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An overview of the Security Interest in Movable Property Act, 2019

"Banking "

The Security Interest In Movable Property Act (“SIMPA”) came into force on 31^st May 2019. SIMPA’s major objective is to provide for the use of movable property as security by both individuals and corporations and to provide for priority, registration and enforcement of the security created.  

Before 2019, security in movable property was regulated by the Chattels Security Act, 2014. However, this law had a number of gaps which impeded its operationalization including the narrow scope of assets that could be used as security. SIMPA seeks to overcome these challenges by widening the ambit of properties that can be used as security and these include intangible assets such as intellectual property, negotiable instruments and judgment liens. This in turn will aid individual entrepreneurs, small and medium enterprises who often struggle to gain access to credit from lending institutions due to lack of fixed assets.

SIMPA creates various modes of perfecting a security interest. The lender may use more than one mode of perfecting a security interest provided that at all times, the security remains perfected. The modes of perfection provided for are (a) registration, (b) taking possession of the collateral and (c) taking control of a deposit account where the security is a deposit account.

With respect to perfection of security interests by registration, the law introduces an online electronic registration process for this purpose i.e. the Security Interest in Movable Property Registry System (SIMPRS). This makes it easy and convenient for any lender who is registered on the system to perfect their interest at any time of their choice by following the prompts at https://simpo.ursb.go.ug/.

The law preserves security interests that are perfected outside Uganda in the event that the security is transferred to Uganda. However, this provision will only apply where the Ugandan government has a reciprocal arrangement with the country in which the security was originally perfected. Additionally, security that is perfected in Uganda remains perfected even if it is moved outside Uganda.

However, SIMPA produced a dual system of perfection of securities regarding corporate entities. This is because it does not recognize security interests in movable property registered under the Companies Act, 2012 unless the same were registered before its coming into force. Therefore, securities given by corporate entities will have to comply with both SIMPA and the Companies Act, as the requirements of the Companies Act in respect to charges remain in force until such time as the two regimes will be harmonized through amendments to the legislation.

Securities that were previously created and perfected under other laws prior to the coming into force of SIMPA are preserved by SIMPA. For existing securities that are not perfected under any other law, a 150 days window within which the same can be perfected under SIMPA is provided for.

SIMPA also provides for rules on priority of securities. The rules of priority vary depending on the type of property taken as security. Generally, a perfected security interest takes priority over an unperfected one. As between two perfected security interests, the security interest created first takes priority over that perfected later. As between two unperfected security interests, the security interest created first takes priority over one created later. 

No doubt, the new Act enhances access to credit for SMEs and individual entrepreneurs. The creation of a register for movable property makes it easier for verification of security interests prior to registration. It is also likely to boost the confidence of lenders in advancing credit to the business community.