MOVABLE PROPERTY (SECURITY INTEREST) ACT

Details: Created: 06 August 2016

Arrangement of Sections

> Section

PART I
PRELIMINARY PROVISIONS

1. Short title

2. Interpretation

3. Application and non-application of Act

4. Conflict of laws

5. Bankruptcy and insolvency proceedings

6. Supremacy of Act

PART II
COLLATERAL REGISTRY OFFICE AND COLLATERAL REGISTRY

7. Establishment of Collateral Registry Office and administration of Act

8. Functions of Registrar

9. Delegation of functions

10. Officers of Collateral Registry Office

11. Establishment of Collateral Registry and storage of information

12. Financing statements and registration

13. Information required to register financing statement

14. Non-registration of financing statement

15. Effect of registration

16. Confirmation statement

17. Invalidity of registration of financing statement

18. Validity of registered financing statement

19. Duration of registration and renewal

20. Transfer of financing statement

21. Amendment or discharge of financing statement

22. Discharge of registration relating to consumer goods

23. Demand by debtor to amend or discharge registration

24. Amendment or discharge by court order

25. System malfunction

26. Access to Collateral Registry, inspection and copies

27. Evidentiary provisions

28. Certificate of status of registered financing statement

29. Appeal against decision of Registrar

30. Oaths and affirmations

31. Registrar to appear in legal proceedings

32. Regulations on registration processes and procedures

PART III
CREATION OF SECURITY INTERESTS

33. Creation of security interest and effectiveness

34. Security agreements

35. Description of collateral in security agreement

36. Effectiveness of security interest generally

37. Creation of security interest in after-acquired movable property

38. Continuation of security interest to proceeds or, commingled property

39. Rights of debtor in collateral

40. Debtor may transfer collateral

41. Effectiveness of security interests in after-acquired movable property

42. Ineffectiveness of assignment clauses

43. Security interest created in negotiable document

PART IV
PERFECTION OF SECURITY INTERESTS

44. Perfection of security interests

45. Continuity of perfection

46. Continuation of perfection of security interest in proceeds

47. Temporary perfection of security interest in proceeds

48. Continuation of perfection in transferred collateral

49. Perfection with respect to negotiable document, negotiable instrument and investment security certificate

50. Perfection where goods with bailee

51. Security interest in farm products

PART V
PRIORITY BETWEEN SECURITY INTERESTS AND OTHER INTERESTS

52. Priority of security interests in same collateral

53. Same priority for original collateral and proceeds

54. Transfer of security interest not to affect priority

55. Voluntary subordination of priority

56. Priority in secured obligations and advances

57. Priority of purchase money security interest in collateral or proceeds

58. Priority between purchase money security interests

59. Priority of purchase money security interest in fixtures

60. Priority of security interest in goods prior to accession

61. Priority of security interest in processed or commingled goods

62. Priority of security interest in bank account

63. Priority of security interest transferred by debtor

64. Priority of creditor who receives payment

65. Priority of purchaser of negotiable instrument, investment security or negotiable document

66. Priority of interest of assignee of account receivable

67. Rights of buyer or lessee of goods

68. Priority of lien over security interest relating to same goods

69. Priority of judgment creditor and lien holder over unperfected security interest

PART VI
ENFORCEMENT OF SECURITY INTERESTS

70. Application of Part

71. Registration of enforcement notice

72. Secured creditor taking possession and disposing collateral

73. Secured creditor rendering collateral unusable

74. Secured creditor applying collateral in satisfaction of secured obligation

75. Disposal of collateral by secured creditor

76. Duty of secured creditor disposing collateral

77. Power of disposal in negotiable document and related goods

78. Method of disposal of collateral

79. Notice of disposal of collateral

80. Extinguishment of subordinate security interest after disposal

81. Secured creditor to give statement of account to debtor

82. Distribution of proceeds after disposal

83. Proposal and notice of retention

84. Objection to notice of retention

85. Redemption of collateral by entitled persons

86. Debtor reinstating security agreement

PART VII
GENERAL PROVISIONS AND OFFENCES

87. Rights, duties and obligations to be exercised in good faith and commercial reasonableness

88. Amendment of financing statement to indicate content of commercial document

89. Entitlement to damages for breach of obligation

90. Exemption from liability for actions or omissions

91. Secured creditor to provide information to debtor

92. Service of documents or notices

93. Fraudulent financing statement

94. Submission of frivolous, malicious, etc financing statement

95. Falsification of entries in register

96. Altering of documents

97. Deceiving or influencing Registrar or officer

98. Administrative penalty

99. General penalties

100. Regulations

101. Collateral Registry Office to be reporting entity

102. Savings and transitional provisions

SCHEDULE

AN ACT

to provide for the creation of security interests in movable property so as to contribute to economic development; harmonise secured transaction laws; provide for harmonisation of conflict of laws in order to promote the financing of international trade and make security interests effective against third parties; enhance the availability of low-cost secured credit to allow debtors to use the full value inherent in their assets to support credit; establish a Collateral Office and Collateral Registry for a single comprehensive registration regime for secured transactions in movable property; establish streamlined procedures for obtaining security interests and reducing transaction costs by minimising formalities; ensure effectiveness of security agreements and enforceability of security agreements and interests; provide for perfection of security interests; to establish the determination of priority between security interests; and provide for matters connected with, or incidental to, the foregoing.

[6th April, 2016]

Act 3 of 2016.

PART I
PRELIMINARY PROVISIONS

1. Short title

This Act may be cited as the Movable Property (Security Interests) Act.

2. Interpretation

(1) In this Act, unless the context otherwise requires—

"accession" means goods that are physically attached to other goods without losing the identity of each group of goods which maintain their original identity;

"account debtor" means a person liable for payment of an account receivable and includes a guarantor or other person with secondary liability for payment of the account receivable;

"account receivable" means a right to payment of a monetary obligation, excluding a right to payment evidenced by a negotiable instrument and to payment of money credited to a bank account;

"after-acquired property" means movable property that a debtor acquires after the conclusion of a security agreement;

"Agency" means the Patents and Companies Registration Agency established under the Patents and Companies Registration Agency Act;

"assignee" means a person to whom an assignment of an account receivable is made;

"bank" has the meaning assigned to it in the Banking and Financial Services Act;

"bank account" means an account, maintained by a bank or financial institution, to which monies for a customer are credited, and includes monies received by the bank but not yet credited into the customer’s account;

"Board" means the Board of the Agency constituted in accordance with the Patents and Companies Registration Agency Act;

"collateral" means movable property, whether tangible or intangible, that is subject to a security interest;

"Collateral Registry" means the Registry established in accordance with section 11;

"Collateral Registry Office" means the Collateral Registry Office established in accordance with section 7;

"commercial consignment" means a consignment where a consignor has reserved an interest in goods that the consignor has delivered to the consignee for the purpose of sale, lease or other disposition and both the consignor and consignee deal in the ordinary course of business in goods of that description, excluding an agreement under which goods are delivered to an auctioneer for sale;

"commingled properties" means goods 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;

"company" has the meaning assigned to it in the Companies Act;

"competing claimant" means a secured creditor of a debtor that is competing with another secured creditor in the same collateral;

"confirmation statement" means a confirmation by the Registrar that the requirements, as provided for under this Act or regulations issued under this Act, for the registration of a financing statement or an amendment to a registered financing statement have been complied with;

"consumer goods" means goods that a debtor predominantly uses or intends to use for personal, family or household purposes;

"control agreement" means an agreement between a bank or financial institution with a debtor who is a customer of the bank or financial institution and a secured creditor, in which the bank or financial institution has agreed to follow instructions from the secured creditor without the further consent of the debtor;

"debtor" means a person who creates a security interest to secure that person’s obligation or that of another person and includes a—

(a) lessee under a financial lease;

(b) buyer that acquires goods whose title is to be retained by the seller;

(d) consignee who receives goods from another person under a commercial consignment; and

(e) seller of accounts receivable and a lessee under an operating lease where the receivables or the object that is subject of the lease does not secure an obligation;

"default" means the occurrence of an event that, under a security agreement, gives a secured creditor the right to enforce a security interest;

"equipment" means a tangible asset used by a person in the operation of its business, and includes plant and machinery;

"farm product" includes—

(a) crops grown, growing or to be grown, harvested and their produce and fruit;

(b) timber, both standing and growing;

(d) seeds, fertilisers and manure; and

(e) other supplies and equipment used or produced in a farming operation;

"financial contract" means any spot, forward, future, option or swap transaction involving interest rates, commodities, currencies, equities, bonds, indices, financial instruments, repurchase or securities lending transactions and any other transaction similar to a transaction referred to, entered into or used in financial markets or commodity markets, and includes any combination of the transactions referred to;

"financial institution" has the meaning assigned to it in the Banking and Financial Services Act;

"financial lease" means a lease of a tangible asset, other than a negotiable instrument or negotiable document, that is the object of a lease agreement, and includes a hire-purchase agreement, where—

(a) the lessee automatically becomes the owner of the tangible asset;

(b) the lessee may acquire ownership of the tangible asset by paying no more than a nominal price; or

"financing statement" means a document, in the prescribed form, containing the information specified in section 13, that effects a registration to perfect a security interest in collateral;

"fixture" means a tangible asset that is physically attached to immovable property without losing its separate identity, excluding improvements;

"hire-purchase agreement" has the meaning assigned to it in the Hire-Purchase Act;

"immovable property" means land or other property that cannot be moved and includes an object so firmly attached to the land that it is regarded as part of the land;

"improvements" includes a building or any other structure of whatever kind on land;

"intangible asset" includes movable property, a financial contract, incorporeal rights, excluding goods, documents of title, securities, monies and negotiable instruments;

"inventory" means tangible assets that are—

(a) held for sale or lease in the ordinary course of business; and

(b) raw materials or work-in-process;

"investment security" means a security 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;

"land" has the meaning assigned to it in the Lands Act;

"land lease" has the meaning assigned to the word "lease" in the Lands Act;

"money" means the currency authorised as legal tender by the Bank of Zambia, in accordance with the Bank of Zambia Act;

"movable property" includes goods, intangibles, securities, money, negotiable instruments and negotiable documents;

"negotiable document" means 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;

"negotiable instrument" means 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;

"officer" means an employee or agent of the Agency;

"operating lease" means an agreement, that exceeds one year, relating to a transaction in which the leased asset has a useful life at the end of the lease term, the lessee does not have an option to purchase the leased asset at the end of the term of the lease for a nominal price and title to the leased asset is not transferred to the lessee automatically at the end of the lease term;

"perfected security interest" means a security interest that has become effective against third parties by control, possession, registration or temporarily, as provided in this Act;

"possession" means the 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;

"priority" means the right of a secured creditor to derive the economic benefit of a security interest in preference to the right of a competing claimant;

"proceeds" means 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;

"purchase money security interest" means—

(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;

(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;

"registered financing statement" means a financing statement that has been registered in the Collateral Registry in accordance with section 12;

"Registrar" means the person appointed Registrar in accordance with the Patents and Companies Registration Agency Act;

"search" means an electronic examination of the records contained in the Collateral Registry;

"secured creditor" means a person in whose favour a security interest is created, and includes a—

(a) financial lessor;

(b) seller who reserved title to the goods sold;

(d) buyer of accounts receivable, commercial consignor and an operating lessor under an operating lease where the account receivable, goods provided under the commercial consignment or the leased object do not secure an obligation;

"secured obligation" means an obligation secured by a security interest;

"security agreement" means an agreement between the debtor and secured creditor that creates or provides for a security interest;

"security interest" means a property right or interest in movable property that is created by agreement or a transaction that secures payment or other performance of an obligation, any type of charge over movable property, chattel mortgage and consensual lien, and includes a—

(a) retention of a title in movable property;

(b) right under a financial or operating lease;

(d) right of the commercial consignor even if it does not secure payment or other performance of an obligation;

"tangible assets" means every form of movable property, including inventory, equipment, consumer goods, accession, negotiable instruments, negotiable documents and money, and the word "goods" is construed accordingly;

"unperfected security interest" means a security interest which has not been perfected in accordance with this Act;

"value" has the meaning assigned to it in the Agricultural Credits Act;

"warehouse receipt" has the meaning assigned to it by the Agricultural Credits Act; and

"writing" includes an electronic message if the information contained therein is accessible so as to be usable for subsequent reference.

(2) For the purposes of this Act, the determination of whether goods are—

(a) consumer goods;

(b) equipment;

(d) inventory,

is to be made at the time when the security agreement is concluded and the secured creditor may rely on the representations of the debtor as to the intended use.

3. Application and non-application of Act

(1) Despite any other written law and subject to section 4, this Act applies to all interests in movable property created by agreement that secures payment or other performance of an obligation regardless of the form of the transaction, type of movable property, status of the debtor or secured creditor or the nature of the secured obligation, including—

(a) a security interest in intangible or tangible assets, a lien, charge, financial lease, right under a hire-purchase agreement, pledge, security trust deed, trust receipt, consignment, lease, assignment or other interest in movable property that secures payment or performance of an obligation;

(b) the creation, perfection and priority of a security interest in proceeds where this Act is applicable to the creation, perfection and priority of the security interest in the original collateral from which the proceeds arose; and

(c) a security interest created by a consumer or acquired by a secured creditor without affecting the consumer rights as provided in the Competition and Consumer Protection Act.

(2) This Act also applies to security interests created by judgments of a court in accordance with the Civil Courts (Attachment of Debts) Act or the operation of any other written law.

(3) This Act shall not apply to—

(a) the creation or transfer of an interest in immovable property;

(b) a mortgage of a ship regulated by the Merchant Shipping Act and an interest in aircraft and aircraft engines as defined in the Civil Aviation Authority Act, Civil Aviation Act, or any other law regulating the aviation sector; and

4. Conflict of laws

(1) This Act applies to the creation, perfection and priority of a security interest where the—

(a) tangible asset is located in Zambia;

(b) debtor is located in Zambia where the collateral is an intangible asset;

(d) bank account is maintained in a bank or financial institution that has a place of business in Zambia.

(2) The law applicable to the mutual rights and obligations of a debtor and secured creditor arising from a security agreement shall be the law chosen by the parties and, in the absence of a choice of law, by the law governing the security agreement.

(3) For the purposes of this Act—

(a) a debtor is located in Zambia if the debtor has a place of business in Zambia;

(b) the habitual residence of the debtor shall apply if the debtor does not have a place of business in Zambia; and

(c) the location of the property or debtor shall be determined at the time of the creation of the security interest and for purposes of perfection and determining of the priority of the security interest, at the time the dispute arose.

(4) If a security interest in collateral is created and perfected before a change in the location of the collateral or debtor, the location of the collateral or debtor is, with respect to perfection and priority, the location prior to the change in location.

(5) 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 10 working days after the change in location and, thereafter, only if perfection requirements of this Act are satisfied.

5. Bankruptcy and insolvency proceedings

(1) Subject to sub-section (2), the commencement of bankruptcy or insolvency proceedings under a law relating to bankruptcy or insolvency shall not override the provisions of section 4.

(2) Despite sub-section (1), the law relating to bankruptcy or insolvency shall apply if the bankruptcy proceedings or insolvency proceedings, as the case may be, commenced under that law in relation to—

(a) avoidance of security interest;

(b) treatment of secured creditors;

(d) distribution of proceeds.

(3) For the avoidance of doubt, an unperfected security interest created by a debtor shall not be effective against a liquidator or receiver carrying out insolvency proceedings or official receiver in relation to the estate of the debtor.

6. Supremacy of Act

(1) Subject to the Constitution, where there is any inconsistency between the provisions of this Act and the provisions of any other written law relating to security interests in movable property or the creation and maintenance of a registry for security interests in movable property, the provisions of this Act prevail to the extent of the inconsistency.

(2) Despite the generality of sub-section (1), this Act shall prevail over any other written law on security interests created by an agreement, including—

(a) an agreement to sell subject to retention of title;

(b) a hire-purchase agreement made in accordance with the Hire-Purchase Act;

(d) an operating lease;

(e) consignment that does not secure an obligation; and

(f) any other interest that secures an obligation.

(3) The principles of common law, equity and the law of merchants, except insofar as they are inconsistent with this Act, continue to apply with respect to security interests in movable property.

PART II
COLLATERAL REGISTRY OFFICE AND COLLATERAL REGISTRY

7. Establishment of Collateral Registry Office and administration of Act

(1) There is established in the Agency the Collateral Registry Office which shall be responsible for the Collateral Registry and any other related functions, under the general direction of the Board.

(2) The Agency shall administer this Act.

(3) The seal of the Agency, kept in terms of the Patents and Companies Registration Agency Act, shall be used for purposes of this Act and the impression made for such purposes shall be judicially noticed.

8. Functions of Registrar

(1) The Registrar shall, in addition to the Registrar’s other functions and powers as specified in the Patents and Companies Registration Agency Act, and any other law, exercise the powers and perform the functions conferred on the Registrar in this Act.

(2) The functions of the Registrar shall be to manage and facilitate electronic access by users of the Collateral Registry, process fees, oversee the operation and maintenance of the registration system and gather statistical data relating to the Collateral Registry.

(3) The Registrar or an officer shall not give legal advice on the legal requirements for registration and search or on the legal effects of registration and search, except that the Registrar or an officer may give practical advice relating to registration and search processes.

(4) The Registrar or an officer shall not alter or remove information in a registered financing statement or amendment to a registered financing statement.

9. Delegation of functions

The Registrar may, in writing, delegate to an officer, appointed under this Act, any of the functions and powers vested in the Registrar in this Act, except the power of delegation.

10. Officers of Collateral Registry Office

(1) The Board shall appoint, on such terms and conditions as the Board may determine, such officers as it considers necessary for the effective performance of the functions of the Agency and Registrar relating to the Collateral Registry.

(2) A power conferred or to be performed by the Registrar, in accordance with this Act, may be exercised or performed by an officer, appointed under sub-section (1), acting under delegated powers, as specified in section 9, under the general control and direction of the Board and the Registrar.

11. Establishment of Collateral Registry and storage of information

(1) There is established the Collateral Registry, which is an electronic registry.

(2) The Collateral Registry shall store information and records in accordance with section 13.

(3) The Registrar or an officer shall not verify whether authorisation for registration has been properly granted.

(4) The Collateral Registry shall contain information provided in financing statements, as specified under section 13, which shall be indexed in a manner that a debtor, secured creditor and the serial number of the collateral can be identified and easily retrieved by a search.

(5) The Minister shall issue regulations on the storage and indexing of information in the Collateral Registry.

12. Financing statements and registration

(1) A debtor who enters into a security agreement automatically authorises the registration of a financing statement and any amendments to be done to the registered financing statement.

(2) A single financing statement may relate to one or more than one security interest created by a debtor in favour of the same secured creditor whether they arise under one or more than one security agreements between the same parties.

(3) A creditor or agent of the creditor may register a financing statement before or after a security agreement is made.

(4) A debtor may authorise, in writing, registration of a financing statement prior to the conclusion of a security agreement.

(5) The Registrar shall not conduct any scrutiny of the information provided in a financing statement or be responsible for the accuracy or legality of the information in a financing statement.

13. Information required to register financing statement

(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;

(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 34.

14. Non-registration of financing statement

A financing statement shall not be registered in the Collateral Registry if—

(a) it is not processed electronically in the prescribed manner or form;

(b) it does not contain the information specified in section 13; or

(c) the prescribed fee for a registration of the financing statement or an amendment to a registered financing statement has not been paid electronically.

15. Effect of registration

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.

16. Confirmation statement

(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 14 working days after the day on which the secured creditor received the verification statement, give a copy of the verification statement to the debtor.

17. Invalidity of registration of financing statement

(1) Notwithstanding section 18, and subject to sub-section (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—

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