NAIROBI, Kenya – The Supreme Court of Kenya on Friday, November 14, 2025, delivered a landmark judgment, ruling that financial lenders are not required to register new securities when issuing additional credit to a borrower. This decision is a significant victory for the banking sector, expected to lower compliance costs and provide greater certainty in the lending market.

The ruling overturns a 2022 Court of Appeal decision in a long-standing dispute between Standard Chartered Financial Services Limited and Manchester Outfitters (Suiting Division) Limited. The appellate court had previously invalidated the bank's appointment of receivers, arguing that a new security should have been registered when a foreign currency loan was converted to a local one.

Case Background and a Decades-Long Dispute

The legal battle traces back to a Euro Currency Loan issued to Manchester Outfitters in 1982, secured by a debenture and a legal charge over two properties. In 1987, Standard Chartered settled this loan and converted it into a Sh9 million local facility. After Manchester Outfitters defaulted on the restructured loan, the bank appointed joint receivers in 1990 based on the original 1982 securities, leading to a legal challenge that has spanned over three decades.

The central legal question was whether the original securities from 1982 remained valid for the converted local loan of 1987 without a fresh registration. The Court of Appeal's 2022 decision in favor of Manchester Outfitters caused alarm in the financial industry, suggesting that any loan restructuring or additional advance would necessitate a cumbersome and costly process of registering new securities. This interpretation, lenders argued, could destabilize the secured lending framework in Kenya.

The Supreme Court's Decisive Ruling

In its ruling, the Supreme Court reinstated the High Court's original judgment, affirming that a charge or debenture remains valid and enforceable until it is formally discharged. The apex court clarified that the conversion of the loan did not extinguish the borrower's obligations or invalidate the existing securities. The judges stated that the repayment covenant is independent of the security, and failure to perfect a new security does not cancel the debt. This decision provides critical legal clarity, confirming that existing securities continue to cover subsequent credit facilities advanced to the same borrower unless formally discharged through statutory processes.

Implications for Kenya's Financial Sector

This judgment arrives at a crucial time for Kenyan banks, which are navigating a landscape of increasing regulatory and operational pressures. The Central Bank of Kenya (CBK) has proposed significant reforms, including shifting from a branch-based licensing fee model to one based on gross annual revenue, which could substantially raise costs for larger banks. The CBK's proposal, outlined in the Draft Banking (Fees) Regulations, 2025, aims to modernize the fee structure for the first time in over three decades to reflect the sector's growth. Total banking assets have surged from Sh202 billion in 1994 to Sh7.6 trillion in 2024.

Additionally, the sector has faced heightened scrutiny over compliance, with the CBK imposing fines for regulatory breaches and the Treasury proposing stiffer penalties for non-compliance with the Banking Act. The Banking (Penalties) Regulations, 2025, could see institutions fined up to Sh20 million for violations. In this context, the Supreme Court's ruling offers a measure of relief, reducing the administrative burden and costs associated with registering new securities for every additional or restructured loan. This is expected to enhance the efficiency of lending processes and reinforce confidence in long-term credit arrangements, ultimately benefiting both lenders and borrowers by ensuring a more predictable and stable credit market.