NAIROBI, Kenya, Nov 14 – The Supreme Court has handed a major win to lenders after ruling that banks are not required to register fresh securities every time they issue additional credit, a decision expected to sharply cut compliance costs and reinforce confidence in long-term lending instruments across the financial sector.
The ruling comes at a time when lenders are grappling with rising regulatory and operational pressures, including the Central Bank of Kenya’s push to shift licensing fees from a branch-based model to one pegged on gross annual revenues — an overhaul that could raise annual costs for large banks.
The sector has also faced heightened scrutiny, with CBK recently fining several lenders for regulatory breaches, highlighting the need for predictable, cost-efficient lending processes.
The judgment stems from a long-running commercial dispute between Standard Chartered Financial Services Limited and Manchester Outfitters (Suiting Division), in which the Supreme Court overturned a 2022 Court of Appeal ruling that had invalidated the bank’s appointment of receivers on grounds that securities for a converted local loan were not separately registered.
By reinstating the High Court judgment, the apex court affirmed that a debenture or charge remains valid and enforceable until it is formally discharged, and that lenders are not obligated to create new security instruments when restructuring or advancing subsequent facilities tied to an existing borrower relationship.
The case dates back to a Euro Currency Loan issued in 1982, which Standard Chartered later settled and converted into a Sh9 million local facility in 1987.
Manchester Outfitters defaulted, prompting the bank to issue multiple demands before appointing joint receivers under a debenture and legal charge executed in 1982.
The Court of Appeal later declared that appointment invalid, arguing that no fresh security had been registered for the localized loan — an interpretation that alarmed the financial sector, which warned it could destabilize secured lending and complicate multi-year credit arrangements.
In its ruling, the Supreme Court clarified that existing securities retain their full legal effect until formally discharged through the proper statutory processes.
The Court further held that even if a loan was intended to be secured but the security was not perfected, this does not extinguish the borrower’s obligation to repay, as the repayment covenant exists independently of any collateral.
The Court declared the 1982 debenture and accompanying legal charge over two parcels of land valid, continuing, and enforceable securities for the advances made to Manchester Outfitters.
It set aside the Court of Appeal judgment, reinstated the High Court decision, allowed the petition of appeal, directed each party to bear its own costs, and ordered the refund of Sh6,000 deposited as security for costs.
Recent cases have questioned how far existing securities can stretch, while the shifting regulatory landscape has made cost predictability a central concern for the banking industry.
The Supreme Court’s decision is now expected to influence how financial institutions structure future credit facilities, particularly where multiple advances are issued over several years, and is seen as restoring commercial certainty to Kenya’s secured lending market.
