Can a Lender Repossess Your Trucks, Machinery or Equipment While a Court Case Is Pending in Kenya?

A transport company may depend on its trucks to make deliveries. A contractor may require an excavator, crane or other equipment to perform an ongoing contract. A manufacturer may depend on particular machinery to continue production.

If a lender threatens to repossess one of those assets following a loan default, the immediate concern is therefore not simply loss of property. Repossession may affect the business’s ability to continue trading.

The position becomes even more confusing where proceedings concerning the facility are already before court. The borrower may assume that because the debt is disputed in court, the lender must wait for judgment before taking the asset.

That is not necessarily the case.

The important questions are whether the lender actually has an enforceable right over the particular asset, whether the conditions for enforcement have arisen, and whether the required procedure has been followed.

For a business whose productive asset is under threat, those questions are better answered before the asset is sold.

Receiving a repossession notice, losing possession and a completed sale are different stages

The stage reached in the enforcement process matters.

A business that has just received a default or repossession notice is not necessarily in the same legal position as one whose machinery has already been taken. Similarly, repossession does not necessarily mean that the asset has already been sold.

Depending on the applicable security arrangement, there may still be questions concerning notice, possession, redemption, proposed disposal and the method by which the asset is eventually sold.

Under Kenya’s movable-property security regime, for example, a person whose rights are affected by enforcement may redeem collateral by satisfying the secured obligation and reasonable enforcement costs before the asset is sold, disposed of, acquired or committed for disposal.

Once a sale has occurred, however, the practical and legal options may change materially.

This is why the timing of legal review can be as important as the eventual merits of the dispute.

First ask: what right does the lender have over this particular asset?

The fact that a lender financed a business does not mean that every asset belonging to the borrower is automatically available for repossession.

The starting point is the transaction documents.

Was the loan unsecured? Was the truck or machinery specifically provided as collateral? Was there a wider security over categories of the company’s movable assets? Is the lender relying on a lease, chattel mortgage, charge or another financing structure?

Where movable property was provided as security, the Movable Property Security Rights Act may apply. The Act covers a broad range of transactions that secure payment or performance using movable assets, regardless of the label placed on the transaction. It expressly includes arrangements such as chattel mortgages, fixed and floating charges, pledges, financial leases and certain credit transactions.

The Act does not govern every form of security. Interests in land, vessels and aircraft, for example, fall outside its general scope and are governed by other legal regimes.

The relevant question is therefore not merely:Can l enders repossess? It is: What right does this lender have over this asset, and what law governs the exercise of that right?

Does the lender actually have enforceable security?

Where the Movable Property Security Rights Act applies, a security right is created through a security agreement. The Act requires, among other things, a written agreement signed by the grantor, identification of the parties and secured obligation, and a sufficient description of the collateral.

Registration of a notice serves a related but different purpose, particularly in making the security effective against third parties and determining its position against competing claims.

For the business facing enforcement, the practical point is simpler: do not assume that the lender’s assertion that an asset is “security” settles the matter. The documents must establish what was actually secured.

Conversely, a borrower should not assume that the absence of a particular document labelled “security agreement” necessarily means that no security exists. The substance of the financing arrangement must be examined.

Does a pending court case stop repossession?

Not automatically.

There is a significant difference between a dispute being before court and the court having made an order restraining enforcement.

Where a lender possesses an independent contractual or statutory right to enforce security, the existence of litigation concerning the underlying debt does not necessarily suspend that right. Under the MPSRA, post-default rights against the secured obligation and rights against the collateral can coexist.

A borrower should therefore not rely merely on the fact that it has filed a defence, counterclaim or other application.

Where protection against repossession or sale is required, the business may need to establish a proper legal basis for interim court intervention and actually obtain the relevant order.

Equally, the existence of default does not mean that an injunction will automatically be refused. What matters is whether there is an identifiable legal or factual basis upon which the particular enforcement can properly be challenged.

Can the lender take the asset without first going to court?

Sometimes—but not simply because money is owed.

Under the MPSRA, a secured creditor may exercise post-default rights either through court or, where the statutory requirements permit, without first applying to court.

The security agreement becomes important. Where the grantor agreed in the security agreement that the secured creditor could obtain possession, section 71 permits possession without a court application. Where there was no prior consent, the Act deals differently with an attempted possession where the person holding the collateral objects.

This is precisely why a repossession demand should be tested against the underlying agreement rather than considered in isolation.

Default does not make procedure irrelevant

Even where the debt is genuinely in arrears and valid security exists, enforcement remains subject to the applicable legal process.

For movable security governed by the MPSRA, the creditor must serve a default notification containing prescribed information before exercising the statutory remedies that follow non-compliance. The Act also separately regulates possession and notification before disposition of collateral.

Accordingly, a commercially useful legal review does not merely ask whether the borrower owes money.

It asks:

Has a valid security right been established? Has the contractual event of default occurred? Were the required notices served? Can possession presently be taken without court proceedings? Has the lender reached the stage at which the asset may lawfully be sold?

Those are different questions.

What should a business do when a productive asset is under threat?

The first response should not automatically be litigation.

An initial legal assessment should establish four things:

1. whether the lender has enforceable security over the asset;
2. whether the contractual and statutory enforcement requirements have been satisfied;
3. what stage the enforcement process has reached and whether sale can presently proceed; and
4. whether the commercially sensible response is court intervention, redemption, restructuring, negotiation or settlement.

The relevant documents will ordinarily include the facility agreement, security documents, notices received, any Collateral Registry record, current statement of account and documents relating to any proposed repossession or sale.

The objective is not simply to delay a creditor who is lawfully enforcing a debt. It is to establish whether this particular lender has the right asserted, whether the right is being exercised through the correct process and what realistic options remain before a business-critical asset is sold.

If your business has received a repossession notice or its trucks, machinery or equipment are already under threat, the useful time to assess the enforcement position is ordinarily before disposal.

KM Law Chambers advises and represents businesses in commercial financing and security-enforcement disputes, including threatened repossession of productive business assets and urgent court intervention where there is a sustainable legal basis.

For legal assistance, contact info@kmlawchambers.com,  or call/WhatsApp +254 713 741 741.

This article provides general legal information and does not constitute legal advice on a particular financing or enforcement dispute.