The impact of Movable Property Security Interests Act on credit accessibility in Zimbabwe  

ASHLEY MABIGINYE AND FUNGAI CHIMWAMUROMBE

The Movable Property Security Interests Act [Chapter 14:15] (hereafter referred to as “the Act”), which came into effect on November 4, 2022, represents a significant shift in the legal framework governing the use of movable property as collateral for credit in Zimbabwe.

By establishing a Collateral Registry within the Reserve Bank of Zimbabwe, the Act aims to streamline and enhance access to credit for individuals and businesses alike. This article will explore the notable changes introduced by the Act, analyze their implications, and address potential concerns regarding the protection of existing creditors’ rights.

The Introduction of the Collateral Registry

Prior to the enactment of the Act, the primary mechanism for using movable property as collateral involved the registration of a notarial bond at the Deeds Registry. This process, while functional, presented various challenges that often hindered access to credit. The introduction of the Collateral Registry is designed to alleviate these challenges by providing a more efficient and accessible platform for registering security interests.

Under Section 3 of the Act, the registration of security interests via notarial bonds in the Deeds Office has been explicitly prohibited. Instead, all security interests must now be registered with the Collateral Registry. This shift not only modernizes the approach to securing credit but also aligns Zimbabwe’s legal framework with international best practices in secured transactions.

Defining Security Interests

The Act provides a broad and inclusive definition of a security interest. It encompasses various forms of security, including chattel mortgages, hypothecs, charges, and secured debentures, among others. This comprehensive definition ensures that a wide array of financial transactions can be accommodated under the Act, thereby promoting greater financial inclusion.

Moreover, the Act recognizes security interests in future assets and undivided interests, which further expands the potential for businesses and individuals to leverage their movable property for financial gain. The requirement for registration through a notice at the Collateral Registry is a crucial aspect of this process, ensuring that all interests are recorded and publicly accessible.

Security Agreements and Registration Requirements

A security interest is created when a debtor and creditor enter into a security agreement. The Act mandates that this agreement must be in writing and signed by both parties, clearly describing the collateral involved. This requirement emphasizes the importance of clarity and mutual consent in securing transactions, which is essential in mitigating disputes.

The registration process itself is designed to be user-friendly. Debtors must authorize the registration of a notice in writing, and any amendments to this notice similarly require their consent. The public nature of the Registry allows any individual or entity with a user account to submit notices, thereby enhancing transparency and confidence in the system.

A registered notice is effective from the time it is entered into the Registry, and it can be extended for a period of six months prior to expiration. This provision is critical for maintaining the currency and relevance of security interests in an ever-evolving financial landscape.

Priority of Security Interests

One of the most significant features of the Act is its approach to the priority of security interests. The priority of a security interest is determined by the time of its registration at the Collateral Registry. A perfected security interest will take precedence over any other interests created by the same debtor in the same assets, irrespective of how those interests were perfected previously.

This provision raises important questions regarding the treatment of existing creditors, particularly those who may have registered notarial bonds before the Act took effect. The Act stipulates that if a debtor enters insolvency proceedings, a perfected security interest registered with the Collateral Registry will have priority over older registrations in the Deeds Registry. This shift could potentially undermine the rights of existing creditors who had relied on the previous legal framework.

Implications of Debtors’ Insolvency

The Act also addresses the implications of insolvency and liquidation on security interests. A perfected interest retains its priority during liquidation unless a competing claim has superior priority. However, the priority granted to interests registered in the Collateral Registry over those in the Deeds Registry raises concerns regarding the protection of creditors’ rights. This aspect of the Act may necessitate further scrutiny and potential reevaluation to ensure that it does not inadvertently disadvantage existing creditors.

Transitional Provisions and Future Regulations

Finally, the Act indicates that the Minister of Finance and Economic Development will promulgate regulations governing the operation of the Collateral Registry. The current suspension of notarial bond registrations at the Deeds Registry creates a legal gap, leaving many stakeholders uncertain about the process ahead. Continuous dialogue with relevant authorities will be essential to ensure that the rights and interests of all parties are adequately protected as the regulatory framework is developed.

Conclusion

The Movable Property Security Interests Act is a landmark piece of legislation that aims to enhance financial access and security for borrowers in Zimbabwe. While it presents numerous opportunities for individuals and businesses to utilize their movable property as collateral, it also raises significant concerns regarding the treatment of existing creditors. As the regulatory framework evolves, ongoing engagement with stakeholders will be crucial to address these challenges and ensure a fair and equitable system for all.

Ashley Mabiginye is an associate intern at Zenas legal practice can be contacted on What’sApp +263713738025 ashleytyno6@gmail.com

Fungai Chimwamurombe is a registered legal practitioner and Senior Partner at Chimwamurombe Legal Practice and can be contacted through email fungai@zenaslegalpractice.co.zw