The 2013 reforms

The 2013 reforms

These reforms to the system of registration of company charges are found in the new sections 859A – 859Q  of the Companies Act 2006, and were introduced in 2013 by the Companies Act 2006 (Amendment of Pt 25) Regulations 2013 (SI 2013/600).  They were enacted pursuant to the power to amend Part 25 of the Companies Act 2006 found in section 894 of that Act.  This power was interpreted restrictively so as not to permit any amendment to the priority rules, but only to cover amendment to the existing registration requirements.  The amendments also apply to charges created by Limited Liability Partnerships (Limited Liability Partnerships Regulations 2009 (SI 2009/1804) reg 32.

One of the main purposes of the reform was to update the system to take full advantage of advances in technology, so that fully electronic registration and searching would be possible.  Another purpose was to establish one regime which would apply to registration of charges throughout the United Kingdom: previously Scotland had had a separate system from England, Wales and Northern Ireland.   It will be seen that while there have been some changes in the requirements, the basic scheme, which requires registration of a charge within 21 days of its creation, remains.

This account of the reforms is a general account, and reference must be made to the Regulations themselves and the Rules made under them for details. For detail, see Companies House guidance.

What charges are registrable

Whereas previously there was a closed list of registrable charges, including some outdated definitions, now all charges and mortgages created by companies are registrable unless specifically exempt (section 859A).   The most significant exemption is that for security financial collateral arrangements created by the Financial Collateral Arrangements (No 2) Regulations 2003,  (as amended by the Financial Markets and Insolvency (Settlement Finality and Financial Collateral Arrangements) (Amendment) Regulations 2010).  The definition of security financial collateral arrangements is found in regulation 3, and its precise scope has given rise to controversy.

While there is some increase in certainty by this reform, it is still the case that many transactions which have the function of security are not registrable.    For discussion of what interests should be registrable, see HERE.

The process of registration

Under the new regime, the person registering the charge must deliver a statement of particulars and a certified copy of the charge instrument (if there is one) to the registrar within 21 days of the creation of the charge.   The registrar gives the charge a unique identification code, which enables the particulars, the instrument and any other documents filed to be ‘tied’ together on the register.     The registrar includes in the register all documents filed which are required to be filed (section 859I), including the whole charge instrument.   Some personal information can be redacted (section 859G).

The particulars

Section 859D sets out what the particulars must include.  These are:

  • The registered name and number of the company
  • The date of creation of the charge (guidance as to when this is taken to be is given in section 859E)
  • Where the charge is created or evidenced by an instrument
    • The names of the chargees or security agents or trustees
    • A short description of any land, ships aircraft or intellectual property which are subject to a fixed charge in the charge instrument
    •  Whether the charge instrument creates a fixed charge over any other property
    • Whether the charge instrument creates a floating charge and, if so, whether it is over all the property and undertaking of the company
    • Whether the terms of the charge include a negative pledge clause, that is, a clause prohibiting or restricting the chargor from creating security which ranks equally with or ahead of the charge
    • Whether the company is acting as trustee in relation to the charged property (it is optional to include this information)
    • Where the charge is not created by an instrument
      • A statement to that effect
      • The names of the chargees or security agents or trustees
      • The nature of the charge
      • A short description of the property charged
      • The obligations secured by the charge
      • Whether the company is acting as trustee in relation to the charged property (it is optional to include this information)

Further details must be included if the charge is in a series of debentures (section 859B)

What happens if a charge is not registered

The criminal sanction for non-registration has been abolished.     However, the other sanctions are serious enough for a chargee, and remain unchanged from the previous law (section 859H).     An unregistered charge is void against any secured creditor of the company and any creditor who has completed execution against the company.   It is also void against  an administrator or liquidator of a company, thus against the unsecured creditors of that company when it enters insolvency proceedings.   When a charge becomes void under the section the sums secured by it are immediately payable.

Late registration

This procedure is very little changed from the previous law (section 859F).    A court order is still required for permission to register late.      This will be granted if the omission was accidental or is not likely to prejudice the creditors or shareholders of the company or on other just and equitable grounds.    Normally late registration will be permitted, subject to a proviso that registration is without prejudice to the rights of any person acquired during the period between the creation of the charge and its actual registration.

Enforcement of security 

Where security is enforced by the appointment of a receiver and manager, the registrar must be given notice together with details of the charge (section 859K).   This mirrors the previous law.

Other matters which can be registered

Other matters can also be registered, though there is no sanction for not registering.   One is particulars of a charge subject to which property has been acquired. (section 859C): this used to be compulsory but registration is now voluntary.    Another is a statement of satisfaction and release (section 859L) which is similar to the previous law, but now requires particulars of the person delivering the statement, presumably to give searchers notice of possible moral hazard if that person is the chargor.  It is also possible to register an amendment of a charge by the addition of a negative pledge clause or a subordination agreement (section 859O).

What is not included

There are some provisions which had been included in previous drafts, but were not included in the final regulations.     One is a provision making an unregistered charge void against a purchaser: this is an omission which was rectified in the Companies Act 1989, the relevant part of which was never brought into force.    Another is any clarification of the extent to which registration is constructive notice, either as to whom has constructive notice of a registered matter or as to what a person has constructive notice.   More fundamentally, the reforms do not tackle the important issues raised in the case for reform which are the subject of the work of the project’s working groups.

Advertisements