Floating Charge Debenture (Kenya)

A Floating Charge Debenture in Kenya documents the floating charge debenture in a form the parties and authorities can rely on.

A floating charge differs fundamentally from a fixed charge. Under Kenyan company law, a fixed charge attaches immediately and specifically to an identified asset — for example, a specific parcel of land or a named piece of plant — and the chargor company cannot deal with that asset without the chargee's consent. A floating charge, by contrast, attaches to a class of assets described in general terms — such as 'all the assets and undertaking of the company' or 'all stock-in-trade and debtors' — and floats over those assets without preventing the company from dealing with them in the ordinary course of business until the charge crystallises.

Crystallisation is the process by which a floating charge converts into a fixed charge, attaching to the specific assets comprised in the charged class at the moment of crystallisation. Under the Companies Act No. 17 of 2015 and the Insolvency Act No. 18 of 2015, a floating charge crystallises automatically upon: the appointment of a receiver or administrator over the company; the commencement of winding-up proceedings; or the occurrence of an event specified in the debenture instrument as a crystallisation trigger — for example, the cessation of the company's business or a payment default that the lender has elected to crystallise by notice.

The registration of a charge created by a Kenyan company is mandatory under Section 353 of the Companies Act No. 17 of 2015. A charge created on or after the commencement of the Companies Act must be registered with the Registrar of Companies at the Business Registration Service (BRS) within 30 days of the date of the instrument creating the charge. Failure to register within the prescribed period renders the charge void against a liquidator, administrator, or any creditor of the company under Section 357 of the Companies Act No. 17 of 2015 — meaning that if the company is wound up, an unregistered charge is treated as if it never existed.

The priority of competing charges registered against the same company under Kenyan law generally follows the order of registration at the BRS, not the order of creation. A fixed charge, whether registered before or after a floating charge, will take priority over a floating charge over the same assets unless the floating charge debenture contains a 'negative pledge clause' prohibiting the creation of subsequent fixed charges ranking in priority to or pari passu with the floating charge, and the subsequent chargee had actual notice of the negative pledge at the time of taking security.

The Movable Property Security Rights Act No. 13 of 2017, administered by the Collateral Registry of Kenya, introduced a parallel registration regime for security interests over movable property. Where a Floating Charge Debenture covers movable assets of the company — stock, equipment, receivables — registration with both the BRS Charges Register and the Collateral Registry is advisable to achieve maximum priority protection under both statutory regimes.

The Insolvency Act No. 18 of 2015 governs the enforceability of floating charges in insolvency. Under Section 95 of the Insolvency Act, a floating charge created within two years of the onset of the company's insolvency is invalid against a liquidator or administrator to the extent it secures past value — money previously advanced — unless the company received new money or other new consideration at the time of or after the creation of the charge. This statutory avoidance provision is critical for lenders who take a Floating Charge Debenture in Kenya and must be considered when structuring drawdown timing.

A Floating Charge Debenture in Kenya is required whenever a lender advances funds to a company and needs security over the company's general pool of assets without restricting the company's ability to trade freely.

A Floating Charge Debenture is needed when a Kenyan commercial bank — licensed under the Banking Act Cap. 488 and regulated by the Central Bank of Kenya (CBK) — provides a working capital facility, overdraft, or revolving credit facility to a corporate borrower. Banks routinely require a Floating Charge Debenture as a condition of lending because it gives the bank security over all assets of the company, including assets that will only come into existence after the date of the debenture.

A Floating Charge Debenture is required when a private equity investor or venture capital fund provides debt or mezzanine financing to a Kenyan start-up or growth company. The debenture gives the investor a priority claim over the company's assets and undertaking ahead of unsecured creditors if the company fails.

A Floating Charge Debenture is needed when a microfinance institution regulated by the Central Bank of Kenya under the Micro Finance Institutions Act No. 19 of 2006 advances a business loan to a small or medium enterprise (SME) that does not own fixed assets sufficient to support a fixed charge over specific property.

A Floating Charge Debenture is required when a Kenyan company issues corporate bonds or notes to investors and wishes to secure those instruments with a charge over its general assets. The debenture trustee holds the floating charge for the benefit of all bondholders collectively.

A Floating Charge Debenture is needed when a Savings and Credit Cooperative (SACCO) regulated by the SACCO Societies Regulatory Authority (SASRA) lends to a corporate member and requires security beyond personal guarantees.

A Floating Charge Debenture is also required when a trade supplier extends significant credit to a corporate customer in Kenya and wants security over the customer's assets and undertaking, often combined with a retention of title clause covering specific goods supplied.

Parties in Kenya should prepare a Floating Charge Debenture (Kenya) proactively rather than waiting for a dispute to arise. Courts interpret agreements based on the written terms rather than oral representations. Under the Central Bank of Kenya Act (Cap. 491), the Central Bank of Kenya (CBK) regulates banking. The Capital Markets Authority (CMA) regulates securities under the Capital Markets Act (Cap. 485A). Section 84 of the Bills of Exchange Act (Cap. 27) governs promissory notes. The Kenya Revenue Authority (KRA) administers tax obligations. The Microfinance Act No. 19 of 2006 regulates microfinance institutions. The Hire Purchase Act (Cap. 507) governs credit sale agreements. Where the transaction involves regulated activities, prior approval from the relevant authority may be required before execution.

A Kenya Floating Charge Debenture under the Companies Act No. 17 of 2015 must contain the following essential elements to achieve valid registration and enforceability.

Parties and Company Details: The full registered name of the chargor company, its company registration number issued by the Business Registration Service (BRS), its registered office address, and the full name and address of the chargee (the lender or debenture holder). Where the chargee is a bank, its CBK licence number should be referenced.

Secured Obligations: A precise description of the obligations secured by the debenture — the principal amount of the loan or facility, the maximum secured amount, the interest rate, default interest, costs, and all other monies payable by the chargor to the chargee under the facility agreement. The secured amount stated in the BRS registration must match the amount in the debenture instrument.

The Floating Charge: A clear grant of a floating charge over the whole of the undertaking and assets of the company, both present and future, or over a specified class of assets. Standard drafting in Kenya covers 'all the property, assets and undertaking of the Company, both present and future, including goodwill, book debts, uncalled capital, and all other assets not subject to any prior fixed charge.'

Fixed Charge Elements: Many Floating Charge Debentures in Kenya also include fixed charges over specific high-value assets — land, intellectual property, plant and machinery — with the floating charge covering everything else. Where a fixed charge is included, the instrument must comply with the land registration requirements under the Land Registration Act No. 3 of 2012 in addition to the BRS registration under the Companies Act No. 17 of 2015.

Negative Pledge Clause: A covenant by the chargor company not to create any mortgage, charge, lien, or other security interest over its assets ranking in priority to or pari passu with the floating charge without the prior written consent of the chargee. This clause protects the chargee's priority position.

Crystallisation Events: The events upon the occurrence of which the floating charge will crystallise — appointment of a receiver, administrator, or liquidator; cessation of business; an uncured payment default; or a written crystallisation notice from the chargee.

Receiver and Manager: The chargee's right to appoint a Receiver and Manager over the charged assets upon crystallisation, the powers of the Receiver, and the basis of the Receiver's remuneration. The Insolvency Act No. 18 of 2015 governs receivership in Kenya.

BRS Registration: The debenture must be filed with the Registrar of Companies at the BRS within 30 days of execution under Section 353 of the Companies Act No. 17 of 2015. The BRS issues a Certificate of Registration of Charge upon successful registration. This certificate, together with the original debenture instrument, forms the lender's security package.

Governing Law and Dispute Resolution: The debenture is governed by the laws of Kenya. Enforcement disputes are typically referred to the High Court of Kenya (Commercial Division) or to arbitration before the Nairobi Centre for International Arbitration (NCIA) under the Arbitration Act No. 4 of 1995. The forms-legal.com Kenya Floating Charge Debenture template includes all mandatory provisions required under the Companies Act No. 17 of 2015 s.349 and the Insolvency Act No. 18 of 2015.

Additional compliance elements for a Floating Charge Debenture (Kenya) used in Kenya include: Under the Central Bank of Kenya Act (Cap. 491), the Central Bank of Kenya (CBK) regulates banking. The Capital Markets Authority (CMA) regulates securities under the Capital Markets Act (Cap. 485A). Section 84 of the Bills of Exchange Act (Cap. 27) governs promissory notes. The Kenya Revenue Authority (KRA) administers tax obligations. The Microfinance Act No. 19 of 2006 regulates microfinance institutions. The Hire Purchase Act (Cap. 507) governs credit sale agreements. Forms-legal.com provides this template as a starting point for Kenya-compliant documentation.