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Introduction & Background
1. By the amended Notice of Motion dated 27th January, 2025, the Applicant (“the Bank”) sought inter alia leave to commence a suit against the 1st Respondent (‘the Company”) and the 2nd Respondent(“the Liquidator”), an injunction to restrain the Liquidator from advertising, offering for sale, or selling the assets listed in the Debenture between the Bank and the Company, an alternative order that if the assets have already been sold, the proceeds must be deposited into a joint, interest-earning account controlled by both parties'' advocates to preserve the funds and; an order compelling the Liquidator to provide a full disclosure of all accounts, valuation reports, and documents related to the said assets.
2. The application, supported by the affidavits of the Bank’s director, Bilé Boris Coffi, sworn on 6th September, 2024, and 24th January, 2025, was opposed by the Liquidator through his replying affidavit sworn on 25th September, 2024. During the highlighting of submissions, Counsel for both parties informed the court that the application had been largely resolved through mediation, leaving only one issue for determination: whether the Debenture required registration. The parties have made submissions on this issue, which I have considered and will reference as relevant in my analysis and determination below.
Analysis and Determination
3. The Liquidator stated that the Bank''s security is based on an undated debenture that was not registered under the Companies Act(Chapter 486 of the Laws of Kenya) or the Movable Property Security Rights Act (Chapter 499A of the Laws of Kenya) and he avers that an unregistered charge is void against a liquidator and other creditors. He claims that the Bank was informed of this defect as early as February 2024 and the Bank purportedly attempted to register its debenture on 26th August, 2024, after the Company had already gone into liquidation. The Liquidator deems this action a nullity and an afterthought done to fraudulently gain preference over other creditors and states he must act in the interests of all creditors and cannot give one creditor priority unless legally justified.
4. In response, the Bank stated that the Debenture was security for USD 4,606,306.25 advanced to the Company and that this constitutes a fixed charge over specific movable assets, primarily the fleet of trucks and trailers and that this gives the Bank a priority claim over these assets ahead of other creditors. It relies on the court’s decisions in Landmark Port Converyors Limited v Buzeki Entrprises Limited & another [2019] KEHC 570 (KLR) and Trans Africa Energy Limited & another v Alten Renewable Energy Developments Africa, BV & another; Standard Bank of South Africa Ltd & 2 others (Objector) [2024] KEHC 7517 (KLR) that defined and distinguished a floating and a fixed charge.
5. The Bank submits that the Debenture explicitly labels the charge as "fixed" and lists identifiable trucks in its schedule and that Clause 3 therein prohibits the disposal of the assets without the Bank’s consent. It asserts that the Debenture was duly executed and registered at the Collateral Registry under the Movable Property Security Rights Act and that a fixed charge over a company''s assets, unlike a floating charge or a charge over land/book debts, does not require registration at the Companies Registry under Section 878 of the Companies Act, which allows the Bank to assert its validity against the liquidator and creditors.
6. The Bank submits that the establishment of a valid and enforceable fixed charge automatically grants it the status of a secured creditor, which is entitled to priority satisfaction out of the charged assets and that secured creditors rank in priority and exercise the first lien over the charged property before other creditors in liquidation.
7. Going through the Debenture, I agree with the Bank that the document itself repeatedly and unambiguously uses the term "fixed charge." At Clause 3, it states that "….the Company HEREBY CHARGES in favour of the Lender the Assets... more particularly listed in the schedule hereto...”. At Clause 4, its states that "The charges created by this Debenture over the assets listed in the schedule hereto shall constitute a first fixed specific charge thereover..."(Emphasis mine). The Debenture has a comprehensive list of 33 "Sino Truck" prime movers with their specific Chassis Numbers and Registration Numbers and a list of 32 corresponding "Sino Truck" trailers with their own Chassis and Registration Numbers. There is also an additional list of 31 other vehicles and 6 trailers, all with their specific registration numbers. In my view, this level of detail fulfills the requirement for a fixed charge over specific, identifiable assets.
8. The Bank is also correct to state that Clause 4 of the Debenture contains an explicit prohibition on disposal of the listed assets that "...it being the intention that the Company shall have no power without the consent of the Lender to part with or dispose of any part of the assets comprised in this security by way of sale or otherwise..." (Emphasis mine). This clause is an indicator of a fixed charge, as it demonstrates the lender''s control over the assets, preventing the Company from dealing with them freely. There are other corroborating clauses in the Debenture that indicate that the same is fixed charge over the said listed assets including Clause 6(d) which states that the Company is "Not [to] sell assign transfer convey mortgage charge... or otherwise part with the possession of the assets hereby charged... except with the prior consent in writing of the Lender."(Emphasis mine).
9. It is therefore my finding that the Debenture is a fixed charge over the specific and listed assets of the Company. The next issue is whether this Debenture, as a fixed charge, ought to be registered. The parties agree that indeed, it has to be registered but differ on whether it has to be registered under Section 878 of the Companies Act which provides in part as follows: -
878. Charges created by a company
(1) A company that creates a charge to which this section applies shall, before the deadline for registration, lodge with the Registrar for registration the particulars of the charge prescribed by the regulations, together with the document (if any) by which the charge is created or evidenced.
(2) A charge to which this section applies is registrable on the application of any person who claims to have an interest in it.
(3) If a charge is registered on the application of a person other than the company concerned, that person is entitled to recover from that company the amount of any fees properly paid to the Registrar in respect of the registration.
(4) This section applies to the following charges created by a company:
……………..
(c) a charge for the purposes of securing an issue of debentures by the company; (Emphasis mine)
10. My interpretation of the aforementioned provision is that a company that creates a debenture or a party that has an interest in the said debenture, has an obligation to register it with the Registrar of Companies. The Debenture issued by the Company squarely falls under the type of charge described in Section 878(4)(c): "a charge for the purposes of securing an issue of debentures by the company." (Emphasis mine). Subsection (1) places the initial obligation on the Company to lodge the particulars with the Registrar, however and critically, subsection (2) provides a safety mechanism as it makes the charge "registrable on the application of any person who claims to have an interest in it."
11. This means that if the Company fails to register it, the Bank, as the beneficiary of the charge, has both the right and a strong incentive to ensure registration to protect its interest. In my view, registration under the Companies Act and admittedly under the Movable Property Security Rights Act is what perfects the security interest and makes the charge effective against other creditors, a liquidator, or an administrator. Thus, without registration, while the charge itself is not void, it is proper to say that the security has not been perfected. In the absence of perfection, it may not override the provisions and priorities applicable to liquidation.
12. I am persuaded by the Liquidator’s submission as set out in Equip Agencies Limited v I & M Bank Limited [2017] KEHC 10051 (KLR) is more appropriate. The court stated that:-
“If a registrable charge is not registered within 42 days (under the repealed Companies Act), or 30 days of its creation under Companies Act No.17 of 2015, it becomes null and void as against the Liquidator of the Company, an administrator of the Company and any Creditor of the Company.”
13. This is also in line with the decision in Trans Africa Energy Limited & another(supra) where the court held that where there is a dispute as to priority between an unsecured creditor and a secured creditor, the secured creditor must first establish that the security right has been registered. Further, whereas the court therein held that:- “The law on debentures finds its basis in the companies Act , 2015 but predominantly operates under the Movable properties Security Rights Act which introduced the concept of prior security rights by virtue of registration of debentures under that Act,” it did not preclude registration of a debenture under the Companies Act.
14. The factual position is that the Bank presented the Debenture for registration under the Movable Property Security Rights Act on 27th August, 2024, as evidenced by the registration notice, which was after the Company entered into liquidation sometime in April, 2023. However, the act of liquidation freezes the Company''s assets for the benefit of all creditors. Allowing one creditor to perfect a security interest after this point would be giving preference to the Applicant over the remaining creditors whose rights have been fixed by operation of statute. The effectiveness of a security interest is tested as of the date of the liquidation and a security interest that has not been perfected at the operative date may not override the statutory provisions applicable to liquidation.
15. Because the Debenture was not registered under the Companies Act or the Movable Property Security Rights Act at the operative time, the Bank''s claim may not be characterized as a secured claim with priority over the specific assets over unsecured claims. The claim is unsecured and stands together with those of other unsecured creditors. Finally, it is worth stating that whereas the Debenture may not be enforced as secured claim against the Liquidator, this does not mean the same is void between the Bank and the Company. The debenture remains valid as a contract between the parties. (See Equip Agencies Limited v I & M Bank Limited (supra)).
Conclusion and Disposition
16. In the upshot, the Bank’s amended application dated 27th January, 2025, is without merit. The same is dismissed with costs.
Dated and delivered virtually via Microsoft Teams this 27 day of November, 2025
ALEEM VISRAM, FCIArb
JUDGE
In the presence of;
Court Assistant: Ivan
………………..……………..............................................................for 1st Applicant
……………………………………………………………...………for 2nd Applicant
……………………………………….................................…for the 2nd Respondent
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Introduction & Background
1. By the amended Notice of Motion dated 27th January, 2025, the Applicant (“the Bank”) sought inter alia leave to commence a suit against the 1st Respondent (‘the Company”) and the 2nd Respondent(“the Liquidator”), an injunction to restrain the Liquidator from advertising, offering for sale, or selling the assets listed in the Debenture between the Bank and the Company, an alternative order that if the assets have already been sold, the proceeds must be deposited into a joint, interest-earning account controlled by both parties'' advocates to preserve the funds and; an order compelling the Liquidator to provide a full disclosure of all accounts, valuation reports, and documents related to the said assets.
2. The application, supported by the affidavits of the Bank’s director, Bilé Boris Coffi, sworn on 6th September, 2024, and 24th January, 2025, was opposed by the Liquidator through his replying affidavit sworn on 25th September, 2024. During the highlighting of submissions, Counsel for both parties informed the court that the application had been largely resolved through mediation, leaving only one issue for determination: whether the Debenture required registration. The parties have made submissions on this issue, which I have considered and will reference as relevant in my analysis and determination below.
Analysis and Determination
3. The Liquidator stated that the Bank''s security is based on an undated debenture that was not registered under the Companies Act(Chapter 486 of the Laws of Kenya) or the Movable Property Security Rights Act (Chapter 499A of the Laws of Kenya) and he avers that an unregistered charge is void against a liquidator and other creditors. He claims that the Bank was informed of this defect as early as February 2024 and the Bank purportedly attempted to register its debenture on 26th August, 2024, after the Company had already gone into liquidation. The Liquidator deems this action a nullity and an afterthought done to fraudulently gain preference over other creditors and states he must act in the interests of all creditors and cannot give one creditor priority unless legally justified.
4. In response, the Bank stated that the Debenture was security for USD 4,606,306.25 advanced to the Company and that this constitutes a fixed charge over specific movable assets, primarily the fleet of trucks and trailers and that this gives the Bank a priority claim over these assets ahead of other creditors. It relies on the court’s decisions in Landmark Port Converyors Limited v Buzeki Entrprises Limited & another [2019] KEHC 570 (KLR) and Trans Africa Energy Limited & another v Alten Renewable Energy Developments Africa, BV & another; Standard Bank of South Africa Ltd & 2 others (Objector) [2024] KEHC 7517 (KLR) that defined and distinguished a floating and a fixed charge.
5. The Bank submits that the Debenture explicitly labels the charge as "fixed" and lists identifiable trucks in its schedule and that Clause 3 therein prohibits the disposal of the assets without the Bank’s consent. It asserts that the Debenture was duly executed and registered at the Collateral Registry under the Movable Property Security Rights Act and that a fixed charge over a company''s assets, unlike a floating charge or a charge over land/book debts, does not require registration at the Companies Registry under Section 878 of the Companies Act, which allows the Bank to assert its validity against the liquidator and creditors.
6. The Bank submits that the establishment of a valid and enforceable fixed charge automatically grants it the status of a secured creditor, which is entitled to priority satisfaction out of the charged assets and that secured creditors rank in priority and exercise the first lien over the charged property before other creditors in liquidation.
7. Going through the Debenture, I agree with the Bank that the document itself repeatedly and unambiguously uses the term "fixed charge." At Clause 3, it states that "….the Company HEREBY CHARGES in favour of the Lender the Assets... more particularly listed in the schedule hereto...”. At Clause 4, its states that "The charges created by this Debenture over the assets listed in the schedule hereto shall constitute a first fixed specific charge thereover..."(Emphasis mine). The Debenture has a comprehensive list of 33 "Sino Truck" prime movers with their specific Chassis Numbers and Registration Numbers and a list of 32 corresponding "Sino Truck" trailers with their own Chassis and Registration Numbers. There is also an additional list of 31 other vehicles and 6 trailers, all with their specific registration numbers. In my view, this level of detail fulfills the requirement for a fixed charge over specific, identifiable assets.
8. The Bank is also correct to state that Clause 4 of the Debenture contains an explicit prohibition on disposal of the listed assets that "...it being the intention that the Company shall have no power without the consent of the Lender to part with or dispose of any part of the assets comprised in this security by way of sale or otherwise..." (Emphasis mine). This clause is an indicator of a fixed charge, as it demonstrates the lender''s control over the assets, preventing the Company from dealing with them freely. There are other corroborating clauses in the Debenture that indicate that the same is fixed charge over the said listed assets including Clause 6(d) which states that the Company is "Not [to] sell assign transfer convey mortgage charge... or otherwise part with the possession of the assets hereby charged... except with the prior consent in writing of the Lender."(Emphasis mine).
9. It is therefore my finding that the Debenture is a fixed charge over the specific and listed assets of the Company. The next issue is whether this Debenture, as a fixed charge, ought to be registered. The parties agree that indeed, it has to be registered but differ on whether it has to be registered under Section 878 of the Companies Act which provides in part as follows: -
878. Charges created by a company
(1) A company that creates a charge to which this section applies shall, before the deadline for registration, lodge with the Registrar for registration the particulars of the charge prescribed by the regulations, together with the document (if any) by which the charge is created or evidenced.
(2) A charge to which this section applies is registrable on the application of any person who claims to have an interest in it.
(3) If a charge is registered on the application of a person other than the company concerned, that person is entitled to recover from that company the amount of any fees properly paid to the Registrar in respect of the registration.
(4) This section applies to the following charges created by a company:
……………..
(c) a charge for the purposes of securing an issue of debentures by the company; (Emphasis mine)
10. My interpretation of the aforementioned provision is that a company that creates a debenture or a party that has an interest in the said debenture, has an obligation to register it with the Registrar of Companies. The Debenture issued by the Company squarely falls under the type of charge described in Section 878(4)(c): "a charge for the purposes of securing an issue of debentures by the company." (Emphasis mine). Subsection (1) places the initial obligation on the Company to lodge the particulars with the Registrar, however and critically, subsection (2) provides a safety mechanism as it makes the charge "registrable on the application of any person who claims to have an interest in it."
11. This means that if the Company fails to register it, the Bank, as the beneficiary of the charge, has both the right and a strong incentive to ensure registration to protect its interest. In my view, registration under the Companies Act and admittedly under the Movable Property Security Rights Act is what perfects the security interest and makes the charge effective against other creditors, a liquidator, or an administrator. Thus, without registration, while the charge itself is not void, it is proper to say that the security has not been perfected. In the absence of perfection, it may not override the provisions and priorities applicable to liquidation.
12. I am persuaded by the Liquidator’s submission as set out in Equip Agencies Limited v I & M Bank Limited [2017] KEHC 10051 (KLR) is more appropriate. The court stated that:-
“If a registrable charge is not registered within 42 days (under the repealed Companies Act), or 30 days of its creation under Companies Act No.17 of 2015, it becomes null and void as against the Liquidator of the Company, an administrator of the Company and any Creditor of the Company.”
13. This is also in line with the decision in Trans Africa Energy Limited & another(supra) where the court held that where there is a dispute as to priority between an unsecured creditor and a secured creditor, the secured creditor must first establish that the security right has been registered. Further, whereas the court therein held that:- “The law on debentures finds its basis in the companies Act , 2015 but predominantly operates under the Movable properties Security Rights Act which introduced the concept of prior security rights by virtue of registration of debentures under that Act,” it did not preclude registration of a debenture under the Companies Act.
14. The factual position is that the Bank presented the Debenture for registration under the Movable Property Security Rights Act on 27th August, 2024, as evidenced by the registration notice, which was after the Company entered into liquidation sometime in April, 2023. However, the act of liquidation freezes the Company''s assets for the benefit of all creditors. Allowing one creditor to perfect a security interest after this point would be giving preference to the Applicant over the remaining creditors whose rights have been fixed by operation of statute. The effectiveness of a security interest is tested as of the date of the liquidation and a security interest that has not been perfected at the operative date may not override the statutory provisions applicable to liquidation.
15. Because the Debenture was not registered under the Companies Act or the Movable Property Security Rights Act at the operative time, the Bank''s claim may not be characterized as a secured claim with priority over the specific assets over unsecured claims. The claim is unsecured and stands together with those of other unsecured creditors. Finally, it is worth stating that whereas the Debenture may not be enforced as secured claim against the Liquidator, this does not mean the same is void between the Bank and the Company. The debenture remains valid as a contract between the parties. (See Equip Agencies Limited v I & M Bank Limited (supra)).
Conclusion and Disposition
16. In the upshot, the Bank’s amended application dated 27th January, 2025, is without merit. The same is dismissed with costs.
Dated and delivered virtually via Microsoft Teams this 27 day of November, 2025
ALEEM VISRAM, FCIArb
JUDGE
In the presence of;
Court Assistant: Ivan
………………..……………..............................................................for 1st Applicant
……………………………………………………………...………for 2nd Applicant
……………………………………….................................…for the 2nd Respondent
'