New regime for registering charges at Companies House
Finance brief - April 2013
- New regime for registering charges at Companies House
- FATCA: better news for Lenders
- Is your default interest clause enforceable?
- Appropriation of shares and relief from forfeiture
- Security over Art: an introduction
- Margin lending: a brief introduction
As of last Saturday (6 April 2013), the new Companies House charge registration regime came into effect. Here we list the key changes that the new regime brings about.
1. Charges to be registered – With limited exceptions, all charges created by a company or LLP now require registration.
2. New forms – Form MG01 has been replaced by Form MR01, which dispenses with the need to provide details of the 'amount secured' and 'short particulars of the property charged'. The new form does, however, require a short description of any land, ship, aircraft or intellectual property that is (or is required to be) registered in the UK which is subject to a fixed charge. The new form also includes a number of new tick-boxes to indicate whether the charge contains (1) a fixed charge over any property not described in the aforementioned short description; (2) a floating charge, and if so, whether it covers all the company/LLP's property and undertaking; and (3) a negative pledge against the creation of other security ranking equally with or ahead of the charge. There is also a box to tick if the company/LLP is acting as trustee of the property or undertaking which is the subject of the charge.
3. Electronic registration - Alongside the paper-based registration, it is now also possible to register charges electronically at a reduced price of £10. However, there has been some scepticism over the effectiveness/user-friendliness of the electronic system.
4. No criminal offence - Under the new regime, registration of charges is not compulsory and a company does not commit a criminal offence if it fails to register a charge. However, in practice, this means very little; it remains the case that a charge is void against a liquidator, administrator or another creditor of the company or LLP unless it is registered within 21 days of its creation.
5. Documents available for inspection - Companies were previously required to keep a register of charges and a copy of any registrable charge created and to make these available for inspection. This is no longer a requirement, but instead a company must keep a copy of any charge capable of registration, and of any instrument varying or amending it, available for inspection. If details of the prescribed particulars (as described in section 859D) are not contained in the charge but in another document which is referred to or otherwise incorporated in the charge, then that document must be kept by the company and made available for inspection.
6. Copy of the charge - The original charge document no longer has to be presented to Companies House (although this is still a requirement when registering charges at the Land Registry). Instead, a certified copy of the charge must be filed. The copy will be placed on the public record and can be downloaded. A limited amount of personal information can be redacted from the copy. This is (1) personal information relating to an individual (other than the name of an individual); (2) the number or other identifier of a bank or securities account of a company or individual; and (3) a signature.
One of the main concerns brought about by the new regime is the fact that charges will be easily accessible by the public (although this has been the case for mortgages over land for some time now). The limited ability to redact these documents has generated some debate over whether to move commercially sensitive deal terms/information from the charge to another document (such as the loan agreement). However, bearing in mind the potential that these other documents may have to be made available for inspection, this may not be the best solution.
This is highlighted in light of the recent Court of Appeal decision in Cherry Tree Investments Ltd v Landmain Ltd  EWCA Civ 736, in which a lender was unable to rely on a clause contained in a facility agreement which granted it an extended statutory power of sale where that extended power was not included in the charge. The key issue in that case was that the charge was registered at the Land Registry and was therefore considered to be a 'public document', which in the judges' view, should contain all the information that a third party would necessarily need when contemplating dealing with the property. Given that one of the legislators' reasons for the new regime is to "increase transparency by making the whole document available on the public register", it is likely that charges to be registered at Companies House will be dealt with by the courts in the same way.
Therefore, until we have more guidance from Companies House or case law, for now careful consideration should be given as to what information should be placed in the charging instrument and what information should be included in the loan agreement. It is suggested that the charge should include all the prescribed particulars, the particulars of the property or undertaking charged and any powers of enforcement that the lender may later need to rely on and moving all other sensitive deal terms/information into the loan agreement; this way, the loan agreement will remain private whilst ensuring that the lender's powers of enforcement remain intact should they be required.
Hannah Salton, Associate, Finance at Field Fisher Waterhouse LLP