Frequently Asked Questions

  • 01. General Questions
  • 02. General Questions
  • 03. General Questions
  • 04. Collateral Registry Questions
  • 05. Collateral Registry Questions
  • 06. Default and Enforcement Questions
  • What is a loan?
    A loan is a sum of money given to the debtor now that must be repaid later. A debtor may pay it back in scheduled payments periodically or monthly instalments.
  • Who is Debtor?
    The Act describes a debtor as a person who creates a security interest to secure that person’s obligation or that of another person and includes a lessee under a financial lease, buyer that acquires goods whose title is to be retained by the seller, grantor of any charge, chattel mortgage, pledge or lien in movable property, consignee who receives goods from another person under a commercial consignment and seller of accounts receivable and a lessee under an operating lease where the receivables or the object that is subject of the lease does not secure an obligation.
  • Who is a secured creditor (lender)?
    The Act describes the secured creditor as a person in whose favour a security interest is created, and includes a financial lessor, seller who reserved title to the goods sold, chargee under any type of charge, chattel mortgagee or holder of any type of consensual lien; and buyer of accounts receivable, commercial consignor and an operating lessor under an operating lease where the account receivable, goods provided under the commercial consignment or the leased object do not secure an obligation.
  • What is an asset?
    An asset is anything tangible or intangible owned by the debtor that has some market value.
  • What is collateral?
    Collateral is any asset that can be given by the debtor against the value of a loan. The Act defines Collateral as movable property, whether tangible or intangible, that is subject to a security interest.
  • What is a security interest?
    A security interest is the term used to refer to a property right or interest in movable property that is created by agreement or a transaction that secures payment or other performance of an obligation, any type of charge over movable property, chattel mortgage and consensual lien, and includes a retention of a title in movable property, right under a financial or operating lease, right of a transferee of accounts receivable and right of the commercial consignor even if it does not secure payment or other performance of an obligation.
  • What is the difference between a secured loan and an unsecured loan?
    In a secured loan, the debtor grants a security interest in some of his or her assets. This “grant” is completed when the debtor signs a security agreement with the secured creditor. The loan is called ‘secured’ because if the debtor defaults on the loan, the secured creditor has the right to obtain or repossess whatever collateral was given to satisfy the debt. In an unsecured loan, the secured creditor in case of a default will have to obtain a judgment and enforce it against some of the debtor’s assets.
  • Why would a secured loan be preferable?
    Secured loans offer the secured creditor an alternative way of satisfaction if the debtor does not pay back the loan. They are considered less risky than unsecured loans and therefore often have much lower interest rates. For many businesses of small size, this may be the only kind of loan they qualify for.
  • What is a secured transaction?
    A secured transaction refers to an agreement between the debtor and the lender (secured creditor) which creates a security interest (property right) in some of the debtor’s property.
  • What is a secured obligation?
    A secured obligation is the amount the debtor is required to repay to the secured creditor. In case of the debtor’s failure to pay, the secured creditor may enforce the debtor’s obligation by taking and selling the collateral.
  • Who can take a security interest in collateral?
    This Movable Property (Security Interest) Act applies to all security interests created in collateral located within the country whether or not the secured creditor is domestic or otherwise. Secured creditors may include banks, finance institutions, money lenders, individuals, sellers, just to mention but a few.
  • What is a security agreement?
    A security agreement is an agreement between the debtor and secured creditor that creates or provides for a security Interest. It may also be defined as a contract between the debtor and the secured creditor in which the debtor agrees to grant a security interest a particular collateral. This agreement can be in any form and may include a financial lease, instalment sales agreement, pledge agreement, loan contract, etc.
  • What information is contained in a security agreement?
    A security agreement must reflect the intent of the parties to create a security interest, identify the secured creditor and the debtor, describe the secured obligation, including the maximum amount for which the security interest is enforceable and describe the collateral in a manner that reasonably allows its identification in accordance with section thirty-five (35) of the Act. A security agreement may provide for the creation of a security interest in any type of movable property, parts of movable property or undivided rights in movable property.
  • What kinds of things can be used as ‘movable property’ collateral under the Act?
    Movable property under the Act includes goods, intangibles, securities, money, negotiable instruments and negotiable documents.
  • Does the Movable Property (Security Interest) Act apply to debtors without business assets?
    Yes. This law applies not only to business assets but also to consumer goods that are used primarily for personal, family or household purposes.
  • Why would someone want to use ‘movable property’ as collateral instead of ‘real property’?
    A secured loan is based on the premise that the secured creditor may possess whatever assets pledged as collateral if there is a default on the loan. Using real property (e.g., a family home or farm) can carry certain unwanted risks for the debtor. Therefore, the debtor may be more comfortable losing equipment than a house in case of a default. More often, most business owners do not own real property or immovable. They may have significant movable property which can be used as collateral in exchange for capital.
  • What is inventory?
    Inventory refers to tangible assets that are held for sale or lease in the ordinary course of business. Note further that raw materials or work-in-process may also be classified as inventory.
  • What is an account receivable?
    The Act defines accounts receivables as rights to payment of a monetary obligation, excluding a right to payment evidenced by a negotiable instrument and to payment of money credited to a bank account;
  • What are farm products?
    Farm products includes-
    (a) crops grown, growing or to be grown, harvested and their produce and fruit;
    (b) timber, both standing and growing;
    (c) fish stocks, livestock, bees and poultry and the produce and progeny thereof;
    (d) seeds, fertilisers and manure; and
    (e) other supplies and equipment used or produced in a
    (f) farming operation.
  • What are consumer goods?
    Consumer goods are goods that a debtor predominantly uses or intends to use for personal, family or household purposes. These may include appliances, furniture, a personal computer, a vehicle, just to mention but a few.
  • What kind of collateral is a vehicle?
    Classification of vehicles depends on their use. Family vehicles would often be considered consumer goods while those used for the delivery of something, like trucks of a transportation company or taxis would be equipment and those for sale on a car lot would be deemed inventory.
  • What is the Security Interest in Movable Property Registry System?
    The Security Interest in Movable Property Registry System is an electronic public database that contains information on security interests in movable assets and the secured creditors’ priorities.
  • What is the purpose of the Security Interest in Movable Property Registry System?
    The Security Interest in Movable Property Registry System fulfils two essential functions. The first objective is to notify parties about the existence of security interests in movable property. The registry gives transparency to the credit system by giving publicity of security interest which exist in a particular collateral. Secondly, the Security Interest in Movable Property Registry System establishes priority of creditors vis-a-vis third parties. The priority scheme for secured creditors is established by day and time of registration of a financing statement. The Registry also provides a platform for conducting searches on the database so that secured creditors can find out if there are prior security interests in the properties pledged by the debtors as collateral for a loan.
  • Why is the Security Interest in Movable Property Registry System important?
    The Security Interest in Movable Property Registry System is important because it is a public database of security interests in movable assets. As such, it allows debtors to prove to secured creditors whether their existing asset has any security interests registered against it. Secured creditors are also able to better assess priority status against the debtor’s collateral. For example, before taking a debtor’s equipment as collateral for a loan, the secured creditor must search the Collateral Registry to make sure no other secured creditor already has a security interest in the equipment. Nonetheless, a debtor may offer an asset as collateral to multiple secured parties who will decide whether the asset has sufficient value to properly secure all loans acquired.
  • What is a financing statement?
    A financing statement is a notice, in the Prescribed Form called Form I containing the information specified in section thirteen of the Movable Property (Notice) Act, that effects a registration to perfect a security interest in collateral. The debtor has to sign a security agreement or sign a consent before the secured creditor may register a financing statement. Note that a financing statement is filed by a Creditor.
  • What is a confirmation or verification statement?
    A confirmation statement is statement provided by the Registrar electronically to the person who registered the financing statement or amendment to the registered financing statement on registration of a financing statement or an amendment to a registered financing statement in the Collateral Registry. The Confirmation or Verification Statement is provide as set in the Form II under Statutory Instrument No 77 of 2016. A secured creditor shall, not later than fourteen working days after the day on which the secured creditor received the confirmation or verification statement, give a copy of the statement to the debtor.
  • What information is contained in a confirmation or verification statement?
    A confirmation or verification statement must contain the following information:
    a. The debtor’s name, identification number and type, and address
    b. The debtor’s gender and birthdate or if an entity, the gender of the owner
    c. The secured creditor’s name, identification number and type, and address,
    d. A general description of the collateral
    e. The period of time the registration is effective
    f. The maximum amount the security interest may be enforced for
  • How much does it cost to register a financing statement?
    The statutory registration fee for a financing statement is UGX18,000.00.
  • Who can search in the collateral registry system?
    Any person may conduct a search and request a certificate of status of a financing statement without having to provide any reasons. Searches may be conducted using the name or identification number of the debtor or the serial number of the collateral. The statutory fee payable for a search is UGX9,000.00.
  • What if the debtor did not give permission for the registration?
    A registration cannot be made without the debtor’s prior permission. Any financing statement registered without the debtor’s permission or consent is invalid and does not create a security interest in any assets. Furthermore, the law gives the debtor the rights to force the secured creditor to discharge such registration and to compensate the debtor for any damages.
  • Can the debtor obtain a copy of the confirmation statement?
    The debtor may obtain a copy of the confirmation statement from either the secured creditor or directly from the Security Interest in Movable Property Registry System by conducting a search in the collateral registry. The Act requires the secured creditor to provide a copy of the confirmation statement to the debtor so that debtor may verify that the information in it is exactly as it was authorized.
  • What if there is an error or omission in a confirmation statement?
    If they is an error or omission in a confirmation statement, the debtor has the right to request the secured creditor to correct that error. Amendment of the registered financing statement is done through a Notice of Amendment (Form IV) and the filing fee is UGX18,000.00. Note further, that the registration of a financing statement or amendment to the registered financing statement is invalid if the registered financing statement or amendment to the registered financing statement has a defect, irregularity, omission or error in the name and identification number of the debtor or serial number of the collateral, if the collateral is of a kind that is required to be described by a serial number. Such an error is detrimental as it may seriously mislead a person or render the collateral unsearchable.
  • What happens if information about the debtor or the collateral changes after the original registration?
    If information about the debtor changes, the security agreement will often require that the debtor informs the secured creditor of this change as soon as possible. Once informed, the secured creditor will electronically register an amendment to the financing statement through a prescribed form called Form IV. The Filing fee for a Notice of Amendment is UGX18,000.00. It is the secured creditor’s responsibility to ensure that the information in the Security Interest in Movable Property Registry System is correct.
  • How long does a registration remain effective in the Security Interest in Movable Property Registry System?
    The Act states that a registered financing statement shall remain valid for the term specified in the registered financing statement. Hence, the period of registration is determined by the information contained in the financing statement which reflects the security agreement between the debtor and the secured creditor.
  • After the loan is repaid, how can a financing statement be discharged?
    A secured creditor must discharge the registered financing statement within five working days after all obligations under the security agreement creating the security interest have been performed. A Notice of discharge must be electronically filled through Form IV and a fee of UGX18,000.00 must be paid. In the event that the secured creditor does not file a Notice of Discharge, the debtor may send a formal request to the creditor. A demand by a debtor to discharge or amend a registered financing statement must be made in substantial conformity to Form III. If the secured creditor still does not cancel the registration, the debtor may ask the court to issue an order to amending or discharge the registration and may seek damages if applicable. The law protects the debtor in case of the secured creditor’s failure to discharge a registration.
  • What is priority?
    The word priority refers to the right of a secured creditor to derive the economic benefit of a security interest in preference to the right of a competing claimant. Issues of priority arise in situations in which the debtor has granted security interests to multiple secured creditors in the same collateral or the debtor has other claims against the general assets such as when someone has a judgment against or the debtor owes money to the employees. The Act provides for specific rules that determine priority conflicts between different kinds of secured creditors, creditors, or buyers of the collateral.
  • What happens if the debtor doesn’t pay back a loan?
    In the event of default (the debtor does not repay a loan), the secured creditor has the right to enforce their security interest in the collateral. In this case, a Notice of Default and Enforcement must be electronically filed to the collateral registry at a fee of UGX20,000.00.
  • What default and enforcement procedures are allowed?
    Enforcing a security interest means that the secured creditor has legal remedies that include taking possession of the pledged collateral or disposing of the collateral through a sale and keeping some or all of the proceeds. The Act allows the secured creditor to proceed extra-judicially without having to obtain a court order before repossessing the collateral. The secured creditor may also choose to apply to the court to authorize default and enforcement. The debtor may also apply to the court to suspend default and enforcement if it believes that the secured creditor is damaging the collateral or has sold it for a low value.
  • What happens when the secured creditors disposes the debtor’s collateral?
    Disposal of the collateral is a legal term that basically means selling the collateral in an auction and applying the proceeds received from the sale to repay the loan. The proceeds received upon the sale of the collateral are given first to the secured creditor to satisfy their remaining obligation under the security agreement and cover any expenses associated with the disposal of the collateral. If there are remaining proceeds they are then distributed between those with remaining security interests or returned to the debtor. The debtor will not receive any proceeds from the sale unless all secured obligations that were owed to all secured creditors have been fully satisfied. A Notice of disposal of collateral must be made at least ten working days before disposal of the collateral and sent to the debtor, any other person who has registered a financing statement in respect of the collateral and any other person that has given the secured creditor notice of an interest in the collateral.
  • What happens if the collateral does not sell for the price enough to satisfy the secured obligation?
    If the collateral does not sell for enough to cover the remaining secured obligation owed to the secured creditor, the secured creditor has the right to obtain the remaining amount from the debtor directly or through other assets. The secured creditor may initiate a legal action against the debtor and get a judgment for the amount owed. The secured creditor may also decide not to take any legal action against the debtor and just take the loss on this loan.