Changes to the Security Registration Regime
After several years of consultation, the Companies Act 2006 (Amendment of Part 25) Regulations 2013 ("Regulations") came into force on 6 April 2013. This accurate (but rather uninformative) title masks the significance of these Regulations.
Part 25 of the Companies Act 2006 sets out the registration regime for charges created by companies; the Regulations are intended to streamline procedures and reduce costs (in particular by enabling electronic filing). There are separate regulations creating a similar registration regime for charges created by Limited Liability Partnerships.
THE MAIN CHANGES
Statutory obligation to register and criminal sanctions removed
The Regulations remove the statutory obligation to deliver the required particulars of a charge to the Registrar of Companies for registration, and the criminal sanctions (for companies and their officers in default) for failure to comply.
During the course of the consultations, concern was expressed that removing this statutory obligation could have the unintended result that registration would no longer constitute notice to any person who could be reasonably expected to search the Companies House charges register (the doctrine of "constructive notice"). An early draft of the Regulations sought to address this concern but the Regulations (as implemented) do not.
Single registration scheme
There is now a single registration scheme instead of two separate schemes for England & Wales and Northern Ireland, and Scotland.
The Part 25 registration regime only applies to UK registered companies (defined as companies formed and registered under the Companies Acts). Companies incorporated by Royal Charter, Industrial and Provident Societies and Friendly Societies will continue to fall outside the ambit of the scheme.
Definition of registrable charges
Under the previous regime, the Companies Act 2006 set out an exhaustive list of the categories of charge which had to be registered. If a charge did not fall into one of the listed categories it was not registrable. There was often uncertainty as to whether or not a charge was registrable. In particular, one of the registrable categories (a charge over "book debts of the Company") created uncertainty due to the absence of any general consensus as what constituted a "book debt".
Under the new system, all charges must be registered except:
- a charge in favour of a landlord on a cash deposit given as security in connection with a lease of land
- a charge created by a member of Lloyd's to secure its Lloyd's underwriting obligations
- a charge excluded from registration under Part 25 by any other Act (for example, financial collateral covered by the Financial Collateral Arrangements Regulations (No. 2) 2003)
For a charge to be registrable, it must be "created by the company". A charge includes mortgages and various types of Scottish security, but excludes pledges.
Copy of Charge document available
The certified copy of the document creating or evidencing the charge (not the original document) is presented for registration at Companies House. A copy of the document with Form MR01 can be downloaded directly from Companies House.
The change is not retrospective so it will not be possible to obtain from Companies House a copy of any charge created before 6 April 2013. In that case it may be necessary to resort to inspecting copies of charge documents at the company's own register of charges which should be kept at its registered office.
Companies House have indicated that they will not accept responsibility for returning any original documents which are submitted.
The Regulations provides limited scope for redaction of information from the certified copy of the security instrument (submitted for registration) as follows:
- personal information relating to an individual (other than their name)
- the number or other identifier of a bank or securities account of an individual or a company
The Regulations do not permit redaction of information on the basis that it is "commercially sensitive".
Companies House currently apply the definition of "Personal information" under the Data Protection Act 1998.
Checking and agreeing what information is to be redacted could prove time-consuming. It may be a sensible precaution to set out in the relevant facility agreement or security document any agreement between the chargor and the chargee as to what information (within the permitted categories) is to be redacted.
Late redaction (after the certified copy of the instrument has been registered) must be sanctioned by Court Order.
The Regulations substitute a new set of registration particulars. Form MG01 has been replaced by Form MR01. Form MG01 had to be completed as a standalone and comprehensive document as the copy of the charge document was not available from Companies House. As a certified copy of the security instrument is now available for charges created on or after 6 April 2013, Form MR01 is shorter (with much of the information provided by "tick boxes"); as such, it should be less labour intensive to complete. For example, (unlike Form MG01) it does not require a potentially lengthy description of the liabilities secured by the charge.
However, Form MR01 is not as short as originally envisaged at the start of the consultation process. It requires a short description of any land (including buildings), ship, aircraft or intellectual property registered in the UK which is subject to the charge. It provides for "tick box" confirmation as to whether or not the security includes:
- any floating charge and, if so, whether it covers all the property and undertaking of the company
- any negative pledge prohibiting or restricting the company from creating any further security that will rank equally with or ahead of the charge
- any fixed charge or fixed security over tangible or intangible property
Form MG01 had to be filed in paper form only and was sent by post or delivered to Companies House together with the original document creating or evidencing the charge. The new procedure requires a certified copy of the document creating or evidencing the charge to be delivered to Companies House with the registration fee (£10 for e-filing; £13 for paper filing) and a statement of particulars in new Form MR01.
For the first time, electronic filing of a charge is possible. This can be done in one of two ways; 'software filing' for bulk filing, and web filing. For web filing, Companies House has developed a system whereby presenters can upload pdf versions of the charge document to a maximum of 10MB as an attachment to e-Form MR01.
Company's own register of charges
Under the new regime, a UK company will no longer have to maintain a register of charges at its registered office.
Introduction of Unique Reference Codes ('URC') and Authentication Codes
Once a charge is registered, it will be allotted a 12-digit URC, which will be displayed on the charge registration certificate and will enable members of the public to track the charge, including when it is partially or fully satisfied.
If a lender (or any other interested party) wants to register the charge instead of the company creating it, it will need to apply for a Lender Authentication Code ('LAC') from Companies House.
Companies will automatically be allotted Company Authentication Codes ('CAC's), and so will not be required to apply for LACs for filing purposes.
WHAT STAYS THE SAME
Presenter of the charge
The company creating the charge or any person interested in the charge are the only persons who are entitled to present if for registration.
21-day time limit for registration
The documents for registration still have to be delivered to Companies House within 21 days beginning with the day after the date of creation of the charge. This time limit can only be extended by Court order.
The Regulations define 'date of creation' of the charge in a comprehensive table covering different categories of charge.
Where a company acquires property or undertaking already subject to a charge, registration of the charge by the company is no longer restricted to the 21-day mandatory registration period (this is the only exception).
Dual registration at both Companies House and specialist registries (such as the Land Registry and the UK Intellectual Property Office) will still be required as and where appropriate (for example in relation to charges of land and charges of UK patents, registered trademarks and registered designs).
Registration of a charge in the relevant specialist register will normally determine the order of priority in relation to competing security interests (the charge which has the earliest date of registration will prevail). However, if a charge is registered in the relevant specialist register but not at Companies House, the commercial sanctions will still apply.
Commercial sanctions retained
If a charge capable of registration is not registered within the required period, it will not be valid against any liquidator, administrator or creditor of the company.
As under the previous system, the money secured by the charge will become immediately payable.
Inspection of charges at Company's registered office
As at present, companies will be required to keep copies of charge documents as well as instruments effecting variations or amendments to their charges (at their registered offices or nominated inspection location). The copy of the charge document can be the redacted version as registered at Companies House.
A copy of the charge (or the redacted certified copy for a charge created on or after 6 April 2013) must be available for inspection at the company's registered office (or alternative inspection location notified to Companies House) by any creditor or member of the company and (on payment of the prescribed fee) by any other person.
With effect from 1 October 2011, an overseas company (whether registered as an overseas company in the UK or otherwise) does not have to register any charge it creates over UK, property at Companies House. However, companies registered overseas which have a place of establishment in the UK are still required to maintain a register of their charges at a UK location.
Registration of release of a Charge
There is no statutory requirement for a company to inform Companies House that:
- the debt secured by a registered charge has been satisfied in whole or part
- a registered charge has been fully or partly released or
- the charged property no longer belongs to the company
However, it is normally in the company's own interests to keep the Companies House charges register up to date. If a company wants to have these events noted on the register, it must notify Companies House by delivering the prescribed form of release particulars.
There is no requirement that the company itself makes these statements and delivers these particulars. A charge holder can also do so.
The Regulations only apply to charges created on or after 6 April 2013.
Any charges created before this date (even if registered after) must be registered in accordance with the previous provisions, by paper-filing Form MG01 with the original charge document.
The new provisions relating to entries of satisfaction and release, variations in ranking, or notifications of negative pledges will apply to all registrations made on or after 6 April 2013, irrespective of date of creation of the applicable charge.
|What changes||What stays the same|
|All charges are registrable (subject to listed exceptions)||Scheme only applies to UK-registered companies|
|Single UK wide scheme for registration||Dual registration at Companies House and in the appropriate specialist register|
|Criminal sanctions abolished||Commercial sanctions retained|
|Charge particulars (Form MR01)||21-day time limit for registration (with the sole exception for particulars of a property acquired subject to a charge)|
|Filing can now be done electronically||The company creating the charge or any person interested in the charge are entitled to register it|
|(Redacted) certified copy to be filed instead of original document||Requirement to keep copy of document creating charge at registered office and permit inspection|
|Requirement for a company to keep register of charges at its registered office||Requirement for overseas companies to keep register of charges at UK location|
|Unique Reference Code (URC) allocated to charge to enable/ease tracking||Voluntary registration of release of a charge|
|Certified copy of the charge document can be obtained/ downloaded from Companies House|
19 April 2013
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This publication is not intended to provide a comprehensive statement of the law and does not constitute legal advice and should not be considered as such. It is intended to highlight some issues current at the date of its preparation. Specific advice should always be taken in order to take account of individual circumstances and no person reading this article is regarded as a client of this firm in respect of any of its contents.
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