Locations
Finance brief - October 2012
- Proposed changes to the registration of charges with Companies House
- Key Issues to be aware of when enforcing against Personal Guarantors
- Non-UK borrowers and issues of security, COMI, administrators and receivers
- Can a private banker witness a customer's deed?
- No faith in the enforceability of agreements to negotiate in good faith
In August 2012, the Department for Business, Innovation and Skills ("BIS") published draft regulations (the "Regulations") to amend the regime for registration of charges with Companies House. The purpose of the Regulations is to streamline and modernise the registration of charges created by companies and LLP's in the UK. The Regulations are expected to come into force on 6 April 2013, although some provisions remain subject to further consultation. Here we consider the proposed changes.
The proposed changes include the following:
1. Single UK-wide regime: A single UK-wide scheme for registration of charges irrespective of the place of incorporation of a company or an LLP within the UK with the exception that the existing requirement to notify Companies House of an enforcement action (and the criminal sanction for failing to notify) in respect of a charge registered with Companies House will not apply to companies or LLP's in Scotland. This note concentrates on charges created by companies incorporated in England and Wales, rather than Scotland, nor do we consider other current, and somewhat controversial, proposals concerning a possible register of floating charges over Scottish assets.
2. What security is registrable? All charges (except rent deposits, a charge created by a member of Lloyd's to secure its obligations in connection with its underwriting business at Lloyd's, pledges or liens over property or charges excluded by any other Act) can be registered with Companies House.(1)
3. When should security be registered? The period within which the charge can be filed with Companies House remains at 21 days but the Regulations clarify that it is 21 days beginning with the day after the date of creation of the charge.(2)
4. Electronic filing: It will be possible to submit documents for registration electronically although the Regulations do not expand on the real practical detail on procedure for electronic filing. It will continue to be possible to submit paper filings.
5. Documents and details to be filed: The Regulations aim to increase transparency and the quality of information available in the public domain in respect of charges registered with Companies House. The full text of the instrument creating the charge will be available to the public. Only a certified copy of the charge instrument will need to be filed (currently the original must be submitted to Companies House when filing is being made) and the Regulations provide that "personal information" including names, bank details and signatures, but no other commercially sensitive information, may be redacted from the certified copy of the charge instrument. The party making the filing will need to submit a "statement of particulars" including the names of each person entitled to the charge or of their security agents or trustees. Where there is a security instrument, and disregarding the position in Scotland, statements must also be included as to whether:
(a) the charge is expressed to be a floating charge (and if so, whether it is over all the property and undertaking of the company);
(b) the charge prohibits or restricts the creation of any further security ranking equally or ahead of the charge (i.e. any negative pledge); (3)
(c) any land, ship, aircraft or intellectual property that is registered or required to be registered in the UK is subject to a charge (not floating) included in the instrument; and
(d) the instrument includes a charge (not floating) over any other tangible/corporeal or intangible/incorporeal property.
Where there is no security instrument (i.e. a charge is created orally) the following will also be required: statement that there is no instrument; description of the nature of the charge; a short description of the property or undertaking secured; and the obligations secured.
6. Unique Reference Code ("URC"): On registration of a charge, the Registrar will allocate a unique URC to the charge which will allow those searching the register to track a charge more easily and to present a more accurate picture of the extent to which a company's assets are encumbered.
7. Removal of criminal sanctions: Registration is to become discretionary, in the sense that criminal sanctions will not apply to the company for failure to register a charge but notwithstanding this the charge taker will, as at present, need to ensure that the charge is registered given that the charge will be invalid against a liquidator, administrator and creditor of the security provider if it is not registered with Companies House (the onus being on the presenter to determine whether a charge should be registered), and that Companies House will still reject a filing made after the 21 day period , unless it is accompanied by a court order permitting late registration. So far as the company creating the charge is concerned, criminal sanctions will still apply for failure to notify Companies House of an enforcement action and, as mentioned below, for failure to keep a copy of registrable charge.
8. Maintenance of Register of Charges: A company or LLP will no longer be required to maintain its own register of charges but there will be a requirement to retain copies of instruments creating/evidencing registrable security (including amending instruments), which should be available for inspection.(4)
9. Notification of enforcement of security: The requirement to notify the Registrar of matters relating to the enforcement of security remains mandatory and criminal sanctions continue to apply (only in England and Wales and Northern Ireland) for failure to notify the Companies House of enforcement action. The Regulations do, however, clarify the information required by Companies House when a party is notifying it of the appointment of a receiver or manager pursuant to a charge: the date of its creation, a description of the instrument, short particulars of the secured property or undertaking and the URC (if the charge is registered after 6 April 2013) is required to be provided. This information will be placed on the register.
10. Satisfaction and release of security: Although concerns have been voiced in respect of the existing regime for the release of charges, which allows any person to deliver a statement of full or partial satisfaction or release, the Regulations do not change it. If that person is not the charge taker, there is no requirement for them to explain why they are making the statement, just that they give an indication of their interest in the charge.
As previously mentioned, it is expected that the Regulations will come into force on 6 April 2013. We expect BIS and Companies House to provide further detail on the new procedure for electronic filing in the coming months. A final comment is that while the new regime will make registration cheaper and easier, and will provide those searching the register with more information, some will be disappointed that the changes do not go further. In particular the 21 day registration period is still, so far as someone dealing with a company is concerned, a "period of invisibility", and a court order is still required for registration "out of time". Pressure to address these points, and indeed the whole registration process, will no doubt continue.
For further information, please contact Susan McCloskey, associate in the Finance Group at Field Fisher Waterhouse LLP.
(1) This is subject to any other applicable exemption from the requirement to register, such as that for financial collateral arrangements under the Financial Collateral Arrangements (No 2) Regulations 2003, although the drafting of the Regulations on this point is rather awkward. The term "charge" is defined in the Regulations to include a mortgage (as it does at present) and also various Scottish forms of security. The reference to pledges or liens is presumably clarificatory, since these have generally been regarded as not constituting registrable charges, but it is unclear whether this is intended to affect the position in the case of pledges arising from written attornment by the pledgor, which did arguably require registration. Certain charges that, although not strictly registrable, were often registered out of caution, now clearly require registration, unless some other exemption applies. Fixed charges over shares and insurance policies are examples.
(2) There is clarification of when the charge is taken to be created, which will depend on whether or not the charge is a deed and, if a deed, when it was delivered (in the technical legal sense of the term "delivered"). Briefly, if the charge is a deed, that date will depend on whether it was executed and has immediate effect, or executed subject to a condition but, when the condition is satisfied, takes effect on the date of execution, or is executed but held undelivered, in which case it takes effect on delivery. The Registrar may, however, accept the charge as being created on the date specified in it, and no doubt this will be the usual practice. Charges that are not deeds take effect on execution or, if later, on the date on which they take effect. Whether the relevant date is the date of execution by the company, or by all parties, will depend on whether execution by all parties was essential for the instrument to take effect as charge: often execution by the chargee will not be essential for this purpose. The Regulations envisage that the certificate of registration will be conclusive evidence that the charge was delivered for registration within the relevant period, but not conclusive as to any matters in the particulars. Searchers will therefore run the risk of inaccuracies in the recording of the particulars by the Registrar, but in turn are able to see a copy of the charge itself, as mentioned below.
(3) Whether or not this will affect the current position as regards who has notice of a negative pledge is uncertain: indeed the Regulation adds to the uncertainty. As at present, anyone inspecting the register will presumably be on notice. There is, however, a draft provision that anyone taking a charge will have notice of any prescribed particular on the register, whereas anyone else will not. If the company is holding property as trustee, this may be noted on the register, which reflects current practice.
(4) If some of the prescribed particulars are contained in an instrument other than the charge, a copy of that instrument must also be available for inspection, so the parties will usually wish to make sure that the relevant details are contained in the charge so that the facility agreement, for example, can remain private. Overseas companies, which are now outside the registration regime, must continue to maintain a register of charges.
