Executive summary

On 14 November 2025, in Standard Chartered Financial Services Ltd. v. Manchester Outfitters (Suiting Division) Ltd. now called King Woolen Mills Ltd., the Supreme Court of Kenya delivered a landmark judgment confirming that the concept of continuing security is an established, valid and enforceable practice in the Kenyan banking sector.

In overturning the Court of Appeal's decision, the Supreme Court unequivocally declared that a debenture and a legal charge, when properly executed with a continuing security clause, constitute valid and enforceable security for all advances made to the borrower, irrespective of the passage of time or any subsequent fluctuations in the borrower's account. This ruling also acts as a notice to borrowers to underscore that a security can only be fully discharged upon full repayment of the loan and subsequent registration of the discharge document at the relevant registry.

Detailed discussion

Background

In 1982, the Respondent (borrower), Manchester Outfitters, obtained a Eurocurrency loan from Standard Chartered Merchant Bank, London, which was the initial lender. Standard Chartered Merchant Bank was then issued with an unlimited guarantee by the Appellant, Standard Chartered Financial Services Limited, as security for the Eurocurrency loan. The borrower created two securities in favor of the Appellant — an all-asset debenture and a legal charge over two parcels of land.

The Appellant, in 1986, converted the original Eurocurrency loan into a Kenya Shilling (KES) loan of KES9m, evidenced by a new facility letter. Crucially, the parties neither discharged the existing securities (the debenture and legal charge) nor executed new ones, relying instead on the continuing security provisions already contained within the 1982 security documents. Subsequently, the borrower defaulted on the KES loan, and the Appellant appointed receivers and managers under the existing debenture.

Appellant's position

The Appellant asserted that the continuing security clauses in the original 1982 debenture were broad enough to encompass the subsequent KES facility as a "future advance," a term the borrower had previously approved. Consequently, the Appellant asserted it was fully entitled to appoint receivers and managers upon the borrower's subsequent default.

Respondent's position

The Respondent had sought the removal of the receivers, asserting that the 1982 debenture did not extend to cover the 1986 KES-denominated loan. The Respondent further contended that the 1986 facility letter had required the provision of fresh securities for the localized loan, which had never been supplied, thus invalidating the Appellant's enforcement action.

Issues for determination

The key issue was whether a financier holding securities with a continuing security clause must register new securities for subsequent advances when the original securities remain undischarged.

Supreme Court analysis and determination

The Supreme Court overturned the Court of Appeal's decision, rejecting its view that converting a Eurocurrency loan to a KES loan constituted a separate transaction requiring new securities. Instead, the Supreme Court declared that the existing legal charge over the two parcels of land remained a valid, continuing and enforceable security for the subsequent advance.

Aligning with the High Court's reasoning, the Supreme Court clarified that the conversion was merely a restructuring of existing facilities and not a new loan. Because the original 1982 security documents contained a valid continuing security clause, both the debenture and the charge remained fully operative to secure future advances.

The Supreme Court further emphasized that securities are not automatically discharged. Full repayment of all facilities and formal registration of a discharge instrument are mandatory under law. Borrowers cannot evade repayment obligations by citing incomplete or defective securities, according to the Supreme Court.

Implications

This decision carries significant weight and provides clarity for all stakeholders in the finance and lending industry.

Reinforcement for lenders: The decision provides a strong foundation for interpreting continuing security clauses commonly found in debentures, charges and mortgages within the Kenyan market. Financial institutions can structure facilities with greater confidence that properly drafted continuing clauses in security instruments will remain effective for future advances.

Predictability in enforcement actions: The decision limits opportunities for borrowers to challenge enforcement on technical grounds, such as arguing that subsequent facilities require fresh securities. This predictability supports timely recovery strategies and could reduce the likelihood of protracted litigation.

Certainty in discharge procedures: The ruling further affirms the two-pronged approach in discharging an instrument. It is not enough to just repay the loan facility; the borrower must take the extra step to register the instrument as discharged from the relevant registry.

Alignment with international standards: The decision harmonizes Kenyan practice with global norms on continuing security, enhancing confidence for cross-border lenders and investors who expect consistency in security enforcement.