interest in the property or enterprise of the issuer.
A negotiable document, on the other hand, is a document such as a warehouse receipt or a bill of lading, that embodies a right to delivery of tangible assets and satisfies the requirement for negotiability under the law governing the document while a negotiable instrument is an instrument such as a cheque, bill of exchange or promissory note, that embodies a right to payment and satisfies the requirements for negotiability under a law governing negotiable instruments.
A purchaser of any of these 3 instruments has priority if they are purchased for value, without knowledge of any breach of the security agreement and takes possession of the instrument. Section 65 accordingly provides: -
65. A purchaser of a negotiable instrument, investment security or negotiable document has priority over a perfected security interest in the negotiable instrument, investment security or negotiable document if the purchaser—
(a) gives value;
(b) acquires the negotiable instrument, investment security or the negotiable document without knowledge that the transaction is a breach of the security agreement to which the security interest relates; and
(c) takes possession of the negotiable instrument, investment security or the negotiable document.
Rights of an assignee of accounts receivables are subject to the terms of the contract between the accounts debtor and the assignor and any claim or defense arising from the contract or of the account debtor, including a right to set off. Section 66 provides: -
66. (1) The rights of an assignee of an accounts receivable are subject to—
(a) the terms of the contract between the account debtor and the assignor and any defence or claim arising from the contract; and
(b) any other defence or claim of the account debtor against the assignor, including a defence by way of a right of set-off that accrues before the account debtor receives notification of the assignment.
(2) Subsection (1) does not apply if the account debtor has made an enforceable agreement not to assert defences to claims arising out of the contract.
A possessory lien over goods sold in the ordinary course of business has priority over competing security interests but only to the extent of the value of materials or services rendered. A lien has not been defined and should therefore be given its natural, common law definition. Section 66 provides: -
68. A possessory lien arising out of materials or services provided in the ordinary course of business in respect of goods that are subject to a security interest, has priority over the security interest but only up to the reasonable value of the materials or the services rendere’
A judgement creditor or creditor whose lien arises by operation of law has priority over interests that are not perfected at the time of execution.
The time of execution may be when the asset is seized, if liable to seizure, or when the financing statement relating to a judgement or lien is registered or when the person holding the property is served with a court order.
The priority extends to credit disbursed by a secured creditor before expiration of 30 days of the judgement creditor or creditor whose lien arose by operation of law, being notified or pursuant to an irrevocable commitment to extend credit where the commitment was made before the judgement creditor or creditor took steps to execute the judgement in accordance with section 69(2).
As for priority of competing security interests, they are to be determined in accordance with section 52.
Section 69 provides: -
69. (1) The interest of a judgement creditor, including a creditor whose lien arises by operation of law in any collateral has priority over any security interest in the same collateral if the security interest is unperfected at the time of execution.
(2) In this section, “time of execution” means—
(a) if the collateral is seized by or on behalf of an execution creditor, at the time of seizure;
(b) when the financing statement that relates to a judgment lien or lien arising by operation of the law is registered; or
(c) in any other case, the time when a court order is served on the person holding property for, or on behalf of, the debtor.
(3) The priority of an interest determined, in accordance with subsection (1), as against perfected security interests, is determined according to section fifty-two, and the time of execution is deemed to be the time of perfection.
(4) The priority of a security interest extends to credit disbursed by a secured creditor—
(a) before the expiry of thirty days after the judgement creditor or a creditor whose lien arose by operation of law has notified the secured creditor that it had taken the steps referred to in subsection (2); or
(b) pursuant to an irrevocable commitment to extend credit, if the commitment was made before the judgement creditor or a creditor whose lien arose by operation of law notified the secured creditor that it had taken the steps referred to in subsection (2).
MPRS Guide - How to create a SI
Failure to perfect a security interest deprives the interest holder of the ability to enforce his rights against third parties. The corollary is that any competing perfected interest in the collateral would take precedence. A perfected security interest has priority over an unperfected interest while perfected interest rank according to the order of perfection. Thus, not only should a security interest be perfected but it should be perfected soon after execution of the security agreement
A party seeking evidence for use in legal proceedings may also, under section 27, request the Registrar to certify a document issued by the Registry as a true copy thereof. Such certified copy shall be admissible in evidence and constitute conclusive evidence of information stated therein.
Three methods of perfecting a security interest are provided under the Act, namely, registration, possession and control. Section 44 provides: -
44.(1) A security interest is perfected when—
(a) the security interest has been created; and
(b) either
(i) a financing statement has been registered in respect of the security interest;
(ii) the secured creditor, or another person acting on behalf of the secured creditor has possession of the collateral; or
(iii) the secured creditor or another person acting on behalf of the secured creditor has control of the collateral that is a bank account.
(2) Subsection (1), applies regardless of the order in which the steps referred to in paragraph (b) of subsection (1) have occurred.
It is important to note that the 3 modes of perfection are not mutually exclusive. Thus, it is theoretically possible for the same collateral to be the subject of 2 or more types of perfection. The first to perfected rule nonetheless remains applicable. Thus, priority will depend on order perfected as per section 52(b) of the Act which provides thus: -
‘(b) as between two or more perfected security interests, priority shall be determined by the order of the following actions, whichever first occurs:
(i) the registration of a financing statement;
(ii) the secured creditor, or another person acting on the secured creditor’s behalf, taking possession of the collateral; or
(iii) the secured creditor, or another person acting on the secured creditor’s behalf, acquires control of the collateral;.
A security interest is perfected by registration when it is registered in the Collateral Registry. A registered financing statement has been defined as a financing statement that has been registered in the Collateral Registry in accordance with section twelve of the Act. Perfection by registration is the principle mode by which security interest are perfected.
In terms of section 15 of the Movable Property (Security Interest) Act, perfection by registration occurs the moment the financing statement is lodged and a registration number issued. Section 15 stipulates ‘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’.
For serial number goods, it is a mandatory requirement, for registration of a financing statement, that the serial number be indicated.
Payment can be made per transaction, through a visa enabled card, or through a virtue account, for bulk filers approved by the Agency.
Possession is defined as possession of collateral by a secured creditor that is not in actual or apparent possession or control of a debtor or a debtor’s agent . Perfection by possession applies where a secured creditor takes possession of the collateral immediately after execution of the security agreement - as part of the security arrangement - and not when the security interest falls due for enforcement. The disadvantage with perfection by possession is that the debtor is deprived if the use of the collateral.
Section 44(4) thus provides: -
‘(4) For the purposes of this section, a secured creditor is not in possession of collateral that is in the actual or apparent possession or control of the debtor or the debtor’s agent’.
Section 44(3) provides as follows in relation to perfection by control: -
‘(3) Control exists, with respect to a bank account—
(a) automatically upon the creation of a security interest if a bank or Corporate/Unincorporated Body that maintains the bank account is the secured creditor; or
(b) upon conclusion of a control agreement’.
The Act does not define ‘control’ but defines ‘control agreement’ as an agreement between a bank or Corporate/Unincorporated Body with a debtor who is a customer of the bank or Corporate/Unincorporated Body and a secured creditor, in which the bank or Corporate/Unincorporated Body has agreed to follow instructions from the secured creditor without the further consent of the debtor’.
Control is restricted to commercial banks. It applies to funds kept in a bank account. Bank has been assigned the meaning under the Banking and Financial Services Act. Under the Banking and Financial Services Act, a ‘bank’ is defined as a company conducting banking business while ‘banking business’ is defined as
(a) the business of receiving deposits from the public including chequing account and current account deposits and the use of such deposits, either in whole or in part, for the account of and at the risk of the person carrying on the business, to make loans, advances or investments;
(b) financial services; and
(c)any custom, practice or activity prescribed by the Bank of Zambia as banking business’
Meanwhile, a bank account is defined under section of the Movable Property (Security Interest) Act as an account, maintained by a bank or Corporate/Unincorporated Body, to which monies for a customer are credited, and includes monies received by the bank but not yet credited into the customer’s account. It follows from the above two provisions that a bank could be any deposit taking institution. Accordingly, a bank account could be any deposit account.
Under section 44 (3), a perfected security interest exists automatically the moment a bank account is created. Accordingly, a bank acquires an automatic perfected interest in funds in an account. Alternatively, control may arise from a control agreement. A control agreement is defined as an agreement between a bank or Corporate/Unincorporated Body with a debtor who is a customer of the bank or Corporate/Unincorporated Body and a secured creditor, in which the bank or Corporate/Unincorporated Body has agreed to follow instructions from the secured creditor without the further consent of the debtor.
A security interest in a bank account perfected by control has priority over other competing perfected interests
Security interests perfected in other jurisdictions enjoy temporal protection of 10 working days. They have to be re-perfected under the Movable Property (Security Interest) Act, failure to which they lose priority. Section 4(5) of states, ‘If a security interest is perfected under the law of another State and this Act becomes applicable, the security interest remains perfected, in accordance with this Act, for ten working days after the change in location and, thereafter, only if perfection requirements of this Act are satisfied’
Regulation 10 of Statutory Instrument No. 77 of 2016, provides as follows in relation to information to be submitted to re-perfect interests perfected in other jurisdictions: -
10, Where a financing statement relates to a security interest which was perfected or made effective against third parties under ,another law before the commencement of the Act, the following information shall be provided in the financing statement:
(a) the date of creation of the prior security interest;
(b) the nature and type of the prior security interest, whether floating charge, fixed charge or similar interest;
(c) the date of perfection or prior registration of the security interest; and
(d) the law under which the security interest was perfected or made effective against third parties.
Under section 45, perfection continues unless terminated. Section 45 provides: -
45. A security interest is continuously perfected if —
(a) the security interest is perfected in accordance with this Act; and
(b) there is no intervening period during which the security interest is unperfected.
Termination could be on account of expiration of the period of registration or abrogation of the security agreement.
Further, perfection is not terminated by reason of disposal or otherwise, but continues in the proceeds of the collateral. This is accordance with section 47 which states: -
46. A security interest remains continuously perfected in proceeds if—
(a) the security interest in the original collateral is perfected by registration of a financing statement that contains a description of the proceeds; or
(b) the proceeds are cash proceeds that consist of money, accounts receivable, negotiable instruments, investment securities or funds credited to a bank account.
Proceeds are defined as identifiable or traceable movable property received in respect of a collateral, and includes what is received as a result of a sale, other disposition, collection, lease or license of the collateral, including proceeds, natural fruits, revenues, dividends, distributions, insurance proceeds and claims arising from defects in, damage to, or loss of, the collateral or other disposition of the collateral.
However, perfection in proceeds, with the exception of cash or collateral expressly mentioned in a security agreement, is temporary - for a period of 21 days. The secured creditor should, within this period, perfect the interest, failing which the perfection is lost. This is stipulated in section 47 as follows: -
47. (1) If proceeds of a security interest are not cash proceeds and are not within the description of the collateral included in the registered financing statement, a security interest in the proceeds shall be temporarily perfected until the expiration of twenty-one days from when the proceeds arose.
(2) If a secured creditor fails to perfect a security interest within twenty one days after the proceeds arose, the secured creditor’s security interest in the proceeds becomes unperfected.
Under section 48, a perfected interest is not affected by transfer, sale, lease or license except with the consent of the secured creditor. Section 48 states that a security interest does not become unperfected only because the collateral described in the registered financing statement is sold or otherwise transferred, leased or licensed, unless the secured creditor has authorised such transfer, lease or licence
The Act stipulates perfection rules under different scenarios.
Under section 49, a negotiable instrument or investment security certificate may be perfected either by registration or possession. Further, the perfected interest in a negotiable instrument extends to goods to which the negotiable instrument relates. Section 49(1) states that a security interest in a negotiable document, negotiable instrument or investment security may be perfected by the registration of a financing statement or through possession by the secured creditor.
This is concerned with situations where the collateral is in the possession of a third party. In terms of section 50, a security interest in goods with a bailee is perfected when either the security interest in the goods is registered or the negotiable instrument relating to the goods has been delivered to the secured creditor or the bailee, if not the debtor and the bailee has issued a negotiable instrument in the name of the secured creditor or keeps the goods on behalf of the secured creditor. This is in accordance with section 50 which states: -
50. A security interest in goods in the possession of a bailee is perfected when the security interest has been created and—
(a) a financing statement relating to the goods is registered;
(b) the security interest in the negotiable document to the goods has been delivered to the secured creditor; or
(c) the bailee, who is not the debtor
(i) has issued a negotiable document in the name of the secured creditor; or
(ii) holds the goods on behalf of the secured creditor.
The Act envisages the registration of a privilege relating to a secured interest in collateral or arising by operation of law. Section 88(1) provides that despite any other provision in this Act, a secured creditor may amend a registered financing statement to indicate an obligation or privilege arising from any other commercial document relating to a secured interest in collateral or arising from the operation of a written law’.
Discharge a Security Interest
A registered financing statement should be discharged once the secured obligation has been performed. A financing statement may equally be amended. The amendment may relate to the collateral, the debtor or the amount secured and may arise from changes in the collateral, debtor or the secured amount. Like registration of a financing statement, discharge is by the creditor.
Section 21 states as follows in relation to amendment and discharge of a financing statement: -
21. (1) A registered financing statement may be amended or discharged by the secured creditor by registering the amendment or discharge in the Collateral Registry at any time before expiration of its effectiveness.
(2) An amendment to a registered financing statement, as provided in subsection (1), that—
(a) adds collateral;
(b) adds a new debtor; or
(c) increases the maximum amount of the secured obligation; shall be effective from the date the amendment to the registered financing statement is registered in the Collateral Registry.
(3) Where the debtor’s name and identification number changes in a manner that renders the registered financing statement no longer retrievable in a search, the security interest shall not be effective with respect to the collateral that the debtor acquired thirty days after the changed identification but the registration shall remain effective with respect to all pre-existing collateral and the collateral acquired by the debtor up to the thirty days after the changed Identification.
Enforcement Methods
The Act stipulates the following enforcement methods, namely, taking possession, rendering the collateral unusable, removing the collateral or disposing it. Section 72 states: -
72. (1) A secured creditor may take possession, or without rendering the collateral unusable, remove the collateral or dispose of the collateral when the debtor is in default or the collateral is at risk.
(2) For purposes of subsection (1), collateral is at risk if the secured creditor has reasonable grounds to believe that the collateral has been or will be destroyed, damaged, endangered, disassembled, removed, concealed, sold or otherwise disposed of contrary to the security agreement.
(3) A secured creditor may proceed under this section—
(a) pursuant to a judicial process; or
(b) without judicial process, if the debtor consented, in the security agreement, to relinquish possession without a court order.
(4) A secured creditor may require a debtor to assemble the collateral and make it available at a designated place.
(5) A prior notice to a debtor is not required for the secured creditor to repossess or render the collateral unusable under this section.
Further to section 77, the power to dispose the collateral extends to negotiable instruments and goods to which the instrument relates. Section 77 reads: -
77. If the collateral is a negotiable document, the power to dispose provided by section seventy-two shall apply to the negotiable document and to the goods to which it relates.
Under section 72(3), parties have the option of agreeing, at the time they execute the security agreement, to enforce either through or outside the courts of law. The option to enforce outside the court system is intended to facilitate speedy enforcement. However, the Act does not prescribe the court with jurisdiction.
Accordingly, both the high court or the subordinate court could theoretically adjudicate matters under the Act. Needless to add, however, that the subordinate court has limitations on awards. Thus, such actions are more likely to be commenced in the high court, particularly in commercial division of the high court.
The question of enforcing a security interest without involving the courts was considered in the case of Edward Mwenda and Emanuel Mwewa v Pulse Financial Services 2013/HP/0810. The debtor challenged the seizure of a motor vehicle he had pledged as collateral, without leave of court. Relying on a clause in the loan agreement that provided for the lender to ‘seize the vehicle, the collateral or institute legal proceedings,’ the high court held the seizure to have been lawful
The action nonetheless underscores the importance of the law making it clear that enforcement without a court order is legal. Had the Movable Property (Security Interest) Act existed at the time, the challenge would probably not even have been contemplated.
Further to section 73, collateral may be rendered unusable where it is of a kind that cannot easily be removed from the debtor’s premises. The Act nonetheless requires that care is taken to avoid collateral damage or causing the person in possession of the collateral more inconvenience than is reasonable. Section 73 states: -
73. (1) A secured creditor may render collateral unusable if the collateral is of a kind that cannot be readily moved from the debtor’s premises or is of a kind where adequate storage facilities are not readily available.
(2) A secured creditor may dispose of collateral on the debtor’s premises, except that it shall not cause the person in possession of the premises, if the person is not the debtor, any more inconvenience than is necessary.
Disposal of collateral may, in accordance with section 78, be by sale, lease, auction, public tender or any other method stipulated in the security agreement. In terms of section 75, collateral may be disposed of in its current state or following reasonable preparation or processing. Section 75 stipulates: -
75. A secured creditor may dispose of collateral in its present condition or following a reasonable preparation or processing.
A secured creditor is obligated to obtain the best price reasonably possible when disposing off the collateral. This may be achieved by selling the collateral on the open market or through the most transparent mode possible. Section 76 provides: -
76. A secured creditor shall obtain a reasonable price obtainable at the time of sale or other disposal of the collateral.
The debtor, debtors with perfected interests in the collateral and any other persons that may have notified the secured creditor of having interest in the collateral, should be notified of the pending disposal at least 14 days before such disposal. However, this does not apply where the collateral could perish or is likely to substantially reduce in value by the end of the 14 days or it is too costly to care and store the assets. Section 79 provides: -
79. (1) A secured creditor shall, not less than fourteen days before disposal of the collateral, give notice in a prescribed form to the following persons:
(a) the debtor;
(b) any other person who has registered a financing statement in respect of the collateral that became effective before the secured creditor repossessed the collateral; and
(c) any other person that has given the secured creditor notice of an interest in the collateral.
(2) Subsection (1) does not apply if—
(a) the collateral may perish within fourteen days of the repossession;
(b) the secured creditor reasonably believes that the collateral shall decline substantially in value if it is not disposed of immediately;
(c) the cost of care and storage of the collateral is disproportionately large in relation to its value; or
(d) the collateral consists of inventory or farm products.
(3) If a security interest relates to collateral, specified in subsection (2), the secured creditor may dispose of the collateral but shall comply with subsection (1) with respect to the other collateral.
In terms of regulation 20 of SI No. 77 of 2016, the notice of disposal should be made electronically on Form IX.
Once collateral has been disposed of, subordinate interests in the collateral are extinguished. The extinguishment of such interests should nonetheless be registered in the Collateral Registry. Section 80 provides:
80. (1) If collateral has been disposed of in accordance with this Part, all security interests in the collateral and its proceeds and other rights in the collateral that are subordinate to the security interest of the secured creditor, who disposed of the collateral, are extinguished on the disposal of the collateral.
(2) Where a collateral has been disposed of in accordance with subsection (1) and the security interest becomes extinguished, the secured creditor shall register the extinguishment in the prescribed form.
Further to regulation 22, the extinguishment should be registered on Form XI. This registration is equally electronic.
Within 21 days after disposal of the collateral, the secured creditor should render a statement of account to the debtor, those with perfected interests in the collateral or that have notified the secured creditor of an interest in the collateral
The statement should indicate the gross proceeds of the sale, costs incurred and expenses incurred in enforcement and the balance due to the debtor, if any. Section 81, in this regard, provides as follows: -
81. A secured creditor shall, within twenty-one days after the disposal of the collateral, provide a statement of account, in writing, to the persons listed in subsection (1) of section seventy-nine, indicating
(a) the amount of the gross proceeds of the disposal;
(b) the amount of the costs and expenses of enforcement; and
(c) the balance owing by the secured creditor to the debtor, or by the debtor to the secured creditor, as the case may be.
The proceeds of disposal of the collateral, after deducting costs associated with enforcing against the control, should go towards settling the secured amount or obligation. Any surplus should be paid to the debtor in accordance with section 82 which provides: -
82. (1) A secured creditor who has disposed of the collateral shall apply the net proceeds of the disposal towards the satisfaction of the secured obligation.
(2) For purposes of subsection (1), “net proceeds” means the proceeds of the disposal after deducting the reasonable costs and expenses of the secured creditor which are incidental to taking possession, holding, storing, repairing, maintaining, valuing or preparing the collateral for disposal.
(3) If a secured creditor has disposed of or retained collateral in satisfaction of a debt or otherwise disposed of the collateral, the secured creditor shall pay the following persons the amount of any surplus in the following order:
(a) any secured creditors or competing claimants subject to this Act, who have a subordinate security interest or claim in the order of their priority as provided in this Act; and
(b) the debtor.
(4) For the purposes of this Act, there is surplus when the net proceeds recovered after disposal of the collateral exceed the amount owed by the debtor to the secured creditor.
(5) A secured creditor may pay the surplus into court if there is a question as to who is entitled to receive payment.
(6) A debtor remains liable for any deficiency.
Over and above the remedies provided under the Act, a lender may, pursuant to section 70(2), appoint a receiver, receiver and manager or official in accordance with the Companies Act, Bankruptcy Act or any other law.
Enforce an SI (Extinguishment, disposal of Asset, etc.)
Enforcement is triggered by default. Default is defined as the occurrence of an event that, under a security agreement, gives a secured creditor the right to enforce a security interest . Equally, a secured debtor can enforce a security interest where the collateral is at risk. Section 70(2) provides: -
‘(2) For purposes of subsection (1), collateral is at risk if the secured creditor has reasonable grounds to believe that the collateral has been or will be destroyed, damaged, endangered, disassembled, removed, concealed, sold or otherwise disposed of contrary to the security agreement’.
Further to section 70, enforcement does not extend to security interests created by an outright transfer of an accounts receivable or an operating lease.
Retention of Collateral
A secured creditor may retain the collateral instead of disposing of it. This, however, does not apply to consumer goods.
A secured creditor can only retain collateral subject to agreement by the debtor. A request to retain collateral should be made to the debtor, those with registered interests in the collateral and persons that have given notice that they have an interest in the collateral. This is provided for under section 83 thus: -
83. (1) A secured creditor may propose, after default, to retain collateral, other than consumer goods, in full satisfaction of the secured obligation.
(2) A secured creditor shall give notice of the proposal, to retain collateral, to the persons who are entitled to receive a notice of sale of the collateral, as specified in section seventy-nine.
Further to regulation 21, the notice to retain the collateral should be made on Form X. The form may be to suit the circumstances of the case. The form is not filed with the Collateral Registry but sent directly to the debtor. Thus, it can be made manually
Parties notified of the intention to retain the collateral have the right to object, in writing, within 14 days of the notification. They are deemed to have consented to the retention of the collateral of they do not respond within the period. Once the collateral is retained, all other interests in the collateral are extinguished as is the case with disposal. Where the retention is opposed, however, the secured creditor has no option but to dispose of the collateral. Section 84 states: -
84. (1) A person who is entitled to receive a notice of retention and whose interest in the collateral would be adversely affected by a secured creditor’s retention of the collateral shall, within fourteen days after the notification was received, serve a written notice of objection to the secured creditor and the secured creditor shall, upon receipt of the notice of objection, dispose of the collateral.
(2) If no notice of objection is received, the secured creditor shall, at the expiration of fourteen days, be considered to have elected to take the collateral in full satisfaction of the secured obligation.
(3) Upon retention of the collateral by the secured creditor, all subordinate security interests and claims in the collateral are extinguished.
(4) Where a secured creditor refuses to dispose of collateral, after receiving a notice of objection, a person entitled to receive a notice of retention may petition the court requesting that the collateral be disposed of in accordance with section seventy-two
Validity of Security Agreement
The Act prescribes minimum requirements to be met by a security agreement for it is to be valid. A secured agreement should identify the parties, reflect the parties’ intention to create a security agreement, describe the secured obligation, state the amount secured and describe the collateral in accordance with section 35. To this end, section 34 provides: -
34. (1) A security agreement shall—
(a) reflect the intent of the parties to create a security interest;
(b) identify the secured creditor and the debtor;
(c) describe the secured obligation, including the maximum amount for which the security interest is enforceable; and
(d) describe the collateral in a manner that reasonably allows its identification in accordance with section thirty-five.
(2) A security agreement may provide for the creation of a security interest in any type of movable property, parts of movable property or undivided rights in movable property.
(3) For purposes of this Act, a mode or standard security agreement may be presented.
Section 35, referred to under section 34, prescribes details relating to the description of the collateral. Under this provision, a security agreement is only valid if there is adequate description of the collateral in accordance with subsection 2 thereof. For instance, describing collateral as consumer goods, without particulars of the consumer goods, renders the security agreement invalid. The collateral should be described by item, kind, type or category. Section 35 provides: -
35. (1) A security interest created in respect of collateral is effective only if a security agreement contains adequate description of the collateral as specified under subsection (2).
(2) For the purposes of a security agreement, a description of collateral is adequate if the collateral is described by—
(a) item, kind, type or category; or
(b) a statement that a security interest is taken in the debtor’s present and after acquired movable property, except for specified items or kinds of movable property as agreed by the parties.
(3) A description of collateral is inadequate if it describes the collateral as consumer goods without specific description in accordance with paragraph (a) of subsection (2).
Aside minimum requirements relating to the contents of the security agreement as provided under section 35, a security agreement is only valid if, firstly, the debtor has rights in the collateral. The rationale is that a debtor cannot create a security interest over assets belonging to someone else without that person’s consent. Secondly, the security agreement should be executed as agreed by the parties. Thirdly, there must have been value or consideration, as per the law of contract. Section 36 provides: -
36. (1) A security interest is effective when—
(a) the debtor has rights in the collateral;
(b) the security agreement is concluded on the dates agreed to by the parties; and
(c) value is given by the secured creditor.
(2) Subsection (1) shall not apply if the parties to a security agreement have agreed that a security interest shall be effective at a later time, in which case the security interest shall be effective at the time specified in the security agreement.
Rights of Buyer or Lessee of Goods
A purchaser of goods for value, acquires them free of any unperfected interest while a buyer of goods sold in the ordinary course of business of the seller and a lease of goods in the ordinary course of business, takes them free of a security unless the buyer or lessee know that the sale or lease constitutes a breach of the security agreement under which the security interest was created. Section 67 provides: -
67. (1) A buyer or lessee who acquires goods for value and receives their possession, takes the goods free of an unperfected security interest.
(2) A buyer of goods sold in the ordinary course of business of the seller, and a lessee of goods leased in the ordinary course of business of the lessor, takes the goods free of a security interest created by the seller or lessor unless the buyer or lessee knows that the sale or the lease constitutes a breach of a security agreement under which the security interest was created.
Importance of MPRS Registration
Failure to register of perfect a security interest deprives the interest holder of the ability to enforce his rights against third parties. The implication is that any competing perfected interest in the collateral would take precedence. A perfected security interest has priority over an unperfected interest while perfected interest rank according to the order of perfection. Thus, not only should a security interest be perfected but it should be perfected soon after execution of the security agreement.
Collateral to be Applied in Satisfaction of Obligation
Section 74 empowers a secured creditor to apply accounts receivables, money or negotiable instruments, in satisfaction of the secured obligation. Similarly, a bank or Corporate/Unincorporated Body with a perfected interest in funds in its custody may apply it towards the satisfaction of the secured obligation. Section 74 thus provides: -
74. (1) A secured creditor may collect and apply accounts receivable, money or a negotiable instrument taken as collateral to the satisfaction of the secured obligation if the debtor is in default.
(2) A secured creditor may notify the account debtor and collect payment, prior to default, if the parties so agree.
(3) If a bank or Corporate/Unincorporated Body holds a security interest, in a bank account perfected automatically by control, it may apply the balance of the bank account to the secured obligation.
(4) If a secured creditor holds a security interest, held in a bank account which is perfected by a control agreement, the secured creditor may instruct the bank or corporate/unincorporated body to pay the balance of the bank account to the secured creditor.
Amendment, Transfer and Discharge of Financing Statement
A secured creditor may transfer a registered financing statement (perfected security interest) pursuant to section 20. The transfer should nonetheless be registered via an amendment to the financing statement not later than 14 days after such transfer. The registration should be made by the transferor. Section 20 states in this regard: -
20. (1) Where all or part of a security interest that is perfected by registration has been transferred, an amendment to the registered financing statement shall be registered by the transferor, within fourteen days of the transfer. (2) Where an amendment to a registered financing statement is effected, as specified in subsection (1), the amendment to the registered financing statement shall include a description of the collateral that has been transferred. (3) If a secured creditor, with a security interest that is not perfected by registration, transfers the security interest, a financing statement in which the transferee is disclosed as the secured creditor may be registered. (4) An amendment to a registered financing statement or a financing statement, relating to a transfer of a security interest, may be registered in the Collateral Registry before or after the transfer of the security interest.
A party seeking evidence for use in legal proceedings may also, under section 27, request the Registrar to certify a document issued by the Registry as a true copy thereof. Such certified copy shall be admissible in evidence and constitute conclusive evidence of information stated therein.
Perfect the SI (By possession, control and Registration
Perfecting a security interest entails action that ensures that a security interest is binding on third parties. A perfected security interest is defined as a security interest that has become effective against third parties by control, possession, registration or temporarily, as provided in this Act . This is on account of the fact that a security agreement, being contractual in nature, is further to the doctrine of privity of contract, only biding on the parties to the agreement. Under this doctrine, only parties to an agreement acquire rights and obligations under the agreement. Third parties are not privy to the agreement and are therefore not bound by it. As such, the security interest should be perfected for it to bind third parties.