Finance update: Going, going, gone: overseas company charge registration
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The requirement that a charge over property in the UK created by a registered overseas company must be registered with the Registrar of Companies was abolished on 1 October 2011, bringing a final end to what for years had been a very peculiar practice.
Most charges created by a company or a limited liability partnership (LLP) incorporated in the UK are void against a liquidator, administrator or another creditor unless registered at Companies House within the period of 21 days beginning on the day after the date of creation of the charge. Nothing has changed for such companies and LLPs, and registration remains essential.
Until recently, however, it had also been necessary to register (or to try to register) charges created by an overseas company with an established place of business in Great Britain. Given the risk that such a company might not in fact have registered that place of business here, as it should have done, the practice developed of submitting all charges by an overseas company over UK property for registration – the so called Slavenburg registration. If such a company had not registered here, the application would be rejected, but the lender would still be protected. Merely applying for registration was sufficient.
The first step towards ending this strange state of affairs was taken by regulations made under the Companies Act 2006, which provided that it was unnecessary to register a charge created by an overseas company unless it had actually registered a UK establishment. The second step came in the form of a recent regulation that, from 1 October 2011, simply ended the requirement for registration of charges at Companies House created by an overseas company. The charge may, of course, still require registration in an asset based register, such as the Land Registry.
Overseas companies with a registered UK establishment must still maintain their own internal register of charges and keep copies of charges in the UK, and these may be inspected, but this only applies to certain limited categories of charges, namely a charge over land in the UK, a charge over ships, aircraft and intellectual property registered in the UK, and a floating charge over any of the company’s property in the UK.
There is no requirement to register charges created by an LLP registered outside England and Wales at Companies House.
Companies House has said that it will continue to accept memoranda of satisfaction of charges created by overseas companies before 1 October 2011, despite the apparent lack of any regulatory basis for doing so.
Will the change make much practical difference? Many will welcome the fact that the last vestige of the rules that gave rise to the Slavenburg regime has gone. The technical concern that it might not be possible to find out whether registration of a charge was necessary, because an overseas company had registered in the UK under a different name from its corporate name, has gone. Security due diligence for a registered overseas company will, however, be harder. Even under the Slavenburg regime it had been possible to check whether or not a charge had been delivered for registration, although this was not often done. Some lenders may now require a registered overseas company to provide an extract from its internal charges register as a condition precedent. Others may instead rely on a director’s certificate or a representation in the loan agreement that there is no other existing security, or may ask lawyers providing a foreign legal opinion to check that the company has not registered any charge over UK property in any register kept in its place of incorporation. In many cases, however, these issues have always applied when taking security from a non-UK company over assets in the UK. Most such companies have no registered UK establishment, and consequently there has been no UK register of charges to be searched.
A final point is that in August 2011 the UK Department for Business, Innovation and Skills issued revised proposals to reform the UK regime for the registration of charges by UK companies and LLPs. The proposals include permitting electronic registration, and extending the scheme to all charges (unless exempt under regulations such as the Financial Collateral Regulations) and to certain pledges. If they are implemented, the changes in practice will be considerable.
For more information on the overseas company charge registration, please contact Andrew Evans or Oliver Abel Smith at Field Fisher Waterhouse LLP.