Registration of Securities Over Movable Assets

In a bid to increase access to credit for SMEs and other small businesses, Zimbabwe has passed the Movable Property Security Interests Act. This, it is hoped, will promote credit diversification and thereby reduce the cost of obtaining credit for these largely marginalised businesses. This Act is also intended to give a piece of mind to creditors who for a very long time had complained of an adequate legal framework in relation to movable property as collateral. It is for that reason mortgages remained for a very long time the preferred form of security in this country. Other forms of security available include notarial bonds, pledges and liens. A notarial bond is a special type of security taken over movable property. There are two kinds of notarial bonds. A special notarial bond, which creates a form of real security over the assets, and a general notarial bond, which only gives a creditor preference over unsecured claims in respect of the residue of the insolvent estate. These are, however, very expensive and are generally considered too expensive by SMEs. A pledge is the delivery of possession of an asset to the pledgee as a security, although the ownership of the asset remains with the pledgor. In the event of a default, the law requires the creditor to enforce his claims through the courts. The creditor will first seek the payment of the debt and the right to sell the pledged asset is only a second option. This long procedure of enforcement makes this form of security unpopular with many creditors. That in addition to the extra storage costs that may be involved in taking possession of the pledged asset. A lien is a right of retention exercised by a creditor. This generally operates as a defence to a claim to property by a borrower. It usually arises in transactions where goods are supplied, repaired or transported. These are therefore typically more relevant to trade creditors than financial creditors. The new Act provides a better enforcement procedure and clearer creditor priority provisions. In particular, every registered notice of interest is considered a liquid document, which can be enforced through provisional sentence proceedings. This is a considerably quicker and cheaper route of enforcement than the traditional trial commenced by way of Summons. The Act also states that if terms of the agreement so provide, the secured creditor is permitted to take possession of the movable asset pending the provisional sentence proceedings. This is clearly intended to provide secured creditor priority. For a further discussion on how this impacts your business and any further assistance, please contact Nyadzisai Chikwene email nyadzi@cwg.co.zw