Bank Of Zambia
Draft Personal Property and Security Interest Bill
The Bank of Zambia (BoZ) has developed a Draft Personal Property and Security Interest
Bill, 2013 to provide for an appropriate legal and regulatory framework to,
amongst other things, provide for the registration of security interests on
movable and immovable assets and to provide for the establishment of a
unified collateral registry.
As part of the BoZ’s consultative process, the BoZ is inviting members of the
general public to provide comments, suggestions and queries on the contents
of draft Bill. The public is invited to make all submissions by 13 August 2013
to enable consolidation and consideration of submissions by 14 August 2013.
The public may read the Draft Personal Property and Security Interest Bill, 2013 as
attached hereunder.
For any queries, kindly get in touch with Mr Visscher M Bbuku, Assistant
Director – Regulatory Policy, Licensing and Liquidations at the Bank of Zambia
on: Telephone numbers 229463 and fax number 223502; email:
vmbbuku@boz.zm or Mr Banji Milambo, Senior Inspector – Regulatory Policy
on bmilambo@boz.zm.
Issued by:
Head of Public Relations
Bank of Zambia
P.O. Box 30080
LUSAKA
PERSONAL PROPERTY AND SECURITY INTERESTS BILL, 2013
__________________________
MEMORANDUM
The objects of this Bill are to(a)
provide for the registration of security interests created
over personal property;
(b)
encourage
lenders
to
accept
diverse
movable
and
immovable property as collateral for credit;
(c)
facilitate economic growth by increasing the availability of
credit that is necessary for business activity as well as
consumption;
(d)
remove formalities associated with the provision of loans
secured with personal property and acquisition of new
assets;
(e)
reduce the cost of credit secured with personal property by
eliminating a number of risks, primarily the risk that the
debtor has previously encumbered property;
(f)
consolidate the law relating to accessing credit secured with
personal property;
(g)
provide for a unified legal framework for all types of debtors,
whether natural persons or entities, to create security
interests in personal property;
(h)
establish the Collateral Registry for creditors to register
financing statements informing third parties of the security
interests they have taken in some assets of the debtor;
(i)
provide for priority rules to resolve conflicting claims to
property of the debtor;
(j)
provide for flexible enforcement remedies in case of default
that fairly balance the rights of creditors and protections of
debtors
(k)
repeal The Trade Charges Act and Agricultural Charges Act,
and the inconsistent provisions of the Companies Act, the
Hire Purchase Act, and the Sale of Goods Act; and
(l)
provide for matters connected with, or incidental to, the
foregoing.
Mumba Malila
ATTORNEY - GENERAL
ARRANGEMENT OF SECTIONS
TABLE OF CONTENTS
Section
PART I
PRELIMINARY
Division I: Commencement and Defintions
1. Short title and Commencement
2. Application of the Act
3. Interpretation
PART II
CREATION OF SECURITY INTERESTS
4. Creation of a Security Interest
5. Debtor’s Rights in the Collateral
6. Content of a Security Agreement
7. Description of Collateral in Security Agreement
8. Description of Collateral as Consumer Goods Inadequate
9. Description of Proceeds not Required
10. Anti-Assignment Clauses are Innefective
11. Extension of a Security Interest to Goods Covered by a Document
of Title
PART III
PERFECTION OF SECURITY INTERESTS
12. Perfection
13. Continuity of Perfection
14. Perfection with Respect to Proceeds
15. Temporary Pefection of Security Interests in Other Cases
16. Perfection with Respect to a Document of Title
17. Perfection with Respect to a Deposit Account
PART IV – COLLATERAL REGISTRY
Division I: Collateral Registry and Registration
18. Collateral Registry
19. Fundamental Fucntions of the Collateral Registry
20. When Financing Statement may be Registered
21. Administrative Role of the Registry
22. Rejection of a Financing Statement
23. Data Required to Register Financing
24. Time of Filing
25. Verification Statement to be Forwarded to the Filer
26. Debtor Entitled to Verification Statement
Division II: Effectiveness of Registration
27. When Financing Statement is Seriously Misleading
28. Consequences of Other Errors
Division III: Duration and Amerndment of Registration
29. Duration of Registration
30. Renewal of Registration
31. Transfer of Secured Obligation and Collateral
32. Voluntary Amendment to, or Discharge of, Registrations of
Financing Statement
33. Discharge of Registration Relating only to Consumer Goods
34. Demand to Amend or Cancel a Registration
35. Compulsory Amendment or Discharge by Court Order
Division IV: Searches of the Collateral Registry
36. Search of Registry
37. Search Criteria
38. Interference with Privacy of Individual
PART V
PRIORITY BETWEEN SECURITY INTERESTS
Division I: General Priority Rules
39. Priority of Security Interests in Same Collateral
40. Same Priority for Original Collateral and Proceeds
41. Transfer does not Affect Priority
42. Voluntary Subordination of Priority
43. Priority Applies to All Advances
Division II: Special Priority Rules for Security Interests
44. Priority of Purchase Money Security Interest in Collateral or its
Proceeds
45. Priority between Purchase Money Security Interests
46. Priority of Purchase Money Security Interests in Fixtures
47. Priority of Security Interest in Goods before they Become
Accessions
48. Priority of Security Interests in Processed or Commingled Goods
49. Priority of Security Interests in a Deposit Account
50. Rights of Debtor may be Transferred
51. Priority of Security Interest in Transferred Collateral over those
Granted by Transferee
52. Security Interest Remains Perfected in Transferred Collateral
53. Priority of Creditor who Recieves Payment
54. Priority of Purchaser of Negotiable Instrument and Document of
Title
55. Priority of Interests on Assignment of Account Recievable
56. Rights of the Buyer or Lessee of Goods
Division III: Priority of Liens
57. Lien has Priority over Security Interest Relating to Same Goods
58. Execution of Creditor has Priority over Unperfected Security
Interest
PART VI
ENFORCEMENT OF SECURITY INTERESTS
Division I: Application
59. Application of this Part
60. Application to Documents of Title and Fixtures
61. Secured Creditor may Take Possession and Sell Collateral
62. Secured Creditor May Render Collateral Unusable
63. Secured Creditor may apply Certain Collateral in Satisfaction of
Secured Obligation
Division II: Disposal of Collateral on Default
64. Secured Creditor may Dispose of the Collateral
65. Duty of Secured Party Selling Collateral
66.Power of Sale Applies to Document of Title and Related Goods
67.Methods of Sale of Collateral
68.Notice of Sale of Collateral
69. Extinguishment of Subordiante Securty Interests on Sale
70. Secured Creditor to Give Statement of Account to Debtor
71. Distribution of Sale Proceeds
Division III: Retention of Collateral by Secured Creditor
72. Proposal and Effects of Retention
Division IV: Right to Redeem Collateral and Reinstate Security
Agreement
73. Entitled Persons may Redeem Collateral
74. Debtor may Reinstate Security Agreement
PART VII
MISCELLANEOUS PROVISIONS
75. Standards of Good Faith and Commercial Reasonableness
76. Entitlement to Damages for Breach of Obligation
77. Secured Creditor Party to Provide Certain Information
78. Electronic Transactions
PART VIII
ADMINISTRATION OF THE ACT
79. Administration of Act
80. Establishment of Collateral Office
81. Powers of the Registrar
82. Appointment of Officers
83. Seal of the Agency
84. Keeping of registers and lodged documents
85. Registrar to furnish information from register on request
86. Immunity of Officers as regards official acts
87. Registration of documents
88. Extension of time
89. Documents to be in approved language
90. Prescribed forms
91. Evidentiary provisions
92. Appeal against a decision of the Registrar
93. Oaths and affirmations
94. Evidence of entries and documents
95. Loss or Destruction of Document
96. Reference to High Court by Registrar
97. Registrar to appear in legal proceedings
98. Regulations and fees
PART XIX
OFFENCES AND PENALTIES
99.
Failure to provide documents
100. False or misleading notice Cap. 87
101. Knowingly furnishing false document Cap. 87
102. Falsification of records Cap 87
103. Other offences Cap 87
104. Imprisonment for failure to pay fine
105. Exemption from liability for actions or omissions
106. Falsification of entries in register
107. Altering of documents
108. Deceiving or influencing the Registrar or an officer
109. Aiding and abetting
110. General Penalties
PART VII
REPEALED ACTS, CONFLICT OF LAWS AND TRANSITORY
PROVISIONS
Division I: Repealed Acts
111.Repeal and Savings
Division II: Conflict of Laws
112.When this Act Applies
Division III: Transitory Provisions
113.When Prior Law Governs
114.Prior Security Interests Continue to be Effective During
Transitional Period
116.This Act Governs Priority Conflicts
A BILL
ENTITLED
An Act to provide for provide for the registration of security
interests
lenders
created
to
accept
over
personal
diverse
property;
movable
and
encourage
immovable
property as collateral for credit; facilitate economic growth
by increasing the availability of credit that is necessary for
business activity as well as consumption; remove formalities
associated with the provision of loans secured with personal
property and acquisition of new assets; reduce the cost of
credit secured with personal property by eliminating a
number of risks, primarily the risk that the debtor has
previously encumbered property; consolidate the law relating
to accessing credit secured with personal property; provide for
a unified legal framework for all types of debtors, whether
natural persons or entities, to create security interests in
personal property;
establish the
Collateral Registry for
creditors to register financing statements informing third
parties of the security interests they have taken in some
assets of the debtor; provide for priority rules to resolve
conflicting claims to property of the debtor; provide for flexible
enforcement remedies in case of default that fairly balance the
rights of creditors and protections of debtors; repeal The
Trade Charges Act and Agricultural Charges Act, and the
inconsistent provisions of the Companies Act, the Hire
Purchase Act, and the Sale of Goods Act; and provide for
matters connected with, or incidental to, the foregoing.
Enactment
ENACTED by the Parliament of Zambia
PART I
PRELIMINARY
Short title and
commenceme
nt
1.
(1) This Act may be cited as the
Personal Property and Security Interests Act,
2013;
(2)
This
Act
shall
come
into
operation on such date as the Minister may by
Statutory Instrument prescribe;
Comment: The effectiveness of this Act will depend on the establishment
of the Collateral Registry that must be fully functional so as to allow
creditors to perfect their security interests by registration.
Application of
the Act
2.
(1) This Act shall apply to all security
interests in security interest or collateral as
defined in Section 2.
Comment: The Act does not provide for any limitations as to who may
create or benefit from a security interest. For foreign companies to conduct
legitimate business operations in Zambia, they must be registered or
licensed. Getting secured credit is part of such legitimate business
activities.
Comment: This provision reflects the fundamental policy of this Act which
is to govern all transactions with the security function irrespective of the
other factors mentioned here.
(3) The provisions of this Act on perfection,
registration, priority shall also apply to liens
created by judgments or operation of any laws of
Zambia.
Comment: Another fundamental policy of secured transactions laws of
this kind is to eliminate “secret liens” which are interests in a person’s
property that are legally effective without any form of public notice.
Particularly, liens created by judgments or operation of the law (e.g., liens
given to mechanics that fix cars where their owners refuse to pay for the
repairs) may prejudice the rights of secured creditors, increase their risk
and, thus, affect the cost of credit. In order to provide a level-playing field
for all creditors, those that acquire their interest by judgment or law must
properly publicize that interest and compete for priority with other
creditors. However, these creditors will not be subject to the rules on
creation and enforcement of this Act because they are created and
enforced under the terms of the judgment or specific law.
(4)
This Act shall not apply to—
(a)
a
lien,
charge,
interest
in
property
created
or
other
personal
by
any
other Act or by operation of
any rule of law;
(b) any right of set-off;
(c) An interest created or provided
for
by
any
of
the
following
transactions—
(i)
the
creation
transfer of an
or
interest in land;
(ii)
a transfer of a right to
payment that arises in
connection
interest
with
in
an
land,
including a lease and
rents;
(iii)
a
transfer,
assignment, mortgage
or
assignment of
mortgage
of
a
a
ship
subject to the relevant
laws of Zambia; and
(iv)
a
transfer,
assignment, mortgage
or
assignment of a
mortgage
of
an
aircraft subject to the
relevant
laws
of
Zambia;
Comment: While Acts of this kind apply to all transactions that create an
interest in personal property securing obligations, certain transactions are
excluded on public-policy, practical and legal grounds. Claims resulting
from an injury may not be assigned as collateral on public policy grounds.
The right of set-off is excluded because it does not create an interest in
property of the person and banks may generally enforce that right outside
the secured transactions law. Creation of an interest in land, ships and
other assets may be excluded if they are governed by other laws and
registration systems so as not to create a conflicting regime.
Interpret
ation
3. (1) In this Act, unless the context otherwise
requires—
“accessions” means goods that are physically attached
to other goods without losing their separate identity;
Comment: A typical example of accession is the car engine or tires. They
differ from some other assets that may lose their identity such as when oil
is mixed in a tank with oil that belongs to a number of depositors.
Accessions may be financed separately from the other good (e.g., the car).
“account receivable” means a right to payment of
money, including book debts not in the form of a
negotiable instrument or a deposit account;
Comment: An account receivable is typically generated by the sale of
goods where the purchase price will be paid sometime in the future (e.g.,
90 days after delivery of the goods). An account is commonly evidenced in
an invoice. If it takes the form of a negotiable instrument such as when the
buyer issues a negotiable promissory note that evidences the debt it will
be a negotiable instrument rather than an ordinary account receivable.
“after-acquired property” means personal property that
the debtor acquires after the conclusion of the security
agreement.
Comment: After-acquired property is any assets that the debtor acquires
in the future. This type of property is important particularly for loans
secured with fluctuating pools of assets such as inventory that is regularly
sold and new inventory acquired.
Act No. 15 of
2010
“Agency” means the Patents and Companies
Registration Agency established under the Patents
and Companies Registration Act;
“bank” means a company conducting banking business;
“banking business” means any of the following : (a) the business of receiving deposits from the public
including chequing account and current deposits and
the use of such deposits, either in whole or in part,
or 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;
“Bank
of
Zambia”
means
the
Bank
of
Zambia
established under the Bank of Zambia Act;
Comment: This definition is relevant for the understanding of control over
deposit accounts as defined below.
“collateral” means personal property, whether tangible
or intangible, that is subject to a security interest;
Comment: Property becomes collateral when it is subject to a security
interest, and includes property already-owned by the debtor, newlyacquired property or any proceeds thereof. By definition, real (immovable)
property such as land is excluded.
“consumer goods” means goods that the debtor uses or
intends
to
use
primarily
for
personal,
family
or
household purpose;
Comment: Property that is not used for a commercial activity is considered
a consumer good. Property is classified as one of the collateral types (e.g.,
inventory, equipment, consumer goods, etc.) when the security agreement
is concluded. For instance, when an individual buys a car to commute to
work it will be a consumer good. If the individual buys it to operate as a
taxi, the car will be equipment. In case the car is used partially for
commercial as well as consumer purposes, the primary use determines the
collateral type.
“control” is one way of perfection a security interest
with respect to deposit and securities accounts exists(i) automatically upon the creation of a security interest
if a bank or other financial institution that maintains
the deposit or securities accounts is the secured
creditor; or
(ii) upon conclusion of a control agreement with the
debtor and the secured creditor
Comment: Control places a secured creditor in the same
position with respect to the collateral as does possession
and registration. A secured creditor that controls the
collateral may dispose of it without further consent of the
debtor. Banks and financial institutions acquire control
automatically by contract, similarly to their rights of setoff. Third parties must take the additional step and enter
into a control agreement that binds the bank or financial
institution through which third parties will be able to find
out about the existence of a security interest.
“control agreement” means an agreement between a
bank, a debtor that is the customer of the bank and a
secured creditor, according to which the bank has
agreed to follow instructions from the secured creditor.
Comment: In a control agreement, the bank assumes an obligation to
follow instructions of the secured creditor who will want to enforce its
rights particularly when the debtor defaults. In that case, the secured
creditor may instruct the bank to freeze the debtor’s access to it and pay
the funds to the secured creditor.
“court” means the High Court;
Comment: The court competent to hear disputes under this Act that, for
instance, relate to enforcement of a security interest is the High Court.
“debtor” means a person that has created a security
interest, and includes—
(i) a financial lessee;
(ii) a seller of accounts receivable;
(iii)
a buyer that acquires goods subject to a
retention of title of the seller; and
(iv)
a grantor of any type of charge, chattel
mortgage, pledge or lien in personal property.
Comment: Debtor is a person or entity that provides some property as
collateral for a loan. The debtor need not necessarily be the borrower
under a loan. For instance, when X obtains a loan but his cousin Y
provides his car as collateral, only Y is the debtor. The definition of debtor
implements the functional approach of this Act that treats all transactions
with the purpose to extend credit secured with some personal property as
a secured transaction, including finance leases, sales of accounts
receivable to a factor, etc.
“default” means the occurrence of an event that, under
a security agreement, gives a secured party the right to
enforce a security interest;
“deposit account” means an account maintained by a
bank or financial institution in which it holds funds for
the customer;
Comment: One of the fundamental functions of financial institutions is to
maintain accounts for their customers to which they deposit or withdraw
money. This definition is flexible and includes any types of accounts such
as checking and savings.
“document of title” means a document, including a
warehouse receipt and a bill of lading that embodies a
right to delivery of goods and satisfies the requirements
for negotiability under the laws of Zambia;
Comment: A typical example of a document of title is a warehouse receipt
or a bill of lading that entitles the holder to claim the goods from the issuer
or to sell the goods by transferring the document itself.
“farm products” include
(i) crops grown, growing, or to be grown;
(ii) fish stocks;
(iii)
livestock, poultry, bees and their unborn
offspring;
(iv)
seeds, fertilisers, manure and supplies used
or produced in a farming operation; and
(v) products
of
crops
and
livestock
in
their
unmanufactured states.
Comment: Farm products are a category of personal property that
includes crops (e.g., tobacco), livestock (e.g., cows) as well as fish that is
grown or raised for commercial purposes. A cow or vegetables that are
consumed by a family is a consumer good.
“financial lease” means a lease, including a hirepurchase agreement, at the end of which
(i) the lessee automatically becomes the owner of
the goods that is the object of the lease;
(ii) the lessee may acquire ownership of the goods
by paying no more than a nominal price; or
(iii)
the good has no more than a nominal
residual value;
Comment: Under a financial lease, the person acquires some property but
the purchase price is to be paid over time in regular installments. Such
financial lease is economically similar to a secured loan whereby the
borrower takes possession of some property but agrees to pay off the
purchase price over time. Financial lessor may be i) the seller of an asset,
ii) a third-party lender that finances the purchase of an asset selected by
the lesse, or iii) a third-party lender that has been assigned the contract
under which the lessee acquired an asset.
“financing statement” means forms in writing or their
electronic
equivalent
as
provided
in
the
Registry
Regulations on which information is provided in order to
effect, amend, terminate or continue a registration or
data registered on the Personal Property and Security
Interest Register.
“fixtures” means personal property physically attached
to real property without losing their separate identity,
but does not include improvements as defined in
Section 3 of the Housing Act;
Comment: Fixtures are personal property that are manufactured to be
installed in a building or affixed to the land. Typical examples include
storage units such as tanks for oil, whether under or above ground, or airconditioning units. Fixtures do not include i) improvements such as
walkways and ditches and ii) materials such as bricks and cement that
become an integral part of real property.
“goods” means tangible personal property and include
farm
products,
fixtures,
inventory,
equipment,
consumer goods, trees that have been or are to be
severed under a contract for sale, and oil, gas or
minerals that have been extracted;
Comment: The category of goods includes tangible property as well as
documents that represent certain rights to payment and delivery of goods
such as promissory notes. Trees are generally part of the land but when
they are grown for commercial purposes and the owner has entered into a
contract to cut and sell them they become goods under this law. Their
cutting, marketing, sale and delivery may be financed under this law.
“intangible”
includes personal property other than
goods, chattel paper, a document of title, an investment
security, money or a negotiable instrument;
“inventory“ means goods that are—
(i) held for sale or lease in the ordinary course of
business; and
(ii) raw materials or work in progress;
Comment: Inventory means tangible property that is held and dealt by the
debtor for a commercial purpose (e.g., t-shirts for sale in a store or
construction equipment that may be leased). The definition of inventory
also includes raw materials or inputs (e.g., cut wood), work in progress or
semi-finished goods (e.g., furniture that needs to be polished and painted),
goods that are entirely consumed in the processing of raw materials (e.g.,
oil to power a wood processing machine) as well as the final product (e.g.,
furniture on display in a store).
“perfection” means the effectiveness of the security
interest against third parties;
Comment: This Act distinguishes between ‘creation’ of a security interest
that entails the conclusion of a security agreement. A security interest that
has been created is effective only between the debtor and secured creditor
but does not bind third parties. ‘Perfection’ of a security interest requires
an additional step such as registration or taking possession of the
collateral. A security interest that has been perfected binds third parties.
“personal property” means any form of property other
than
land
intangibles,
and
includes
investment
chattel
securities,
paper,
money
goods,
and
negotiable instruments and documents of title except
those relating to land;
“proceeds” means identifiable or traceable personal
property received as a result of sale, other disposition,
collection, lease or license of the collateral, including
proceeds of proceeds, civil and natural fruits, dividends,
distributions, insurance proceeds and claims arising
from defects in, damage to or loss of collateral or other
disposition of the collateral;
;
Comment: Collateral frequently changes its nature as a result of sale,
other type of disposal (e.g., exchange) or transformation. For instance,
tobacco (farm product) is sold for the purchase price payable in 90 days
(account receivable) and eventually deposited to a bank in the form of
money (deposit account). The law protects the rights of creditors that
secured their loans with particular property (e.g., tobacco) and extends the
reach of the security interest to any proceeds (e.g., accounts receivable and
bank deposits). For the secured creditor to be able to claim proceeds it
must prove or trace the proceeds to specific collateral in which it had a
security interest before it was disposed of. No specific description of
proceeds is necessary in the security agreement as long as the secured
creditor may identify the proceeds.
“purchase money security interest” means—
(i)
a security interest in collateral taken or
retained by the seller to secure all or part of
its purchase price;
(ii)
a security interest taken by a person who
provides credit to enable the debtor to
acquire the collateral if such credit is in fact
so used; and
(iii) a security interest of a financial lessor.
Comment: This law follows a functional approach that treats all devices
with the purpose to secure an obligation as security interests. Under this
approach, all forms of charges, pledges and liens are classified as security
interests. The second type of security device commonly used are those
where the seller or lessor of goods finance their acquisition by the debtor
and as a security retain ownership to the goods until the purchase price is
paid in full. In this form of financing, there is a close relationship between
the obligation and specific asset, and creditors of this kind expect to have
priority over any other claims to the good. Implementation of the functional
approach requires that these creditors be given an equivalent protection as
they enjoyed under pre-existing laws. This definition identifies the types of
creditors who will be entitled to special protections and priority under this
Act. The term purchase money security interest is derived from the nature
of the transaction where the debtor purchases an asset with the money
provided by the creditor who takes a security interest in the asset.
“Registry” means the personal property and security
interest registry established under this Act.
“secured creditor” means a person in whose favor a
security interest is created and includes—
(i) a financial lessor;
(ii) a buyer of accounts receivable;
(iii)
a seller who reserved title to the sold goods;
and
(iv)
a chargee, under any type of charge, chattel
mortgagee or holder of any type of consensual
lien.
Comment: Secured creditor includes not only the creditor that provided a
loan to the debtor such as a bank but also those that provide credit to the
debtor in a form other than money such as a supplier of goods who agrees
to be paid 90 days after delivery. This definition follows the functional
approach and classifies all persons who provide credit in whatever form
as secured creditors. It corresponds to the definition of debtor above.
“security agreement” means an agreement between the
debtor and secured party that creates or provides for a
security interest;
Comment: The security agreement creates a security interest pursuant to
Part II of this Act. It may be entitled a loan agreement, finance lease, retail
installment contract, debenture, etc. Following the functional approach the
title of the agreement is irrelevant and as long as it purports to secure an
obligation with some personal property it will satisfy this definition.
“security interest” means an interest or property right in
personal property or collateral that is created by
agreement or transaction that secures payment or other
performance of an obligation. It includes a retention of
title right, financial lease right, the right of a transferee
of accounts receivable, any type of charge, chattel
mortgage and consensual lien.
Comment: The function rather than label of the transaction determines
whether the parties in fact created a security interest. For instance, an
agreement in which the creditor “takes a charge” in some property of the
debtor will constitute a security interest. However, a transaction that does
not create any interest in some property of the person will not fall under
this definition. For instance, a person obtains an unsecured loan and a
family member executes a guarantee as an assurance of repayment. The
guarantee is not a security interest because the guarantor has not created
an interest in some of his property. Following the functional approach,
security interest also includes financial leases, retention and sales of title,
charges and similar devices whose main purpose is to secure an obligation
with some property.
“value” means consideration that is sufficient to support
a simple contract and includes an antecedent debt or
liability and a binding commitment to provide future
value;
Comment: For the secured creditor to enforce a security interest, it must
provide some value to the debtor. Value includes a commitment of the bank
to loan money to the borrower sometime in the future (e.g., a commitment
to make monthly disbursal to the borrower to acquire new inventory), a
pre-existing debt where a bank decides to secure a previously unsecured
loan with some property of the debtor because his risk profile has changed
but also provision of goods by a seller who agrees to be paid sometime in
the future.
“writing”
includes
an
electronic
message
if
the
information contained therein is accessible so as to be
usable for subsequent reference.
Comment: This Act is “technology-neutral” which means that it allows
parties to conclude security agreements and communicate with one
another in any acceptable means that they agreed on, including
electronically. The Registry Regulations provide the acceptable means to
access registration services.
(2)
For the purposes of this Act, the determination of
whether goods are consumer goods, equipment, farm
products or 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.
Comment: This Act applies to all personal property. When a security
agreement is concluded the secured creditor must describe the collateral
adequately pursuant to Section 7. The description may be by type or
category in which case the creditor must determine what type/category
the particular asset falls under. For instance, the debtor is offering a
vehicle as collateral. The use of the vehicle determines the type/category.
If the vehicle is offered for sale by a dealer of vehicles it will be
“inventory.” If the vehicle is used by a company’s president for business
purposes it will be “equipment.” Finally, when the vehicle is used by an
individual to drive children to school it will be “consumer good.”
Accordingly, the creditor must gather information about the use of the
asset offered as collateral to be able to make appropriate classification.
The use may also subsequently change such as when the debtor no longer
uses his car to drive children to school but instead he uses it as a taxi. The
change in use will not affect the description in the security interest and will
not invalidate the security interest. Otherwise, creditors would have to
monitor the use strictly which would increase the cost of credit.
PART II
CREATION OF SECURITY INTERESTS
Creation of a
security
interest
4.
(1)
Any person, whether an individual or
entity, domestic or foreign, may create a security
interest and may be a debtor and/or secured
creditor under this Act.
(2) A security agreement shall be effective and
create a security interest as between the parties
according to its terms.
Comment: This Act distinguishes between the creation and perfection of a
security interest. These two stages correspond to the enshrined distinction
between the execution of a contract conveying some property interest (e.g.,
in land) and its registration. Upon execution of a contract, an interest is
created and becomes enforceable between the two parties. However, for a
property interest to be effective against third parties it must be perfected
according to Part III of this Act.
(2) In respect of personal property to which the
debtor has rights or the power to create a security
interest at the time of the conclusion of the
security agreement, the security interest is created
at that time.
Comment: A loan may be secured with some property that the debtor
already owns or with property that the debtor acquires after the execution
of a security agreement. Following the traditional rule of property law that
no one may convey more rights than he has this provision states that a
security interest will be created only with respect to those assets to which
the debtor already has some rights (e.g., title, voidable title, leasehold,
etc.).
(3) Where the debtors acquires rights or the power
to create a security interest subsequently to the
conclusion of the security agreement, the security
interest in that personal property is created when
the debtor acquires such rights or powers.
Comment: With respect to future property such as when the debtor
acquires new inventory after the security agreement has been executed,
the security interest will be created only when the debtor acquires rights to
that inventory.
(4) A security interest in after-acquired property
shall be created without written consent or any
further act of the debtor.
With respect to after-
acquired property that is a consumer good, the
debtor must provide written consent.
Comment: In many commercial loans, the creditor commits to finance
continuous business operations of the debtor. In some of these loans, the
collateral fluctuates. This is particularly the case of inventory, accounts
receivable and farm products that the debtor sells or collects and then
acquires new assets of the same type. It would not be practical to request
the debtor’s consent every time he acquires new inventory as a condition
of creating a security interest. The security interest should be effective as
long as the security agreement adequately describes the collateral such as
“all inventory now owned and hereinafter acquired.” However, in order to
protect consumer borrowers against overreaching security interests their
consent is required for a security interest to be created over property that
consumers acquire in the future.
(5)
Unless
agreement,
otherwise
a
provided
security
in
interest
a
security
extends
to
identifiable or traceable proceeds of the collateral.
Comment: A security interest should automatically continue in any
proceeds of the collateral even if the proceeds are not described in the
secured agreement. Otherwise, the creditor would need to anticipate any
possible forms to which its collateral may change and transform, and
include such long descriptions in the security agreement.
Debtor’s
rights in the
collateral
5.
(1) For purposes of this Act, while the
transferee’s
interest
in
accounts
receivable
remains unperfected, the debtor is deemed to have
rights and title to the collateral
Comment: General property law typically provides that after a sale
ownership is transferred to the buyer who does not need to do any other
act to “perfect” his ownership rights. A sale of a t-shirt in a store is
completed upon payment when the store transfers ownership to the buyer.
If the same principle applied to the sale of receivables the factor or other
buyer of a receivable would not need to register or provide other public
notice. Since sales of receivables are subject to this Act this provision
creates a presumption of the debtor retaining rights in the sold receivable
until the buyer has registered a financing statement. Before such
registration, the seller may validly sell the receivable to a different factor
who may gain priority if he registers first.
(2) For purposes of this Act, the debtor is deemed
to have sufficient rights to create a security
interest in the collateral even though the seller,
financial lessor and other creditor claim ownership
to the collateral.
Comment: Similarly to the previous Subsection, this rule creates a
presumption that the buyer has acquired sufficient rights despite the
retention of title by the seller/lessor or other creditor. This provision
encourages these creditors to register a financing statement, otherwise the
debtor may grant a security interest to a third party who may gain priority
if it registers first.
(3) For the purposes of this Act, and except as
provided
otherwise
herein,
ownership
to
the
collateral is immaterial.
Comment: Rights and duties under this law apply irrespective of the
location of title. For instance, even if the lessor retained ownership to the
collateral it will be treated as a secured creditor. If the lessor transferred
ownership to the lessee but reserved a security interest its rights and
duties will be equally subject to this Act.
(4) The security interest shall be created in the
rights that the debtor may have to the collateral.
Comment: As stated in Section 4(2) of this Act, the debtor may create a
security interest in any rights that he has to the collateral. Those rights
may be full ownership or lesser rights such as leasehold. The security
interest will be created only to the extent of the debtor’s rights. For
instance, if the debtor merely leases equipment the security interest will be
created only to the leasehold rights and remain subject to the right of the
owner.
Content of a
security
agreement
6.
The security agreement shall;
(1) reflect the intent of the parties to create a
security interest;
(2) identify the secured creditor and the debtor;
(3) describe the secured obligation, including the
maximum amount for which the security interest
is enforceable; and
(4) describe the collateral in a manner that
reasonably allows its identification pursuant to
Section 7 of this Act.
(5) and any other requirements as may be
prescribed
Comment: This Section provides the minimal requirements for a security
agreement that creates a security interest. Typically, the parties also
address other aspects such as the various rights and duties (e.g., the duty
of the debtor to insure the collateral) in security agreements.
Description of
collateral in
security
agreement
7.
(1) A security agreement shall be enforceable
and a security interest created in respect of
collateral only if a security agreement contains an
adequate description of the collateral that may be
generic or specific.
Comment: If the security agreement does not contain an adequate
description of the collateral pursuant to Subsection 2, the security interest
will not be created. For instance, the security agreement describes the
collateral as “all kitchen appliances” while the debtor owns a store that
sells furniture. Such description would be inadequate.
(2) For the purposes of a security agreement, a
description
of
collateral
is
adequate
if
the
collateral is described by:
(i)
Item, kind, type or category;
(ii)
a
statement
that
a
security
interest is taken in all of the
debtor’s
present
and
after-
acquired property; or
(iii)
a
statement
that
a
security
interest is taken in all of the
debtor’s
present
acquired
property
and
after-
except
for
specified
items
or
kinds
of
personal property.
Comment: This Subsection determines what types of descriptions are
sufficient and adequate. The collateral may be described specifically “by
item” (e.g., truck VIN ABC123) or generically “by type” (e.g., all inventory)
or “by category” (e.g., all inventory of vehicles). The debtor may also create
a security interest in all of its assets in which case a statement such as
“all of the debtor’s property, now owned and hereinafter acquired” will be
adequate.
Description of
collateral as
consumer
goods
inadequate
8.
A description is inadequate for the purposes
of Section 7 if it describes the collateral as
consumer goods without specific reference to the
item or kind of collateral.
Comment: If the collateral is consumer goods it may be not be described in
the security agreement generically such as “all kitchen appliances” or as
“all present and after-acquired property.” Rather, it must be described
specifically such as “Samsung TV.” This rule protects consumer debtors
against inadvertently encumbering more property than they intended.
Description of
proceeds not
required
9.
Except as otherwise provided in this Act, a
security interest shall automatically continue in
the proceeds of the collateral, whether or not the
security agreement contains a description of the
proceeds.
Comment: In order to reduce the monitoring costs of the creditor and thus
the cost of credit, the Act automatically extends the security interest to any
proceeds that the debtor receives upon disposal of the collateral. For
instance, if the security agreement described the collateral as “all
inventory” and the debtor sold some for “cash” the security interest will
continue in the proceeds in the form of cash even if it has not been
mentioned in the security agreement.
Antiassignment
clauses are
ineffective
10.
(1) A transfer of and a security interest in an
account receivable is effective as between the
debtor and the secured creditor and as against the
person
liable
for
payment
of
the
receivable
notwithstanding any agreement limiting in any
way the debtor’s right to assign its receivables,
including to create a security interest.
Comment: Some contracts may restrict the parties’ freedom to assign their
respective rights. For instance, a manufacturer of t-shirts that sells to a
shopping center (person liable for payment of the receivable) may be
contractually prohibited to assign its right to future payment for the
delivery of t-shirts. Enforcement of this restriction may unnecessarily
restrict the manufacturer’s ability to access credit secured with its
receivables. This Subsection renders such restrictions unenforceable and a
security interest will be created even if the receivable and related contract
contains a restriction. However, the rights of the shopping center for the
breach of the contract from the assignment will be preserved. These
contractual rights may be enforced against the manufacturer without
affecting the security interest.
(2) A security interest in a deposit account shall be
created
and
effective
notwithstanding
any
agreement between the debtor and the bank or
financial institution.
However, the bank or
financial institution owes no duty to the secured
creditor without its consent.
Comment: This Subsection covers a situation that is different from the one
covered by Subsection 1 because of the nature of the person liable for
payment. In case of accounts receivable, the person liable for payment of
the receivable is typically a business (e.g., the shopping center) while in
the case of deposit accounts it is a bank that is bound by banking laws. In
order to protect the banks and particularly the payment system, the bank
will not be required to recognize a secured creditor unless it has previously
agreed to do so. A business that owes a receivable does not have similar
rights.
Extension of a
security interest
to goods covered
by a document of
title
11.
A security interest created in a document of
title
extends
to
the
goods
covered
by
the
document.
Comment: If a security interest has been created in a warehouse receipt it
will automatically extend to the goods that are represented by the receipt.
PART III
PERFECTION OF SECURITY INTERESTS
Perfection
12.
(1)
Except as otherwise provided in this
Act, 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; or
(ii)
the
secured
another
party,
person
on
or
the
secured party’s behalf, has
possession of the collateral
(except where possession is
a
result
of
seizure
or
repossession); or
(iii)
the
secured
another
party,
person
on
or
the
secured party’s behalf has
control of the collateral that
is
a
deposit
account
or
investment security.
Comment: Perfection of a security interest means its legal effectiveness
against third parties as distinguished from its creation that renders the
security interest effective only between the debtor and secured creditor. A
security interest is created by a private agreement that third parties have
no knowledge about. For it to become effective against third parties, the
creditor must provide some public notice of its existence such as by
registering a financing statement or taking possession. Only when the
security interest has been properly created pursuant to Part II of this Act
and the creditor has provided public notice pursuant to Subsection 1 it will
be perfected.
(2)
Subsection (1) shall apply regardless of the
order in which creation and either of the steps
referred to in paragraph (b) of that Subsection
occur.
Comment: In some transactions that require lengthier negotiations, the
creditor may want to protect its interest by registering a financing
statement before the actual security agreement is finally signed by the
debtor in order to prevent the debtor from secretly negotiating loans with
multiple creditors. As long as the debtor authorizes the creditor to register
a financing statement, there is no reason why the creditor should not be
able to do so. This Subsection leaves it up to the creditor to decide in which
order it wants to sign an agreement and make a registration. The choice
will depend on the type of transaction.
(3) For the purposes of this Section, the secured
creditor shall not be in possession of collateral
that is in the actual or apparent possession or
control of the debtor or the debtor’s agent.
Comment: This Section allows the security interest to be perfected by
possession. Typically, the creditor would take possession of the collateral
itself. However, there may be situations where a third party (e.g., a
warehouseman, lawyer, etc.) is holding the collateral. For a security
interest to be perfected by possession, the third party must be the
creditor’s agent.
Continuity of
perfection
13.
A security interest shall be continuously
perfected for the purposes of this Act if—
(a)
the security interest is perfected under
this Act;
(b)
the security interest is subsequently
perfected in another way under this
Act; and
(c)
there is no intervening period during
which
the
security
interest
is
unperfected.
Comment: This Section allows the creditor to change the method of
perfection such as when the creditor initially took possession of the
collateral but later decides to return it to the debtor. If the creditor registers
a financing statement before it has returned the collateral the security
interest will be continuously perfected and have priority from the time
when it was initially perfected by possession.
Continuation of
Perfection of
security interest in
proceeds
14.
(1)
A
security
interest
shall
remain
continuously perfected in proceeds if—
(a)
the
security
interest
in
the
original collateral is perfected by
registration
statement
of
that
a
financing
contains
a
description of the proceeds; or
(b) the proceeds are cash proceeds that
consist of money, accounts receivable,
negotiable instruments or funds credited
to a deposit account.
(2) If
the
security
secured
interest
party
against
enforces
both
the
the
collateral and the proceeds, its recovery
from the collateral and its proceeds shall
be limited to the value of the collateral at
the date of the dealing that gave rise to
the proceeds.
Comment: A security interest will be automatically perfected in proceeds if
the financing statement contains a sufficient description of the collateral.
For instance, the financing statement describes the collateral as “all farm
products.” If the debtor exchanges some of its vegetables for gardening
tools the security interest will not be perfected because the tools are
equipment and not within the description in the financing statement. For
the perfection to extend to such tools see Section 15. A security interest will
be automatically perfected in proceeds that are received in one of the forms
listed in Subsection (b) even if the financing statement does not contain a
description of such property.
Temporary
perfection of
security
interests in
proceeds in
other cases
15.
If the proceeds are not cash proceeds and
not within description of the collateral in the
financing statement as set forth in Section 14, a
security interest in proceeds shall be temporarily
perfected until the expiration of 10 working days
after the proceeds arose.
If the secured creditor
does not perfect within 10 working days its
security interest in the proceeds will become
unperfected.
Comment: If the proceeds are of the kind described in the comment to
Section 14 the secured creditor must amend its financing statement to add
the proceeds (e.g., the gardening tools) within 14 days to remain
continuously perfected.
Perfection
with respect to
a document of
title
16.
(1) A security interest in a document of title
may be perfected by registration of financing
statement or by the secured creditor’s possession.
Comment: If the collateral is a document of title the creditor may take
possession or register a financing statement that describes the collateral
as such. While the creditor has these two options perfection by taking
possession may be preferable because of its priority over a conflicting
security interest perfected by registration, as will be explained below in
Part V, Section 54.
(2) A perfected security interest in a document of
title also extends to the goods covered by the
document of title.
Comment: This Section, similarly to Section 11 that deals with creation,
provides for the extension of a perfected security interest to the goods
covered by the document of title.
Perfection with
respect to a
deposit account
17.
be
A security interest in a deposit account may
perfected
by
registration
of
a
financing
statement or by the secured creditor obtaining
control.
Comment: If the collateral is a deposit the creditor may take control or
register a financing statement that describes the collateral as such. While
the creditor has these two options perfection by taking control may be
preferable because of its priority over a conflicting security interest
perfected by registration, as will be explained below in Part V, Section 49.
PART IV
COLLATERAL REGISTRY
Division I: Collateral Registry and Registration
Collateral
Registry
18.
There
shall
be
established
a
collateral
registry in which financial statements relating
to security interests in collateral shall be
registered.
Comment: This provision sets forth the fundamental function of the
Collateral Registry which is to accept for registration financing statements.
Fundamental
functions of the
Collateral
Registry
19.
(1)
The
information
Collateral
provided
in
Registry
financing
shall
store
statements
pursuant to Section 23 in an electronic database.
Comment: While financing statements may be submitted by creditors in
any format authorized by the Collateral Registry (e.g., in paper or
electronically), all information about registrations will be maintained
electronically. Accordingly, the Registry will not store originals or copies of
paper financing statements.
(2) Secured creditors and searchers shall have
immediate
access
to
the
registry
record
by
electronic and other means authorized in the
Regulations.
Comment: The Registry will be designed to be easily accessible over the
Internet. The Regulations will further specify how the Registry may be
accessed, electronically or in-person.
When
financing
statement
may be
registered
20.
(1) Financial statements shall be registered
in the collateral registry.
(2) A financing statement may be registered before
or after a security agreement is concluded.
Comment: In modern notice-registration systems of the kind contemplated
under this Act, registration does not require submission of the underlying
loan or security agreement. Financing statement may be registered before
the security agreement is signed but prior to the execution of the
agreement a security interest has not been created.
(3) By entering into a security agreement, the
debtor authorizes the registration of a financing
statement and amendments thereto other those
listed in Section 32.
Comment: Typically, the creditor will be the one submitting a financing
statement for registration. The Collateral Registry has no means to verify
whether the debtor indeed authorized this registration. This Subsection
provides a rule that the debtor’s signature on the security agreement is
sufficient for the registration to be properly authorized.
(3) The debtor may also authorize registration of a
financing statement prior to the conclusion of a
security agreement in a signed writing.
Comment: In case the creditor wants to register a financing statement
before the debtor signs a security agreement, it must obtain the debtor’s
express authorization in writing. Oral authorization will not be sufficient
and such registration will have no legal effect.
(4) A financing statement may relate to one or
more security agreements.
Comment: In modern notice-registration systems, a single financing
statement may be sufficient to perfect multiple security interests created in
different agreements. For instance, a debtor creates a security interest in
all of its t-shirts that it sells in its store and the creditor registers a
financing statement that describes the collateral as “all inventory.” A few
months later, the debtor signs another security agreement with the same
lender this time creating a security interest in all the shoes that it sells.
The creditor will not need to register another financing statement because
the one registered initially already contains a sufficient description of the
collateral – all inventory.
Administrativ
e role of the
Registry
21.The Registrar and any Registry employee shall
not verify whether authorization for registration
has been properly granted pursuant to this Act or
conduct any scrutiny of the information provided
in the financing statement.
Comment: The role of the registry is minimal in that it ensures only that
the required information has been provided in a financing statement. The
responsibility for the accuracy and legality of that information lies with the
creditor.
Data required
to register
financing
statement
22.
The secured creditor shall provide in a
financing statement the following information:
(a) the identifier of the debtor;
(b) the identifier of the secured creditor or a
representative of the secured creditor;
(c) a description of the collateral;
(d) the date of effectiveness, perfection or
registration under prior law pursuant to Part
VIII of this Act;
(e) the maximum amount for which the
secured obligation may be enforced; and
(f) any other data as may be prescribed by
required by Statutory Instrument
Rejection of a
financing
statement
23.
Registration of a financing statement shall
be rejected only if—
(a)
it is not submitted in the prescribed
manner or in a form that enables the
information to be entered into the
Registry; or
(b)
it does not contain the information
required by Section 22; or
(c)
the prescribed fee has not been paid.
Comment: Given the administrative role of the Registry, it may refuse to
register a financing statement only for the reasons listed in this Section.
The registry system will be designed to automatically reject financing
statements submitted electronically for the reasons listed in this Section.
Time of
filing
24.
A financing statement shall be registered at
the time that a registration number, date and time
are assigned to it by the Collateral Registry, and it
shall
be
effective
when
it
becomes
publicly
searchable.
Comment: A financing statement shall not perfect a security interest
unless it has been registered and became searchable which means that a
person searching the Collateral Registry will be able to find it.
Verification
statement to
be forwarded
to the filer
25.
The
Collateral
Registry
shall
provide
a
verification statement, in the form prescribed in
the Registry Regulations, as soon as reasonably
practicable after a financing statement has been
registered to the secured creditor.
Comment: The Registry will issue a confirmation of registration so that the
creditor may verify that all information has been provided and entered
correctly.
Debtor entitled
to a
verification
statement
26.
The secured creditor shall, not later than 14
working days after the day on which it received the
verification statement, provide to the debtor a copy
of the verification statement.
Comment: Since the creditor is the person that submits a financing
statement for registration it is important for the debtor to receive a copy of
what has been registered so that it may verify whether the information
registered corresponds to his authorization.
Division II: Effectiveness of Registrations
When
financing
statement
seriously
misleading
27.
(1)
Subject to Subsection 2, a registration
shall be ineffective if there is an error in—
(a) the identifier of a debtor; or
(b) the serial number of the collateral if
the collateral is of a kind that is
required by the Registry Regulations to
be described by a serial number that
causes
the
registration
retrieved in a search.
not
to
be
Comment: A financing statement perfects a security interest only if it has
been registered and could be found by a searcher. There may be situations
where the creditor entered the name of the debtor incorrectly as a result of
which the searcher would not be able to find the registration. Registrations
that contain such errors that would prevent the searcher from retrieving
the registration are legally ineffective. Third parties may be bound by only
those security interests of which they may obtain notice.
(2) An error in the serial number of the collateral
may render the registration ineffective only with
respect to the collateral identified by such serial
number and an error in the identifier of a debtor
may render the registration ineffective only with
respect to that debtor.
Comment: If a financing statement identifies two debtors but only one of
them contains an error in the identifier, the registration will be ineffective
only with respect to the debtor whose identifier contains the error because
the searcher will be able to find a financing statement by searching
against the correct name of the other debtor.
Consequences
of other errors
28.
(1) An error in the identifier or address of the
secured creditor, address of the debtor or the
maximum amount does not render the registration
ineffective.
Comment: Certain errors will not affect the registration because the
searcher will still be able to retrieve the registration and obtain additional
information from the creditor to clarify any ambiguity caused by such
errors.
(2) An error in the collateral description other than
in the serial number may render the registration
ineffective with respect to that collateral if the
error seriously misleads the searcher.
Comment: An error in the collateral description stands in between errors
in the debtor’s identifier and errors identified in Subsection 1 of this
Section. The standard for errors in the collateral description is that of
seriously misleading which means that the court would eventually have to
determine whether the error was such that it could potentially mislead the
searcher.
(3) An incorrect description of some collateral shall
not render the registration ineffective with respect
to other collateral sufficiently described.
Comment: This rule mirrors that set forth in Section 27(2). If the
registration describes the collateral as “all accounts and Caterpillar
construction machinery” while the collateral is in fact “all accounts and
Toyota trucks” then the security interest will be perfected only with respect
to the accounts.
(4) An error in other information required by the
Regulations or voluntarily entered by the secured
creditor
does
not
render
the
registration
ineffective.
Comment: Errors in information other than that specified in the previous
three Subsections shall not affect the registration and the security interest
will remain perfected.
Division III: Duration and Amendments of Registrations
Duration of
registration
29.
The registration of a financing statement
shall be effective until the earlier of—
(a) the expiration of the term specified
in the financing statement; or
(b) the cancellation of the effectiveness
of the financing statement.
Comment: A financing statement that has been properly registered will be
effective until it has expired or been cancelled upon registration of an
amendment financing statement.
Renewal of
registration
30.
A
registration
amendment
may
financing
be
renewed
statement
by
before
an
the
effectiveness of the registration expires.
Comment: A financing statement will be effective for the period of time
pursuant to the Registry Regulations. If that period is about to expire but
the secured obligation has not yet been satisfied the secured creditor may
extend the period of effectiveness by registering an amendment financing
statement.
Transfer of
secured
obligation and
collateral
31.
(1) If the secured creditor transfers the
secured obligation relating to a security interest
perfected by registration, the security interest will
remain effective without registration.
Comment: A secured creditor may assign the loan which will cause
automatic assignment of the related security interest. The assignor or
assignee will need not register an amendment because searchers will be
able to find out about the assignment by inquiring with the assignor whose
named is indicated as the secured creditor in the registered financing
statement.
(2) The registration remains effective with respect
to the collateral that was disposed of by the debtor
unless the secured creditor consented to the
disposal free of its security interest.
(3) For the registration to remain effective against
the transferee, the secured creditor must register
with the registry an amendment adding the
transferee within 14 working days after it learns of
the transfer.
Comment: It may be the case that the debtor sells some of the collateral
without any previous consent of the secured creditor. Buyers and other
interested parties should do their due diligence and search the Collateral
Registry to make sure that the asset they are buying is not subject to a
security interest. Once the creditor finds out about the transferee’s identity
it must register an amendment financing statement adding the transferee
as the debtor to the registration.
Voluntary
amendment
to, or
discharges of,
registrations
of financing
statement
32.
(1) The registration may be amended or its
effectiveness cancelled by the secured creditor by
registering
with
the
registry
an
amendment
financing statement at any time before expiration
of its effectiveness.
Comment: A financing statement that is effective for a period of time may
be cancelled prior to its expiration if, for instance, the secured obligation
has been entirely satisfied. The secured creditor may also register an
amendment financing statement to indicate any changes that may have
occurred such as when the debtor changes its address.
(2) An amendment to a registration that adds
collateral,
that
adds
a
new
debtor
or
that
increases the maximum amount of the secured
obligation is effective as to the added collateral,
the added debtor and the new maximum amount
only from the date when the amendment financing
statement is registered.
Comment: Certain amendments expand the security interest by adding a
new debtor, additional collateral or increase the owed debt. Such
amendments take legal effect only from the time they are registered. For
instance, a security interest will be perfected with respect to some
collateral described in the initial financing statement from the time when
the financing statement was registered. A security interest in other
collateral that was added to the registration with an amendment financing
statement will be perfected only from the time of registration of the
amendment financing statement.
(3)
If the debtor changes its identifier that the
registration is no longer retrievable in an official
search, the security interest is not effective with
respect to the collateral that the debtor acquires
30 days after the change.
The registration shall
remain effective with respect to all pre-existing
collateral and the collateral acquired by the debtor
up to the 30 days after the change.
Comment: All financing statements are indexed and searchable by the
identifier of the debtor that could be a name. If the identifier is such that it
changes (e.g., when a company changes its name) it will impact third
parties who deal with the debtor after it has changed its name. Third
parties will search against the current name of the debtor and may not
discover financing statements registered against the previous name.
Accordingly, this rule places a duty on the secured creditor to amend the
registration with a new identifier of its debtor.
Discharge of
registration
relating only
to consumer
goods
33.
(1) If the registration covers consumer goods
only,
the
secured
creditor
shall
cancel
the
registration within 14 working days after all
obligations under the security agreement have
been performed, unless the registration lapses
earlier.
(2) The Discharge under subsection 1 shall be
lodged in a prescribed manner and form upon
payment of a prescribed fee.
Comment: In order to protect the interests of consumers, the creditor has a
duty to automatically cancel the registration when there is no longer a
secured obligation. The consumer need not send a demand for cancellation
to the creditor.
Demand to
amend or
cancel a
registration
34.
In cases not governed by Section 33, the
debtor may give a written demand to the secured
creditor to amend or cancel the effectiveness of the
registration if—
(a)
all of the obligations under the security
agreement to which the registration
relates have been performed and there
is no commitment to make future
advances;
(b)
the secured creditor has agreed to
release part of the collateral described
in the registration;
(c)
the
collateral
described
in
the
registration includes an item or kind of
personal property that is not collateral
under a security agreement between
the secured creditor and the debtor;
(d)
no security agreement exists between
the parties; or
(e)
the security interest is extinguished in
accordance with this Act.
Comment: Unlike in Section 33, if the registration covers commercial
collateral only the debtor must send a demand for cancellation to the
creditor. For instance, in a line of credit the debtor may have temporarily
paid down the outstanding balance and the bank is no longer obligated to
loan any money to the debtor. However, if the parties contemplate
borrowing under the line of credit in the near future it would not be
reasonable for the creditor to cancel the registration and register a new
financing statement when the debtor in fact borrows money in the future.
Compulsory
amendment or
discharge by
Court order
35.
(1) Upon receipt of the demand submitted
under Section 34, the secured creditor must
register, within 14 working days, an amendment
financing statement cancelling or amending the
registration with the registry, as appropriate.
Comment: The creditor must register an appropriate amendment or
cancellation within 15 days of receiving a demand.
(2) If the secured creditor fails to comply, the
person giving the demand may ask the court to
issue
an
order
amending
or
cancelling
the
effectiveness of the registration, as appropriate.
Comment: Failure to amend or cancel a registration that the debtor is
entitled to will expose the creditor to liability. A court may order the
amendment or cancellation and additionally order the creditor to pay any
damages to the debtor.
Division IV: Searches of the Collateral Registry
Search of
Registry
36. (1) Any person may search the Registry in the
prescribed form and manner in accordance with
this Act.
Comment: The Collateral Registry will be accessible to anybody that may
want to search it electronically or request a search in-person.
(2) The Registry shall, upon request and payment
of the fee prescribed in the Regulations, issue a
printed search result in the prescribed form and
manner.
Comment: Searchers may obtain a search result but also request an
official certificate from the Collateral Registry.
(3)
A
statement
issued
by
the
Registry
in
accordance with sub section 2 shall be prima
evidence of the existence of information in the
Registry as of the date and time of its issuance.
Comment: Certificates typically carry more evidentiary weight than
search results printed directly by the searcher.
(4) The Minister may by Statutory Instrument
prescribe any such information which may not be made
public.
(5)
Entries on the register shall be prima facie
evidence of any matters required or authorised by or
under this Act to be entered therein.
Search criteria
37.
The Registry may be searched only by
reference to the following criteria—
(a)
the identifier of the debtor as provided
in the Regulations; and
(b)
if collateral is required by this Act and
the Regulations to be described by a
serial number, the serial number of the
collateral.
Comment: This Section identifies the criteria by which searchers will be
able to search the Registry. The Regulations will further define what
constitutes the identifier (e.g., a name or unique identification number).
Interference
with privacy
of individual
38.
A person who submits a financing statement
for registration or carried out a search with a
frivolous, malicious or criminal purpose or intent
commits an offence under this Act may be subject
to civil and criminal penalties according to the
relevant laws of Zambia.
Comment: Since the role of the Collateral Registry is only administrative,
there may be situations where a financing statement is registered
fraudulently. The aggrieved person may request the court to order
cancellation and sue for damages. However, depending on the gravity of
the violations the person who submitted a financing statement without any
authorization may also be criminally liable.
PART V
PRIORITY BETWEEN SECURITY INTERESTS
Division I: General Priority Rules
Priority of
security
interests in
same collateral
when Act
provides no
other way of
determining
priority
39.
(1) Priority between security interests in the
same collateral is determined as follows—
(a)
a perfected security interest shall have
priority over an unperfected security
interest;
(b)
priority
between
perfected
security
interests shall be determined by the
order of whichever of the following first
occurs
in
relation
to
a
particular
security interest—
(i)
the registration of a financing
statement;
(ii)
the secured party, or another
person on the secured party’s
behalf, taking possession of the
collateral
(except
where
possession is a result of seizure
or repossession); or
(iii)
the secured party, or another
person on the secured party’s
behalf acquiring control of the
collateral; and
(c)
priority between unperfected security
interests in the same collateral shall be
determined by the order of creation of
the security interests.
(2)
This Act does not affect the priority of wage
and similar claims granted to workers under other
laws of Zambia.
Same priority
for original
collateral and
proceeds
40.
The priority of a security interest in original
collateral shall also be the priority with respect to
its proceeds.
Comment: A security interest in the original collateral that has been
properly created and perfected continues into the proceeds. This Section
extends the same treatment to priority with respect to the proceeds. For
instance, when inventory was sold for cash the security interest in the
cash will have the same priority as the security interest in the inventory.
Transfer of
security
interest does
not affect
priority
41.
A security interest that is transferred shall
have the same priority as it had at the time of the
transfer.
Comment: When the original creditor sells or assigns the loan (obligation
secured with some collateral) the security interest automatically follows.
The security interest acquired by the buyer or assignee will have the same
priority without the necessity to register a new financing statement or
amend the financing statement registered by the seller or assignor.
Voluntary
subordination
of security
interest
priority
42.
(1) The
secured creditor may agree to
subordinate its priority in favour of any other
claimant.
Comment: This Section recognizes the contractual freedom of creditors to
subordinate their respective priorities. This will be typically done in an
inter-creditor or subordination agreement.
(2) Subordination is effective without registration
in the Registry.
Comment: Subordination is effective upon conclusion of the relevant
agreement. Third parties will find out about the subordination because the
creditor has a duty under this Act to disclose information related to the
security interest, including the fact of subordination.
(3)
An
agreement
to
subordinate
shall
not
adversely affect rights of a person that is not a
party to this agreement.
Comment: If, for instance, the creditor with 1st and 3rd priorities enter into
a subordination agreement that agreement may not affect the priority of
the creditor with the 2nd priority.
Priority
applies to all
advances
43.
A security interest shall have the same
priority in respect of all secured obligations and
advances, whether existing or future.
Comment: Under many credit facilities, the lender periodically lends
money to the borrower. For instance, a retail store may need money today
to buy new inventory of t-shirts and once they are sold, next month it may
need more money to buy new inventory. All this money, also known as
advances, are made under the same credit facility and secured with the
same type of collateral – inventory. Accordingly, in order to facilitate this
type of financing all advances have the same priority.
Division II: Special Priority Rules for Security
Interests
Priority of
purchase
money security
interest in
collateral or its
proceeds
44.
A
purchase
money
security
interest
in
collateral and its proceeds shall 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.
Comment: This Section recognizes the special priority that was previously
given to a number of creditors such as those that sold goods under
retention of title, entered into a hire-purchase agreement or structured their
transaction as a finance lease. These creditors finance specific collateral
as opposed to a fluctuating pool of assets. The purchase money security
interest of these creditors may come into a conflict with a security interest
of other creditors. For instance, a construction company has created a
security interest over “all of its assets” in favour of a bank. Later, it wants
to buy a new loader from Caterpillar. Caterpillar is willing to finance the
purchase of the loader, but only if it has priority over the bank. This
Section allows such financing. The rights of the bank are not prejudiced
because it does not advance any money to the construction company to
buy the loader.
Priority
between
purchase
money
security
interests
45.
A purchase money security interest in goods
or their proceeds taken by a seller, lessor or
consignor of the collateral, shall have 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.
Comment: This Section applies to a relatively rare situation where two
creditors have taken a purchase money security interest in the same
collateral. For instance, a provider of medical services decides to buy a
new X-ray machine. The manufacturer is willing to provide financing for
the 80% of the purchase price and the provider borrower the remaining
20% of the purchase price from the bank. Both the manufacturer and the
bank have a purchase money security interest, but this Section grants
priority to the manufacturer.
Priority of
purchase
money
security
46.
A
purchase
money
security
interest
in
fixtures has priority as against third parties with
existing rights in the real property provided that
the financing statement is registered in the
registry established under the Housing and the
Lands and Deeds Registry Acts, as applicable, no
later than 60 days after property becomes an
attachment.
Comment: This Act facilitates financing of fixtures in that it provides an
additional form to perfect such a security interest. This form of perfection is
an alternative to that which already exists under the real property law.
There may be situations where one security interest has been perfected
under this Act but another creditor perfected by recording a mortgage in
the relevant Land Registry. The secured creditor may gain priority over the
mortgagee if it records a notice of its interest in the Land Registry within
the specified period of time.
Priority of
security
interest in
goods before
they become
accessions
47.
A security interest in goods that is created
and perfected before the time when the goods
become an accession shall have priority over a
claim to the goods as an accession made by a
person with an interest in the whole.
Comment: Car may be subject to a perfected security interest. One day
the engine breaks and it is replaced. The shop that serviced the car takes
a security interest in the engine. As long as it has perfected its security
interest before it installed the engine it will have priority over the security
interest in the car even though this security interest was perfected earlier.
Priority of
security
interests in
processed or
commingled
goods
48.
(1) A perfected security interest in goods that
subsequently become part of a product or mass
shall continue as a perfected security interest in
the
product
or
manufactured,
mass
if
processed,
the
goods
are
assembled
so
or
commingled that their identity is lost in the
product or mass.
Comment: A bank has a security interest in all assets of a mining
company that sells its minerals to a manufacturer of equipment. The
manufacturer uses the minerals to produce machinery. The security
interest of the bank perfected in minerals continues into the machinery
produced from the minerals.
(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.
Comment: The manufacturer of equipment buys minerals and other
materials from multiple suppliers. All of these suppliers have granted
security interests to their banks. These security interests continue in the
machinery produced from the minerals and other materials.
Priority of
security
interests in a
deposit
account
49.
(1) A security interest in a deposit account
perfected by control has priority as against a
competing security interest perfected by any other
method.
Comment: This Section provides that the creditor who has taken control is
given priority over the creditor who perfected by registration of a financing
statement. The rationale for this priority rule is similar to that of set-off.
Historically, the banker’s right of set-off has had priority over any other
claims irrespective of the time when they arose.
(2) If the bank or financial institution perfected its
security
interest
by
acquiring
control
automatically pursuant to Section 2, such security
interest has priority as against any other security
interest in the deposit account.
Comment: In case of two competing security interests in the same deposit
account that have been perfected by control, if one of the creditors is the
bank that holds the deposit account the bank’s security interest will have
priority.
Rights of
debtor may be
transferred
50.
(1) The rights of a debtor in collateral may be
transferred despite a provision in the security
agreement prohibiting transfer or declaring a
transfer to be a default.
Comment: A transfer of the collateral is valid even though the security
agreement prohibits the debtor from transferring the collateral. This rule
protects third parties who otherwise would have to examine the security
agreement for any restriction on the debtor’s freedom to transfer the
collateral.
(2) A transfer by the debtor shall not prejudice the
rights of the secured creditor under the security
agreement,
including
the
right
to
treat
a
prohibited transfer as an act of default.
(3)
In this section, “transfer” includes a sale, the
creation of a security interest or a transfer under
judicial enforcement proceedings.
Comment: The previous Subsection protects only the transferee who
acquired the collateral. Similar protections are not extended to the debtor
who transferred the collateral in violation of the security agreement. The
transfer may entitle the creditor to enforce the secured obligation.
Priority of
security
interest in
transferred
collateral over
those granted
by transferee
51.
If a debtor transfers an interest in the
collateral that, at the time of the transfer, is
subject to a perfected security interest, that
security interest shall have priority over any other
security interest granted by the transferee.
Comment: This section addresses the “double debtor” problem, which
arises when Company B acquires property that is subject to a security
interest created by Company A. The section gives priority to the secured
creditor of Company A. For example, if A sells an item of equipment subject
to a perfected security interest to B, and B created a security interest in the
equipment that bank B perfected before Bank A perfected its security
interest against Company A, Bank B’s security interest is subordinate to
Bank A’s even if perfected earlier.
Security
interest
remains
perfected in
transferred
collateral
52.
(1) If a security interest is perfected by
registration and the debtor transfers all or part of
its interest in the collateral, the security interest
in the transferred collateral shall remain perfected
against such collateral and, if the security interest
extends
to
after-acquired
property,
to
any
collateral that the transferee acquires within 14
working days after the transfer.
Comment: This section addresses situations when the debtor sells some
collateral to a third party against whom the creditor did not register a
financing statement. Upon such transfer, the security interest remains
perfected with respect to the transferee without registration of a new
financing statement.
(2) The security interest shall not be perfected with
respect to collateral acquired by the transferee
after the expiration of 14-day period unless the
secured creditor registers a financing statement
naming the transferee as the debtor.
Comment: For any property that the transferee acquires 15 days after the
transfer, the creditor must register a new financing statement against the
transferee for the security interest to remain perfected.
Priority of
creditor who
receives
payment
53.
A transferee of money or funds from a
deposit account takes the money or funds free of a
security interest unless the transferee acts in
collusion with the debtor in violating the rights of
a secured creditor.
Comment: This section provides protection to transferees who receive
transfers of funds from a deposit account and to those who accept money.
Such protection reinforces the finality of transactions, ensuring that
security interests in deposit accounts do not hinder the free flow of funds.
Priority of
purchaser of
negotiable
instrument
and document
of title.
54.
A purchaser of a negotiable instrument or
document of title shall have priority over a
perfected
security
instrument
or
interest
the
in
document
the
of
negotiable
title
if
the
purchaser—
(a)
gave value;
(b)
acquired
the
negotiable
instrument or the document of title
without
transaction
knowledge
is
a
that
breach
of
the
the
security agreement to which the
security interest relates; and
(c)
took possession of the negotiable
instrument or the document of title.
Comment: This section gives priority to purchasers of negotiable
instruments and documents of title, thereby respecting the negotiability of
those types of documents. To qualify for this priority, a purchaser must
first give value. Value is any consideration sufficient to support a simple
contract and typically will be satisfied when the purchaser pays money.
Second, a purchaser must acquire the negotiable instrument or document
of title without knowledge that the transfer breaches a security agreement.
Knowledge of existence of a security interest still protects the purchaser.
Finally, the purchaser must take possession.
Priority
Priority
Priority
of
ofof
purchaser
purchase
interests on
of of
investment
assignment
chattel
paperof
security
account
receivable
55.
(1) The rights of an assignee of an account
receivable shall be 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.
Comment: Assignee of accounts receivable including a secured creditor
cannot acquire better rights than those held previously by the assignor.
Unlike negotiation, in a transfer by assignment the assignee “steps into the
shoes of the assignor” and takes subject to all defenses available to the
account debtor, including those that may have accrued until the assignee
notifies the account debtor.
(2) Subsection (1) shall not apply if the account
debtor has made an enforceable agreement not to
assert defences to claims arising out of the
contract.
(3)
In this section—
(a) “account debtor” means a person who is
obligated under an account receivable or chattel
paper; and
(b) “assignee” includes a transferee or other
secured party.
Comment: In order to increase the collateral value of accounts receivable,
the assignor may request its account debtors to waive any defences.
Assignees, including secured creditors generally make higher advances
against accounts receivables owed by persons who have waived their
defences.
Rights of the
buyer or lessee
of goods
56.
(1) A buyer or lessee who acquires goods for
value and receives their possession shall take the
goods free of an unperfected security interest.
Comment: Subsection (1) provides general protection to buyers and
lessees who take free of an unperfected security interest. For instance, if
Company A buys a tractor from Company B that is subject to a security
interest but the Bank failed to register a financing statement Company A
takes the tractor free of the Bank’s 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
shall take 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 the security agreement under which
the security interest was created.
Comment: A buyer or lessee, who buys or leases in the ordinary course of
business, takes free of security interest, even though perfected, and even
though the buyer or lessee knows the security interest exists. Only
knowledge that the transaction violates the terms of the security
agreement disqualifies the person from protection provided in this
Subsection. This protection applies to buyers of inventory such as
individuals that buy consumer goods in a store.
Division III: Priority of Liens
Lien has
priority over
security
interest
relating to
same goods
57.
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 in the same goods shall have
priority over that security interest if the person
who provided the materials or services did not
know that the security agreement relating to the
goods
contained
a
provision
prohibiting
the
creation of a lien by the debtor.
Comment: A possessory lien grants a creditor the right to possession until
the debt is repaid. For instance, when a mechanic repairs a car but the
owner refuses to pay for the service the mechanic may retain possession of
the car until the debt is paid. At times, the asset may be subject to a
security interest. Accordingly, the mechanic’s right to retain possession
may be in conflict with a perfected security interest in the car. This section
provides that if a person (e.g., the mechanic) does not know of language in
the security agreement that prohibits the debtor to create a possessory
lien, then the lien has priority over the security interest provided the
transaction was in the ordinary course of business.
Execution
creditor has
priority over
unperfected
security
interest
58.
(1) The interest of a judgment creditor,
including a creditor whose lien arises by operation
of the law such as for owed taxes and other
charges in any collateral shall have priority over
any security interest in the same collateral if the
security interest is not perfected at the time of
execution.
Comment: This section gives judgment creditors priority over a security
interest that has not been perfected at the “time of execution,” as described
in Subsection 2(a)-(c).
(2) In this section, “time of execution” means—
(a) if the collateral is seized by or on
behalf of an execution creditor, the
time of seizure;
(b) in any other case, the time when a
charging order or a garnishee order
is served on the person holding
some property for or on behalf of the
debtor; or
(c) When the financing statement that
relates to a judgment lien or lien
arising by operation of the law is
registered.
Comment: This Subsection defines what constitutes the time of execution
which may be different depending on the type of property.
(3)
The priority of an interest identified in
Subsection
1
as
against
perfected
security
interests is determined according to Section 39(3),
and the time of execution shall be deemed to be
the time of perfection.
Comment: If both the lien of a judgment creditor and a security interest of
a creditor have been perfected then the rule of first to register or perfect
governs the priority conflict.
PART VI
ENFORCEMENT OF SECURITY INTERESTS
Division I: Application of this Part
Application of
this Part
59.
This Part shall apply to all security interests
created under this Act with the exception of
those that are created or provided for by an
outright transfer of an account receivable.
Comment: This Subsection sets forth that Part VI shall not apply in the
case of a transfer of accounts receivable because the assignee is an owner
of those accounts.
(2) After default, a secured creditor has the rights
provided in this Part and those provided in the
security agreement signed by the debtor.
A
secured creditor may also resort to any available
judicial procedure.
Comment: In the case of default, secured creditors may enforce the rights
provided to them by Part VI, by a valid security agreement, or by a court
action. The secured creditor may utilize this Part for certain actions (e.g., to
sell the collateral in a public auction) and a judicial procedure (e.g., obtain
a court order to repossess the collateral) for others.
(3) The debtor and any other person that owes
payment or other performance of the secured
obligation may waive any of its rights under this
Part, but only after default. Such waiver shall not
relieve the secured creditor from the duty to
proceed in a commercially reasonable manner.
Comment: After default, any person that owes payment or performance
may waive any rights (e.g., the right to receive notification of sale)
available under Part VI. Any waiver made prior to default such as in a
security agreement is unenforceable. However, regardless of waiver, the
secured creditor must continue to act in a commercially responsible
manner.
Application to
documents of
title and
fixtures
60.
(1) If a security interest includes fixtures, a
secured creditor may enforce security interests
under this Part or in accordance with the
applicable real property law.
Comment: A secured creditor may use Part VI or any remedies under the
applicable real property law when fixtures are included in a security
interest.
(2) Upon removal of the fixtures, the secured
creditor
shall
reimburse
the
owner
of
real
property, other than the debtor, for the cost of
repair but not for the diminution in value.
Comment: The secured creditor must reimburse the owner, other than the
debtor, for the removal of fixtures to the extent of the cost of the repair. If
the debtor owns the real property no reimbursement for repairs is required
as long as the secured creditor proceeds in a commercially reasonable
manner.
Division II: Secured Creditor’s Right to Take
Possession of and Apply the Collateral After
Default
Secured
creditor may
take
possession
and sell
collateral
61.
(1) After default, a secured creditor:
(a) may take possession of the collateral; or
(b) Sale collateral; or
(c)
without
removal,
may
render
the
collateral unusable.
Comment: Default enables a secured creditor to either take possession of
the collateral or, without taking the collateral, render it unusable. The
latter remedy is usually utilised when the physical removal of the
collateral is impractical or unduly expensive, as in the case of heavy
equipment. For more guidelines of when collateral may be rendered
unusable see Subsection 62(1).
(2) A secured creditor may proceed under this
Section:
(a) pursuant to judicial process; or
(b) without judicial process, if the debtor
consented in the security agreement to
relinquishing possession without a court
order and the debtor does not resist the
removal of the collateral.
Comment: Subsection (2) promotes peaceable relations between secured
creditor and debtor where default has occurred. To proceed under this
Section, a secured creditor needs authority either from a judicial process or
from the terms of the security agreement in which the debtor agreed to
relinquish possession without a court order and the debtor does not resist
removal.
(3) The secured creditor may require the debtor to
assemble the collateral and make it available to
the secured creditor at a designated place.
Comment: Subsection (3) affords the secured creditor the right to require
the debtor to assemble the collateral at a designated place to facilitate and
reduce the cost of repossession. The parties need not have a prior
agreement of any kind stipulating the terms of such an assembly.
(4)
Commencement
registration
of
the
of
enforcement
enforcement
requires
form.
The
enforcement form shall identify the debtor, the
secured creditor and the collateral against which
enforcement is sought.
Comment: Enforcement requires registration of a proper enforcement form
in the Collateral Registry. The purpose is to inform third parties that some
of the debtor’s assets are subject to realisation.
(5)
A prior notice to the debtor is not required
for the secured creditor to repossess or render the
collateral unusable under this Section.
Comment: It is under the discretion of the secured creditor as to whether
the debtor receives prior notice of the secured creditor’s intention to
repossess or render collateral unusable. Under the circumstances, a notice
may alert the debtor and intentionally hide the collateral.
Secured creditor
may render
collateral
unusable
62.
(1) A secured creditor may render the
collateral unusable if the collateral is of a kind
that cannot be readily moved from the debtor’s
premises or is of a kind for which adequate
storage facilities are not readily available.
Comment: Subsection (1) provides examples in which collateral may be
rendered unusable (see 61(1)(b)) and be disposed of without removal.
Collateral may be rendered unusable because it is difficult to move – either
due to its nature (size, weight, etc.) or because no storage facility is readily
available (e.g., for cattle).
(2) The secured creditor may dispose of collateral
on the debtor’s premises provided that it shall not
cause the person in possession of the premises, if
other than the debtor, any greater inconvenience
than is necessary.
Comment: Subsection (2) expands the instances in which collateral may
be disposed of without removal to any collateral that can be disposed of
without undue inconvenience to the owner. For instance, the collateral is
all assets of a store that operates in the premises owned by a third party
(e.g., a store in a shopping centre). If the owner of the premises is the
debtor, the level of inconvenience is immaterial.
Secured
creditor may
apply certain
collateral in
satisfaction of
secured
obligation
63.
(1) A secured creditor may collect and apply
an account receivable, money or a negotiable
instrument taken as collateral to the satisfaction
of the obligation secured by the security interest if
the debtor is in default.
Comment: In general, collateral consisting of rights to payment is not only
the most liquid asset of a typical debtor’s business but also is property
that may be collected without any repossession or similar interruption of
the debtor’s business. Collection may require a notification to the person
that owes payment to the debtor to pay the secured creditor instead.
(2) Unless otherwise agreed, the secured creditor
may notify the account debtor and collect payment
even prior to default.
Comment: Notice and collection (even prior to default) of accounts
receivable, money, or negotiable instruments taken as collateral is in the
discretion of the secured creditor. For instance, some factoring companies
buy and collect accounts receivable directly from account debtors whether
or not the debtor has defaulted.
(3) If the bank holds a security interest in a
deposit account perfected automatically by control
it may apply the balance of the deposit account to
the secured obligation.
If the secured creditor
holds a security interest in a deposit account
perfected by a control agreement it may instruct
the bank to pay the balance of the deposit account
to the secured creditor.
Comment: Section (2)(i) describes a situation where the bank has a
security interest in a deposit account that it maintains. Section (2)(ii)
describes a situation where the bank has concluded a control agreement
with the debtor and secured creditor. In the first situation, the bank will
simply debit or offset the balance on the deposit account against the
secured obligation. In the second situation, the secured creditor may
instruct the bank to debit the balance and transfer it to the deposit account
of the secured creditor or to simply debit the deposit account and pay cash
to the secured creditor.
Division III: Disposal of Collateral on Default
Secured
creditor may
dispose of the
collateral
64.
With or without leave of the court, a secured
creditor may dispose of the collateral by sale,
lease, license or other form of disposal in its
present condition or following any commercially
reasonable preparation or processing.
Comment: There are essentially no bounds on the type or timing of
disposition, allowing secured creditors to act with or without permission
from the court when default has occurred. (Section 66 extends this
principle to documents of title). This Section encourages private or public
dispositions on the assumption that they frequently will result in higher
return on collateral for the benefit of all concerned. Section 67 defines
acceptable forms of sales.
Duty of
secured party
selling
collateral
65.
A secured creditor shall owe a duty to obtain
the best price reasonably obtainable as at the time
of sale or other disposal to—
(a)
the debtor;
(b)
any
person
who
has
registered
a
financing statement in the collateral
that is effective at the time the secured
creditor
repossessed the collateral;
and
(c) any person who has given the secured creditor notice that that person
claims an interest in the collateral. Comment: The secured creditor owes
a duty to the persons listed in (a) – (c) of this Section to get the best price
reasonably obtainable for collateral; however, this does not require the
sale to be conducted in any particular fashion. See Section 67.
Power of sale
applies to
document of
title and
related goods
66.
If the collateral is a document of title, the
power of disposal provided by Section 64 shall
apply to the document of title and to the goods to
which it relates.
Comment: This Section extends the power of sale described in Section 64
to collateral that is a document of title and its associated goods.
Accordingly, the secured creditor may either sell the document of title or
the goods after they have been released by a carrier or warehouseman.
Methods of
sale of
collateral
67.
A secured creditor may effect a sale of
collateral by auction, public tender, sale or any
other
method
provided
for
in
the
security
agreement.
Comment: This Section encourages private or public sales conducted by
the secured creditor rather than by a court-appointed official on the
assumption that they frequently will result in higher return on collateral for
the benefit of all concerned.
68.
Notice of sale
of collateral
(1) A secured creditor who intends to sell the
collateral shall, not less than 14 working days
before selling the collateral, give notice to the
following persons—
(a)
the debtor;
(b)
any person who has registered a
financing statement in respect of the
collateral
before
that
the
became
secured
effective
creditor
repossessed the collateral; and
(c)
any other person that has given
the secured party notice that that
person claims an interest in the
collateral.
Comment: The secured creditor is required to give at least a 10 working
days notice to the persons listed in (a) – (c) before selling the collateral.
Accordingly, the secured creditor must search the Collateral Registry to
find out whether there are any other creditors that have registered a
financing statement against the same debtor.
(2) Subsection (1) shall not apply if—
(a)
the collateral may perish within
14
working
days
of
the
repossession;
(b)
the secured creditor believes on
reasonable
grounds
collateral
that
will
the
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.
Comment: Subsection (2) identifies instances in which no prior notice is
required to sell the collateral. Examples of the respective sections are: (a)
goods such as fruits and vegetables that may perish or significantly
deteriorate within 10 working days; (b) goods that will suffer significant
price depression due to imminent market changes; (c) aircraft; (d) any kind
of inventory or farm products.
(3) If a security interest relates to some collateral
listed in Subsection (2), the secured creditor may
sell the collateral listed in Subsection (2) but must
comply with Subsection (1) with respect to the
other collateral.
Comment: Subsection (3) addresses the situation in which only part of the
collateral falls under Subsection (2). In such instances, the secured creditor
is not required to give notice when selling portion of the collateral that falls
under Subsection (2) but is required to give notice when selling the
remaining collateral.
Extinguishme
nt of
subordinate
security
interests on
sale
69.
If collateral has been sold under this Part, all
security interests in the collateral and its proceeds
that are subordinate to the security interest of the
secured creditor who sold the collateral shall be
extinguished on the sale of the collateral.
Comment: The secured creditor who sold the collateral because of default
effectively extinguishes all other subordinate security interests in the
collateral. The buyer takes free of any subordinate security interests but
takes subject to any security interests senior to the one who sold the
collateral.
Secured
creditor to
give statement
of account to
debtor
70.
The
secured
creditor
shall,
within
21
working days after the sale of the collateral,
provide to the persons listed in Section 68(1) a
statement of account in writing, indicating—
(a)
the amount of the gross proceeds of
sale;
(b)
the amount of the costs and expenses
of the sale; 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.
Comment: Secured creditors are required to provide a statement of
account to the persons listed in Section 68(1) within 15 working days after
the sale. Providing a statement of account promotes economic efficiency by
ensuring transparent sales of collateral.
Distribution of
sale proceeds
71.
(1)
A
secured
creditor
who
has
sold
collateral, before applying the net proceeds of the
sale towards the satisfaction of the debt or other
obligation secured by the security interest of the
secured creditor, apply the net proceeds of the
sale towards the reasonable costs and expenses of
the sale, and to the extent provided for in an
agreement, reasonable legal expenses.
(2)
For the purposes of this Act, there is surplus
when the net proceeds recovered upon disposition
of the collateral under this Part exceed the amount
owed by the debtor to the secured party.
(3)
In subsection (1), “net proceeds” means net
proceeds of the sale after deducting the reasonable
costs and expenses of the secured party of, and
incidental
storing,
to,
taking
repairing,
possession
maintaining,
of,
holding,
valuing,
and
preparing the sale of, and selling, the collateral.
Comment: The proceeds from a sale of collateral are applied towards the
reasonable costs and expenses of the sale and, agreement permitting, to
legal expenses before they are applied to the debt owed. For example, in
the case of an auctioning of collateral, Secured Creditor A would first
subtract the auction fees from the proceeds generated from the auctioning
of the collateral and then apply the remaining amount to the outstanding
debt.
(4) If a secured creditor has retained collateral in
satisfaction of the debt or sold collateral under
this Part the secured creditor shall pay the
following persons the amount of any surplus in
the following order—
(a)
any secured creditors who have a
subordinate
security
interest
perfected by registration, in the
order of their priority;
(b)
any other person who has given
the secured
party notice that that person
claims
an
interest
in
the
collateral; and
(c)
the debtor.
Comment: Disposal of the collateral may generate a surplus when it sells
for more than what the debtor owes to the secured creditor. The secured
creditor is not entitled to retain the surplus after its obligation has been
fully satisfied and must disperse it to the persons listed in (a) – (c) in order
of descending priority.
(5) The secured creditor may pay the surplus into
Court if there is a question as to who is entitled to
receive payment.
Comment: In case of doubt with respect to the priority of creditors entitled
to receive the surplus, the secured creditor may pay it into Court that will
determine the order in which the creditors are entitled to the surplus.
(6) The debtor remains liable for any deficiency.
Comment: The debtor is released from the debt only when the entire debt
is satisfied. For example, Debtor defaults on a 10,000 loan owed to Bank.
If Bank B receives 8,000 in proceeds from the sale of the collateral, Debtor
is still liable for the remaining 2,000.
Division IV: Retention of Collateral by Secured Creditor
Proposal and
Effects of
Retention
72.
(1) After default, a secured creditor may
propose
consumer
to
retain
goods
the
in
collateral
full
other
satisfaction
of
than
the
obligation secured by it.
Comment: The secured creditor has the option to propose strict foreclosure
in the case of default. Strict foreclosure is a procedure by which the
secured creditor acquires the debtor’s interest in the collateral without the
need for sale or other disposition of the collateral. If the parties agree to
strict foreclosure, the secured creditor shall consider any unpaid obligation
satisfied. This remedy minimizes the enforcement cost and, thus, any
potential liability of the debtor’s for a deficiency.
(2) The secured creditor shall give notice of the
proposal to the persons entitled to receive a notice
of sale of the collateral under Section 68.
Comment: If the secured creditor chooses to pursue strict foreclosure, it
must notify the proper persons, including the debtor and other secured
creditors.
(3) If a person entitled to a notice and whose
interest in the collateral would be adversely
affected by the secured creditor’s retention of the
collateral delivers to the secured creditor a notice
of objection within 10 working days after the
notification was
received by the
person the
secured creditor must sell the collateral.
Comment: A person who 1) is entitled to notice and 2) would suffer
adverse affects by the secured creditor’s retention of the collateral has the
right to force the secured creditor to sell the collateral if notice of objection
is delivered to the secured creditor within 10 working days after receipt.
(4) If no notice of objection is received, the secured
creditor shall, at the expiration of the 10-day
period be deemed to have elected to take the
collateral in satisfaction of the obligation secured
by it.
Comment: A secured creditor that has notified the proper persons will
automatically be deemed to have taken the collateral in satisfaction of the
obligation, provided no objection has been received within the 10-day
period.
(5) Upon retention of the collateral by the secured
creditor, all subordinate security interests in the
collateral shall be extinguished.
Comment: All subordinate security interests are extinguished if the
secured creditor retains the collateral in satisfaction of the obligation.
Accordingly, the legal effects of this remedy are exactly the same as when
the secured creditor sells the collateral.
Division V: Right to Redeem Collateral and
Reinstate Security Agreement
Entitled
persons may
redeem
collateral
73.
(1) At any time before the secured creditor
sells the collateral or takes the collateral in
satisfaction of the secured obligation, the debtor,
the person that owes payment or other secured
creditor may redeem the collateral by—
(a)
fulfillment of all the obligations
secured by the collateral; and
(b)
paying
any
other
reasonable
expenses incurred by the secured
creditor.
Comment: This Subsection allows the debtor, the person that owes
payment, or other secured creditor to redeem the collateral, effectively
preventing the sale or other disposal of the collateral. To redeem the
collateral, the person must pay the entire balance of the debt in addition to
paying all reasonable expenses incurred by the secured creditor prior to
redemption.
(2) The debtor’s right to redeem the collateral shall
have priority over any other person’s right to
redeem the collateral.
Comment: Among those able to redeem the collateral – the debtor, the
person that owes payment, or other secured creditor – the debtor’s right to
redeem has priority.
Debtor may
reinstate
security
agreement
74.
(1) At any time before the secured creditor
sells the collateral or takes the collateral in
satisfaction of the obligation secured by it, the
debtor may reinstate the security agreement by—
(a)
paying
the
sums
actually
in
arrears,
exclusive of the operation of an
acceleration
clause
in
the
security agreement;
(b)
remedying any other default; and
(c)
paying
a
sum
equal
to
the
reasonable
expenses incurred by the secured
creditor.
Comment: The debtor has the right to reinstate the security agreement
before the secured creditor disposes of the collateral. To do so, the debtor
must pay the sums in arrears, remedy other defaults, and pay the
reasonable expenses incurred by the secured creditor. Unlike redemption,
reinstatement is available only to the debtor.
(2) Unless otherwise agreed, the debtor shall not
be entitled to reinstate a security agreement more
than twice in each year.
Comment: This is to prevent the debtor from repeatedly breaching the
security agreement and then curing the default. In case of such conduct,
the secured creditor should be able to declare the debtor in default.
PART VII
MISCELLANEOUS PROVISIONS
Standards of
good faith and
commercial
reasonablenes
s
75.
(1) All rights, duties or obligations that arise
under a security agreement or this Act shall be
exercised and discharged in good faith and in
accordance
with
commercially
reasonable
standards.
Comment: Courts will ultimately decide what conduct satisfies the
standards of good faith and commercial reasonableness looking primarily
at established practices in the relevant sector.
(2) A person shall not act in bad faith merely
because the person acts with knowledge of the
interest of some other person, unless it knows that
its actions would violate rights of the other person.
Comment: Knowledge of a security interest does not deprive the person
from protections available under this Act such as taking free of a security
interest when the person buys in the ordinary course of business.
However, if the person knows that its action would violate the rights of
another person such as when the buyer knows that the secured creditor
prohibited the debtor from selling the collateral the person would not be
acting in good faith and would not qualify for certain protections under this
Act.
Entitlement to
damages for
breach of
obligation
76.
(1) If a person fails to discharge any duty or
obligation imposed by this Act, the person to
whom the duty or obligation is owed shall have a
right to recover damages for any loss or damage.
Comment: Violations of this Act and a security agreement such as when
the secured creditor refuses to cancel the registration when the loan has
been paid off will entitle the aggrieved party to claim damages.
(2) Nothing in Subsection (1) shall limit or affect
any liability that a person may incur under any
law of Zambia other than this Act.
Comment: If the person repeatedly violates this Act such as when it
refuses to provide information to third parties about security interests it
may be liable and subject to regulatory action for such conduct.
(3) In addition to the damages recoverable under
this Section, the person that registered a financing
statement without an authorization of the debtor
and that refuses to cancel the effectiveness of the
registration that the debtor is entitled to shall be
responsible
for
the
statutory
damages
as
designated by the Ministry of Justice.
Comment: Debtor’s ability to obtain credit may be at risk if the secured
creditor refuses to cancel the registration that relates to a loan that the
debtor has paid off. Under this Section, the debtor may be entitled to
actual damages which may be difficult to prove. In order to incentivize the
secured creditor to cancel the registration, this Subsection imposes an
additional statutory penalty on the secured creditor.
Secured
creditor to
provide
certain
information
77.
(1) A debtor may request the secured creditor
to send or make available to any specified person,
at an address specified by the debtor making the
request, any of the following—
(a)
a
summary
agreement
of
that
a
security
creates
or
provides for a security interest;
(b)
a statement in writing of the
amount of the indebtedness and
of the terms of payment of the
indebtedness;
(c)
an
itemised
list
of
collateral,
unless the security interest is
over all of the personal property
of the debtor; or
(d)
a statement of account indicating
the pay off amount needed to
fully
satisfy
the
secured
obligation.
Comment: The Collateral Registry established under this Act provides
only summary information about a security interest. A third party will
regularly need more information to make a diligent decision as to whether
to make a loan to the debtor or buy some of the debtor’s assets. This Act
thus imposes a duty on the secured creditor to provide such additional
information. However, the secured creditor has no duty to respond to
requests received from third parties. In order to protect privacy, the
secured creditor has a duty to provide information to the debtor that may
in turn make it available to the third party.
(2) Where the secured creditor no longer has an
interest in the obligation secured or collateral
covered by the registration, the secured creditor
shall disclose to the debtor the name and address
of
the
immediate
successor
in
interest
or
transferee and the latest successor in interest or
transferee, if known.
Comment: This Act does not require that assignments of secured
obligations be registered in the Collateral Registry. The original secured
party may have thus sold the loan to another creditor and did not register
an amendment. However, the original secured creditor must disclose, on
request of the debtor, that it has assigned the secured obligation and the
identity of the assignee.
(3) A secured creditor shall comply with the
request within 10 working days of its receipt.
Comment: For requests received from the debtor under this Section, the
secured creditor must provide an answer within a period of 10 days.
(4) A secured creditor may charge the debtor only
the reasonable costs for providing the information,
and the debtor shall be entitled to one response
free of charge every 3 months.
Comment: The secured creditor cannot charge excessive fees for providing
information under this Section which could significantly reduce the
debtor’s ability to obtain credit from third parties at a low cost.
Accordingly, this Subsection requires the secured creditor to provide
information free of charge at least quarterly.
Electronic
Electronic
Transactions
Transactions
78.
(1)
Any document authorised or required
to be filed with, or delivered to the Registry under this
Act may be filed, authorised or delivered by means of a
device or facility that records or stores information
electronically or by other means and permits the
information so recorded or stored to be readily inspected
or reproduced in usable form.
(2) Any document or certificate required to be
signed, issued or kept by the Registry, may be signed,
issued or kept in electronic form.
(3) Any meetings or resolutions required under
this Act may be held or passed by electronic means.
PART XVII
ADMINISTRATION OF THE ACT
Administratio
n of Act
79. (1) This Act shall be administered by the
Agency.
(2) Under this part, officer means an employee or
agent of the Agency.
Establishmen
t of
Collaterals
Office
Powers of
the Registrar
80. There shall be established under the Agency
an office to be called the Collaterals Office.
81. The Registrar shall exercise the powers and
perform the functions assigned to him by this Act and
the Patents and Companies Registration Agency Act:
Provided that any power conferred or duty imposed on
the Registrar by this Act may be exercised or performed
by the Registrar personally or by an officer acting under
a delegation from or under the control or direction of the
Registrar.
Appointment
of Officers
82. (1) The Agency may appoint, on such terms
and conditions as it may determine such officers as it
considers necessary for the carrying out of its functions
under this Act.
Seal of the
Agency
83. The seal of the Agency kept in terms of the
Patents and Companies Registration Act, 2010, shall be
used for the purposes of this Act and the impression
thereof, made for such purposes shall be judiciary
noticed.
Keeping of
registers and
lodged
documents
84. (1) The Registrar shall maintain the register
required under this Act together with any other registers
that the Registrar thinks necessary or convenient for
the purposes of this Act .
(2) Where a document is lodged under this Act,
the Registrar shall keep the document, or a copy
thereof, and register it.
(3)
The registers and other documents may be
recorded or stored in written or printed form or by
electronic or photographic process or otherwise.
Registrar to
furnish
information
from register
on request
85. Subject to the provisions of this Act, the
Registrar shall, upon request of any person and on
payment of the prescribed fee, furnish information
relating to documents lodged at the Collaterals Office
and open to public inspection or particulars from the
register.
Immunity of
Officers as
regards
official acts
86. Neither the Registrar nor any officer in the
Collaterals Office shall incur any liability for any act or
omission or otherwise by reason of or in connection with
any action or investigation required or authorised by
this Act or any such treaty or convention, or any report
or other proceedings consequent on any such action or
investigation.
Registration
of
documents
87. (1) Where this Act requires any document or
particulars to be lodged with the Registrar, the Registrar
shall register them in the form and manner prescribed
or, if no manner is prescribed for the document or
particulars, the Registrar shall determine the manner
and form of lodgement.
(2) For the purposes of this Act, a document or
particulars shall be deemed not to have been lodged
with the Registrar until any fee prescribed under this
Act has been paid to the Registrar.
(3) Subject to this Act, where this Act requires a
document or particulars to be lodged under this Act,
each
company
concerned
shall
document or set of particulars.
lodge
a
separate
(4)
All documents and particulars which are
lodged with the Registrar shall not be handwritten.
(5)
If the Registrar is of opinion that any
document or particulars lodged with him(a)
contain matter or matters contrary to law;
(b)
by
reason
of
misdescription
any
error,
have
not
omission
been
or
duly
completed;
(c)
are insufficiently legible;
(d)
are written on paper insufficiently durable;
or
(e)
otherwise
do
not
comply
with
the
register
the
requirements of this Act;
Registrar
may
refuse
to
document or particulars in that state and
direct that they be amended or completed in
a specified manner and re-submitted.
(6)
If the Registrar gives a direction under
subsection (5), the document or particulars shall be
deemed not to have been lodged.
(7) The Registrar may require that a document or
a fact stated in a document lodged with the Registrar
shall be verified by statutory declaration.
(8) Where the Registrar is required or permitted
under this Act to cause a copy or particulars of a
document lodged with him to be published in the
Gazette, the Registrar may require the lodgement with
the Registrar of any such document in duplicate, or the
provision of any such particulars, and may withhold
registration of the document until the requirement has
been complied with.
Extension of
time for
lodgement
88.
(1)
Where under this Act a document is
required to be lodged with the Registrar within a
specified period, the period shall be extended by thirty
days in relation to a document executed or made in a
place outside Zambia.
(2)
The Registrar may, before the end of any
period fixed for the lodgement of a document or
particulars, at the request of the person concerned,
extend the period for lodgement by such a period, and
on such terms, as the Registrar thinks reasonable in the
circumstances.
(3) Subject to this section, where any document
or particulars are lodged with the Registrar after the end
of the period fixed for its lodgement, the Registrar shall
accept it for registration upon payment of such
additional fee as may be prescribed.
(4)
The Registrar may reduce or waive any
additional fee imposed under subsection (3) if he is
satisfied that the failure to lodge the document or
particulars was caused or continued solely through
administrative oversight and that no person is likely to
have suffered damage or to have been prejudiced as a
result of the failure.
Documents
to be in
approved
language
89.
(1)
Subject to this Act, where this Act
requires a document or register to be prepared, kept,
maintained or lodged, the document shall be in English.
(2) Where the Registrar approves the lodgement of
a document all or part of which is in a language other
than English, he may require a certified translation into
English to be annexed to it.
Prescribed
forms
90. (1) Where this Act provides that a document
to be lodged shall be "in the prescribed form", the
Registrar shall accept for lodgement and registration a
document that contains all the information required
and varies from the prescribed form in inessential
respects only.
(2)
In the period of six months from the
commencement of this Act, where this Act provides that
a document to be lodged shall be "in the prescribed
form" and no form has been prescribed by the
regulations for the purposes of the provision, the
document shall be in a form approved by the Registrar.
Evidentiary
provisions
91. (1) A copy of, or extract from, any document
registered by the Registrar, being a copy or extract
certified by the Registrar to be a true copy or extract, or
computer printout shall be admitted in any proceedings
as of equal validity to the original document.
(2) In any proceedings, a court shall take judicial
notice of the office of the Registrar.
(3) A document purporting(a)
to be(i)
an order, certificate, licence or
approval
made
or
issued
by
the
Registrar for the purposes of this Act;
or
(ii)
a revocation of such an order,
certificate, licence or approval; and
(b)
to be sealed with the seal of the
Registrar or to be signed by him, or on
his behalf by a Deputy Registrar or
other authorised officer;
shall be presumed to be such a document, or to be duly
sealed or signed.
(3) A certificate signed by the Registrar that an
order made, certificate issued, or act done is
the order, certificate, or act of the Registrar
shall
be
conclusive
evidence
or
the
fact
certified.
Appeal
against a
decision of
the Registrar
92.
Subject to this Act, a person aggrieved by a
decision of the Registrar may within thirty days after the
date on which he is notified of the decision, appeal to
the court against the decision, and the court may
confirm, reverse or vary the decision or make such order
or give such directions in the matter as it thinks fit.
93. Any person who is required under the
Oaths and
affirmations
provisions of this Act to take any oath or swear to the
truth of any affidavit may, in lieu thereof, make an
affirmation or declaration in accordance with the law
relating to affirmations or declarations in Zambia.
Evidence of
entries and
documents
94. (1) A document purporting to be signed by the
Registrar and certifying that any entry which the
Registrar is authorised by or under this Act to make,
has or has not been made, or that any other thing
which he is so authorised to do has or has not been
done, shall be prima facie evidence of the matters so
certified.
(2) A copy of any entry in any register or of any
document kept in the Collateral Office or an extract
from any such register or document, certified by the
Registrar may be admitted in evidence without further
proof and without production of the original.
Loss or
Destruction of
Document
95.
Where the Registrar is satisfied that a
document issued under this Act has been lost or
destroyed or cannot be produced, the Registrar may at
any time cause a duplicate thereof to be sealed on
payment of such fees as may be prescribed.
Reference to
High Court by
Registrar
96.
When any matter to be decided by the
Registrar under this Act appears to him to involve a
complex point of law or unusual importance, the
Registrar may, after giving notice to the parties, refer
such matter to the High Court for a decision and shall
thereafter, in relation to such matter, act in accordance
with the decision of the High Court or any decision
substituted therefore on appeal to the Supreme Court.
Registrar to
appear in
legal
proceedings
97. (1) In any legal proceeding in which the relief
sought includes alteration, revocation, rectification of
the register, the Registrar shall have the right to appear
and be heard, and shall appear if so directed by the
Court.
(2)
Unless otherwise directed by the Court, the
Registrar, in lieu of appearing and being heard, may
submit to the Court a statement in writing signed by the
Registrar, giving particulars of the proceedings before
the Registrar in relation to the matter in issue or of the
grounds of any decision given by the Registrar affecting
it or of the practice of the Collateral Office in like cases
or of such other matters relevant to the issues, and
within his knowledge as Registrar, as the Registrar
thinks fit, and the statement shall be deemed to form
part of the evidence in the proceeding
Regulation
s and fees
98.
(1)
The
Minister
may,
by
statutory
instrument, make regulations for or with respect to any
matter that by this Act is required or permitted to be
prescribed, or that is necessary or convenient to be
prescribed for carrying out or giving effect to this Act,
other than a matter required or permitted to be
prescribed by the Minister or any other person or body.
(2)
Without limiting the generality of subsection
(1), such regulations may be made on the following
matters;
(a)
the conduct of the business of
the
Collateral office;
(b)
the
form
and
content
of
any
application, notice, return, account,
book, record, certificate, licence or
other
document
required
for
the
purposes of this Act;
(c)
the payment of fees and charges in
respect of any matter or anything done
or provided for under this Act;
(d)
the
procedure
to
be
followed
in
connection with any application or
request
to
the
Registrar
or
any
proceeding before him;
(e)
the provision of copies of any
documents under this Act, and
the certification of such copies;
(f)
the making of inspections and
searches
under
this
Act,
including the times when they
may be made;
(g)
the conduct of any winding-up or
other proceeding or transaction
under this Act;
(h)
the service of notices and other
documents under this Act;
(i)
any
matter
necessary
or
convenient to be provided for in
relation to the transition to this
Act.
(3) The regulations may be made so as(a)
to
make
prescription
vary
depending on the circumstances;
(b)
to be of general or specifically
limited application; or
(c)
to
permit
any
matter
to
be
determined from time to time by
any person or body specified in
the regulations.
PART IX
OFFENCES AND PENALTIES
Failure to
provide
documents
99.
(1)
Any person or company that fails or delays
to provide the Registrar with documents, as required by
this Act commits and offence and shall be liable to a
fine not exceeding one hundred thousand penalty units.
(2)
Where the documents referred to in the
preceding subsection are fraudulent, a person company
that provides them willfully commits an offence and
shall be liable to a fine of one hundred and fifty
thousand penalty units.
False or
misleading
notice
Code, any person who is required to provide a document
Cap. 87
and who -
100. Notwithstanding the provisions of the Penal
(a)
makes, or authorises the making of, a
statement that is false or misleading;
or
(b)
deliberately omits or authorises the
omission of, anything, the omission of
which makes the document false or
misleading on an important matter;
commits an offence and shall be liable to a
minimum fine of one hundred thousand penalty
units.
Knowingly
furnishing false
document
Code, any director or employee of a company who
Cap. 87
knowingly makes, submits, or authorizes the making or
101. Notwithstanding the provisions of the Penal
submitting of, a false or misleading statement or report
required to be lodged under this Act, commits an
offence and shall be liable to imprisonment for a term
not exceeding two years or a
minimum fine of one
hundred thousand penalty units or both.
Falsification
of records
Cap. 87
102. Notwithstanding the provisions of the Penal
Code, any individual or company which, with intent to
defraud
or
deceive
a
person
destroys,
displaces,
mutilates,
alters,
falsifies,
or
is
a
party
to
the
destruction, mutilation, alteration or falsification of any
register, accounting records, book, paper or other
document relating to collateral commits an offence
and shall be liable to a minimum fine of one hundred
thousand penalty units.
Other offences
Cap. 87
103. Notwithstanding the provisions of the Penal
Code, any person who –
(a)
issues or makes use of a document or
certificate kept or given under this Act
which does not comply with this
Act;
(b)
fails to comply with a request, direction
or order issued under this Act, by a
Court, the Registrar or any other
authorized person;
(c)
makes use of any name or title which
the person is not, under this Act,
authorised to use;
(d)
divulges
or
makes
use
of
any
information obtained under this Act
which the person is not otherwise
authorised to disclose;
(e)
impersonates a creditor or debtor for
the purpose of obtaining an advantage;
(f)
in the exercise of any powers or
functions conferred upon that person
by this Act or by any regulations made
under
this
Act,
fails
to
act
in
accordance with the instrument which
confers the function or power; or
(g)
otherwise contravenes this Act or any
regulations made under it;
Commits an offence and shall be liable to
imprisonment for a term not exceeding two
years or a minimum fine of one hundred
thousand penalty units or both.
Imprisonmen
t for failure
to pay fine
104.
Where a court issues a warrant under
section three hundred and eleven of the Criminal
Procedure Code for the commitment of a person to
prison for a failure by him to pay a fine imposed on him
for
an
offence
under
this
Act,
the
period
of
imprisonment specified in the warrant shall not exceed
one day for every three monetary units of the fine that
remain unpaid.
Exemption
from liability
for actions or
omissions
105.
No person shall be liable to any action in
damages for anything done or omitted to be done by any
person in the exercise or performance of any power or
function conferred or imposed on him by or under this
Act. unless the act or omission was in bad faith or was
due to a want of reasonable care of diligence.
Falsification
of entries in
register
106.
Any person who makes or causes to be
made a false entry in a register established under this
Act, or a writing falsely purporting to be a copy of an
entry in the register, or who produces or tenders or
causes to be produced or tendered in evidence any such
writing, knowing the entry or writing to be false,
commits an offence and shall be liable to imprisonment
for a term not exceeding two years or minimum fine of
one hundred thousand penalty units or both.
Altering of
documents
107. Any person who alters or defaces, makes any
additions to it or partly removes, erases or obliterates
any document issued by the Registrar commits an
offence and shall be liable to imprisonment for a term
not exceeding two years or a minimum fine of one
hundred thousand penalty units or both.
Deceiving or
influencing
the Registrar
or an officer
108. (1) Any person who(a) for the purpose of deceiving the
Registrar or any other officer of the
Collateral Office in the execution of
the provisions of this Act; or
for
the
purpose
of
procuring
or
influencing the doing;
(b) or omission of anything in relation
to this Act or any matter thereunder;
makes or submits a false statement or
representation, whether orally or in writing,
knowing the same to be false, commits an
offence and shall be liable to imprisonment
for a term not exceeding two years or a
minimum fine of one hundred thousand
penalty units or both.
(2) Any person who, having innocently made
a false statement or representation, whether
orally or in writing, for the purpose of
procuring
or
influencing
the
doing
or
omission of anything in relation to this Act
or any matter thereunder and who on
becoming aware that such statement or
representation was false, fails to advise the
Registrar forthwith of such falsity, commits
an
offence
and
shall
be
liable
to
imprisonment for a term not exceeding two
years or a minimum fine of one hundred
thousand penalty units or both.
Aiding and
abetting
offences
109. (1) A person commits an offence if the person: -
(a)
aids, abets, counsels or procures; or
(b)
is in any way, directly or indirectly,
knowingly, or party to;
the doing of an act outside Zambia which, if
it were done in Zambia, commits an offence
and shall be liable to imprisonment for a
term not exceeding two years or a minimum
fine of one hundred thousand penalty units
or both.
(2)
Subsection (1) does not affect the
operation of provisions of the penal
code.
General
Penalties
110.
Save where otherwise provided in this
Act, any person who is guilty of an offence under
this Act shall be liable to a fine not exceeding one
hundred
thousand
penalty
units
or
to
imprisonment for a period not exceeding two years,
or to both.
PART X
REPEALED ACTS, CONFLICT OF LAWS AND
TRANSITORY PROVISIONS
Division I: Repealed Acts
General
Penalties
111. (1) The provisions of the Hire Purchase Act
and the Sale of Goods Act and any subsidiary
issued under these Acts that provided for security
interest as defined in this Act are repealed.
Comment: This Act provides a comprehensive legal framework for security
devices as a result of which the relevant provisions of other Zambian Acts
that previously regulated individual security devices are no longer
applicable.
(2) The Trade Charges Act and Agricultural
Charges Act and any related subsidiary legislation
are repealed in their entirety.
Comment: The Trade and Agricultural Charges Acts are repealed in their
entirety and replaced with this Act.
(3) The principles of the common law, equity and
the law merchant, except insofar as they are
inconsistent with the provisions of this Act,
supplement this Act and continue to apply.
Comment: Equitable rules such as subrogation are not displaced by this
Act as long as they only fill any gaps. However, courts may not apply
subrogation and similar equitable rules if it would alter an express rule of
this Act.
Division II: Conflict of Laws
When Zambia
law applies to
some other
matters
112. This Act applies to the creation, perfection,
priority and enforcement of a security interest,
including proceeds if the debtor is located in
Zambia.
Comment: This Section determines the applicable law when one of the
parties (e.g., the secured creditor) or the collateral is located outside of
Zambia. As long as the debtor is located in Zambia this Act applies.
Division III: Transitory Provisions
When prior
law governs
113. This Act does not apply to a matter that is
the subject of court, administrative or alternative
dispute
resolution
proceedings
that
were
commenced before its effective date.
Comment: This Act repeals in part or in entirety a number of laws. In case
proceedings under those laws were commenced prior to the effective date
of this Act those laws will continue to govern resolution of the issues
involved in those proceedings.
Prior security
interests
continue to be
effective
during
transitional
period
114. (1)
A
prior
security
interest
that
was
perfected or effective against third parties under
the
prior
law
shall
continue,
during
the
transitional period, to be enforceable against third
parties under this Act.
Comment: Many security interests (e.g., floating and trade charges) as
defined in this Act were created and perfected before the effective date of
this Act. They will remain effective for a period of time without the creditor
needing to take any action.
(2) A prior security interest remains effective
against third parties and is deemed to be perfected
under this Act until the earlier of:
(a) the time it would have ceased to be
effective or perfected under prior law; or
(b) the expiration of a period of 6 months
after the effective date of this Act.
Comment: Security interests created and perfected under previous laws
will remain effective for the period of six months. If the creditor does not
comply with the requirements of this Act (e.g., register a financing
statement) such a security interest will no longer be perfected after the
expiration of the transitional period of six months.
(3)
If
the
secured
creditor
satisfies
the
requirements of this Act for perfection of security
interests before the effectiveness or perfection
would have ceased under Subsection 2, the
perfection is continuous.
Comment: If the creditor perfects its security interest within six months it
will retain perfection and priority from the time it was first perfected under
the relevant law that this Act supersedes.
(4) A prior security interest that is not perfected
under this Act within the transitional period shall
be deemed to be an unperfected security interest
thereafter.
Comment: The result of the failure to perfect a prior security interest
within the period of six months is the status of an unperfected security
interest. If the creditor perfected beyond the six-month transitional period
the perfection will not be continuous.
This Act governs
priority conflicts
115. (1) This Act governs priorities of competing
security interests whether perfected or made
effective under this Act or prior law.
Comment: This Act’s priority rule of first to perfect determines all conflicts
among competing claimants whether they perfected under this Act or a
previous law.
(2) The priority of a prior security interest is
calculated from the date that it was perfected or
made effective under prior law.
Comment: For the purposes of applying the priority rule, the prior security
interest is perfected from the time and date as determined by the prior
law. Accordingly the date and time of perfection of a floating charge will be
determined according to the Companies Act.
(3) The priority of a security interest is determined
by prior law if the security interest and any
competing claims to the collateral arose before the
effective date of this Act.
Comment: For a competition under two prior security interests (e.g., two
floating charges), the priority rule of the prior law governs (e.g., the
Companies Act).
(4) During the transitional period, the priority
between prior security interests and competing
claims shall be determined by the prior law.
Comment: The prior law will continue to determine the priority conflicts
between two prior security interests until the expiration of the transitional
six-month period. Thereafter, this Act will determine priorities.