New company charges regime

Submitted by Andy Hamer on Thu, 04/18/2013 - 15:04

The Companies Act regime for the registration of company charges was reformed with effect from 6 April 2013 by the Companies Act 2006 (Amendment of Part 25) Regulations 2013 (SI 2013/600). The changes described below also apply to LLPs by virtue of SI 2013/618. The principal effect of the reforms is:

  • to introduce a single regime for the registration of charges that applies to all UK companies and LLPs, including those registered in Scotland;
  • to enable charges to be registered electronically – a new set of Companies House forms has been prescribed with different designations and numbers for both companies and LLPs (e.g. MG01 has become MR01). Charge instruments and some of the new forms can be filed electronically;
  • to abolish the requirement for companies to make entries in their own register of charges and to make it available for inspection, but only in relation to charges created on or after 6 April 2013;
  • to introduce various other changes which affect what charges can be registered and how.

The reforms have been effected by inserting a new chapter at the beginning of Part 25 containing 17 new sections (ss. 859A to 859Q). New Chapter A1 applies to charges created on or after 6 April 2013 throughout the UK, including Scotland. Although the original company charges regime set out in Part 25, Chapter 1 (for companies registered in England and Wales or in Northern Ireland) and Part 25, Chapter 2 (for companies registered in Scotland) has been repealed, it still applies for the purposes of determining whether a charge created before 6 April 2013 is properly registered and valid as security.

Only three sections of the new regime in Chapter A1 apply to charges created before 6 April 2013:

  • s. 859K (registration of enforcement of security);
  • s. 859L (entries of satisfaction and release); and
  • s. 859O (notification of addition to or amendment of charge).

All three sections relate to matters that can be notified in relation to a charge that has already been registered at Companies House, rather than the initial registration process itself. One of the consequences of this is that the new Companies House forms relating to the satisfaction, release, variation and enforcement of a charge can also be used for charges created before 6 April 2013.

New registration regime
Under the new regime in Part 25, Chapter A1, it is not strictly necessary for anybody to register a company charge at Companies House. Under the previous regime it was an offence for a company not to do so. However this is no longer the case for charges created on or after 6 April 2013. The new regime relies on the fact that the person who take the benefit of a charge will want to register to ensure that it is effective as security.

As under the previous regime, a charge can be submitted for registration either by the company or by a person who is interested in the charge (e.g. the charge holder). In practice it will normally be the charge holder who does so. Charges created by the company must still be registered within 21 days of creation, although the court can extend this period.

As long as the prescribed particulars and documents have been delivered to the registrar within the relevant period, the registrar is required to register any charge submitted for registration unless it is:

  1. a charge in favour of a landlord on a cash deposit given as a security in connection with the lease of land;
  2. a charge created by a member of Lloyd’s (within the meaning of the Lloyd’s Act 1982(3)) to secure its obligations in connection with its underwriting business at Lloyd’s;
  3. a charge excluded from the application of s. 859A by or under any other Act.

    4. The validity of a charge that is not capable of registration at Companies House, clearly will not depend on it being registered. However, a charge created by a company that can be registered will be void (so far as any security on the company’s property or undertaking is conferred by it) against any liquidator, administrator or creditor of the company if it is not registered within 21 days or such later period as the court may direct (s. 859H)).

    The fact that a charge is void for lack of registration does not affect the underlying contract or obligation for repayment of the money secured by the charge, although that money automatically becomes repayable from the moment the charge becomes void (s. 859H(4)).

    Although the court has jurisdiction to extend the period allowed for registration (s. 859F), it will normally impose conditions to prevent any prejudice to rights acquired by other charge holders between the date of creation of the charge and the date of its actual registration.

    The civil consequences of non-registration are essentially the same as they were under the previous regime. However, the categories of charges that were registrable and therefore subject to the penalty for non-registration were more closely prescribed under the previous regime. All charges created by a company are now capable of registration, subject to the exceptions mentioned above. Accordingly, the penalty for non-registration potentially applies to a wider range of charges, including some that may not have been registrable under the former regime.

    The penalty for non-registration in s. 859H only applies to charges ‘created’ by a company, i.e. charges that are registrable under s. 859A and s. 859B. Charges which arise by operation of law (such as a solicitor’s lien) are not created by the company, and so are not registrable and not subject to the statutory penalty for non-registration. The same is also the case in respect of a charging order over the land of a company in favour of a judgment creditor.

    Special provision is made in s. 859C to enable the fact that a company has acquired property subject to a pre-existing charge to be registered, i.e. a charge that has not been ‘created’ by the company. Under the previous regime it was necessary to register such a charge within 21 days of the acquisition of the property or undertaking. Although it is still possible to register such a charge under the new regime, it is not necessary to do so. In addition, there is no deadline for registration, and failure to register does not automatically render the charge void because the penalty for non-registration in s. 859H does not apply to charges registered under s. 859C. Although there is no statutory penalty for non-registration of such a charge, the charge holder would normally want to register it in order to notify its existence to subsequent charge holders and thereby maximise the chances that it will take priority over them.

    Registration procedure
    In order to register a charge it is necessary to file certain particulars on the appropriate form and to submit a certified copy of the charge instrument (if any).

    Under the previous regime different forms in the MG series were prescribed for the registration of charges relating to Scottish companies. The same forms in the new MR series can now be used to register charges created on or after 6 April 2013 by any UK company (including a Scottish company). The relevant forms for registration are:

    MR01 - registration of a charge created by the company where there is a charge instrument;
    MR08 - registration of a charge created by the company where there is no charge instrument;
    MR03 - registration of a charge to secure a series of debentures where there is a charge instrument;
    MR10 - registration of a charge to secure a series of debentures where there is no charge instrument;
    MR02 - registration of the fact that the company has acquired property or undertaking that is subject to a pre-existing charge;
    MR09 - registration of the fact that the company has acquired property or undertaking that is subject to a pre-existing charge where there is no instrument.

Forms MR01 and MR02 can be filed electronically together with a PDF copy of the charge instruments, which must be no bigger than 10MB. It is no longer necessary to submit the original charge instrument. A fee of £13 is payable to Companies House for charges registered in paper form, reduced to £10 if the relevant documents are filed electronically. Copies of any charge instruments submitted for registration with the new forms are now made available for public inspection at Companies House in the form in which they are submitted. The copy that is submitted can be redacted to remove:

  • personal information other than an individual’s name;
  • the number or other identifier of a bank or securities’ account of a company or individual (s. 859G).

The particulars that must be provided on each form vary slightly. On form MR01 in relation to a charge evidenced by an instrument, the particulars include:

  1. the registered name and number of the company;
  2. the date of creation of the charge;
  3. the names of the persons in whose favour the charge has been created (if there are more than four, only four names need be given together with a statement that there are others);
  4. whether the charge is expressed to be a floating charge and, if so, whether it is expressed to cover all the property and undertaking of the company;
  5. whether any of the terms of the charge prohibit or restrict the company from creating any further security that will rank equally with or ahead of the charge;
  6. whether (and if so, a short description of) any land, ship, aircraft or intellectual property that is registered or required to be registered in the United Kingdom is subject to a charge (which is not a floating charge) or fixed security included in the instrument; and
  7. whether the instrument includes a charge (which is not a floating charge) or fixed security over (i) any other tangible or corporeal property, or (ii) any other intangible or incorporeal property.

The required particulars are intended to make searching the register easier and direct searchers to any other relevant UK register where information relating to the charge may be held. The Registrar also allocates a unique reference code (URC) to each charge registered under the new regime to enable those searching the register to track charges more easily. Any subsequent filing (e.g. a statement of satisfaction) made in connection with a charge which has a URC is required to quote that URC.

Presenters will still be issued with a certificate of registration, but only on the registration of a charge created by a company, not a charge on property acquired. The certificate is conclusive evidence of the fact that the relevant documents were delivered to the registrar before the end of the relevant period allowed for delivery (s. 859I). It is no longer necessary for the certificate of registration to be ‘endorsed’ on the face of every secured debenture.

Provision is made for a company which is holding property as a trustee to have this noted on the register (s. 859J) by submitting form MR06.

Satisfaction, release, variation etc
The following rules and forms relate to matters that can (or must) be notified after a charge has been registered. They apply to charges registered under the new regime and the former regime, i.e. irrespective of the date the charge was created. The relevant forms are:

    MR04 – Statement of satisfaction in full or in part of a charge;
    MR05 – Statement that part or the whole of the property charged (a) has been released from the charge (b) no longer forms part of the company’s property;
    MR07 – Particulars of alteration of a charge (Particulars of a negative pledge);
    RM01 – Notice of appointment of administrative receiver, receiver or manager;
    RM02 – Notice of Ceasing to act as administrative receiver, receiver or manager.

Only forms MR04 (satisfaction) and MR05 (release) can be filed electronically. The registrar is required to register a statement of satisfaction or release delivered in accordance with s. 859L. Unfortunately, s. 859L does not state explicitly who may submit such a statement. It requires the statement to include the name and address of the person who delivers it, together with an indication of their interest in the charge. The assumption must therefore be that it must be delivered by a person who has an interest in the charge, whether that be the company or the charge holder.

Form MR04 will most commonly be used to notify the satisfaction in full of the debt secured by a charge, which will cause the charge to expire if it is no longer possible for any further secured payment obligations to arise under it. However, it can also be used to notify the part satisfaction of the debt secured. It should be noted that for charges created on or after 6 April 2013 it is no longer necessary for the initial registration particulars to specify the amount secured by the charge except where there is no charge instrument, in which case the obligations secured by the charge must be specified on the relevant form. If there is a charge instrument, this information will be apparent from the charge instrument. However, charge instruments often use the phrase ‘all monies due’, in which case, a statement of part satisfaction would not normally be necessary.

A charge will also expire if the whole of the charged property is released from the charge. This can sometimes happen even though the debt has not yet been repaid in full. If a charge expires in this way, form MR05 should be used. The form is more commonly used to notify the fact that part of the previously charged property has been released from the charge or the fact that certain property no longer forms part of the company’s property or undertaking. Generally speaking, a company would need the permission of the lender to dispose of assets subject to a fixed charge or mortgage but not those subject only to a floating charge.

A statement of part release or part satisfaction is effectively a notification of the variation in the scope of a charge. Provision is also made in s. 589O to enable other types of variation to be notified on form MR07 by the company, the charge holder, or a person who is interested in another charge to which it relates. Such variations will usually take the form of a negative pledge which may prohibit or restrict the creation of any fixed security or charge having priority over the charge.

A person who appoints or obtains an order for the appointment of a receiver or manager to enforce a charge over a company’s property must notify that fact (and any cessation of appointment) within seven days (s. 859K). Forms RM01 and RM02 should be used for these purposes, but only for companies registered in England and Wales or in Northern Ireland.

Register of charges
Prior to 6 April 2013, every limited company was required enter details of all charges affecting the company’s property or undertaking in a register of charges kept for these purposes by the company. The requirement to make entries in such a register has been abolished for charges created on or after 6 April 2013. However, the requirement to maintain the register and make it available for inspection remains in relation to charges created before 6 April 2013.

Generally speaking, a company incorporated on or after 6 April 2013 will not need to keep a register of charges as it will not have been capable of creating a charge before this date, although it is possible that it could acquire property that is subject to a charge created before that date.

A company that was incorporated before 6 April 2013 will still need to maintain a register of charges and make it available for inspection, although that register may be empty if the company did not create any charges before 6 April 2013.

The fact that a company is no longer required to make entries in a register of charges for the purposes of inspection does not necessarily mean that it should keep no record of such charges. It will still be necessary for a company to keep some record of the charges affecting its property in order to monitor whether there are any outstanding charges and whether it is necessary to file a form of satisfaction, release or variation. Any records that a company keeps for these purposes in relation to charges created on or after 6 April 2013 will not be subject to public inspection, even if they are described as a register or entered in the original register of charges.

Charge instruments
Companies must still make charge instruments available for inspection under the new regime even though they will be available for inspection at Companies House. Charge instruments relating to charges created before 6 April 2013 must also be made available for inspection.

The rules relating to what has to be made available for inspection, and how, differ depending on whether the charge was created before 6 April 2013, in which case Part 25, Chapters 1 and 2 apply, or on or after that date, in which case Part 25, Chapter A1 applies.

For charges created before 6 April 2013, every company (whether or not limited) must still make the following records available for inspection:

  • a copy of the instrument creating or evidencing the charge if the charge was registrable at Companies House under Part 25, Chapters 1 and 2 of the Act, although in the case of a charge contained in a series of uniform debentures, a copy of one of the debentures of the series is sufficient for these purposes;
  • any document delivered to the company under s. 868(3)(b) (Northern Ireland: orders imposing charges affecting land) (s. 875 (s. 890 Scotland)).

The rules on inspection in Part 25, Chapters 1 and 2 still apply to charges created before 6 April 2013.

For charges created on or after 6 April 2013, every company (whether or not limited) must make the following records available for inspection:

  • a copy of every instrument creating a charge capable of registration under Part 25, Chapter A1 (although, a copy of one of the debentures of in a series is sufficient for these purposes); and
  • a copy of every instrument effecting any variation or amendment of such a charge (s. 859P).

The following rules only apply to charges created on or after 6 April 2013:

  • If any of the particulars that have to be filed at Companies House or the particulars of the property or undertaking charged are not contained in the instrument creating the charge, but are instead contained in other documents which are referred to in or otherwise incorporated into the instrument, then the company must also make those other documents available for inspection (s. 859P(3)).
  • Copies of instruments creating a charge can be kept in the same form that they were delivered to the registrar under s. 859A, s. 859B or s. 859C (s. 859P(4)).
  • Where a translation has been delivered to the registrar in accordance with s. 1105, a copy of the translation must be made available for inspection (s. 859P(5)).
  • Where the company and a person wishing to carry out an inspection agree, the inspection may be carried out by electronic means (s. 859Q(8)).

Common rules on inspection
All records required to be made available for inspection (including any register of charges, charge instruments and other related documents) must be made available for inspection either at the company’s registered office or its SAIL. The location at which any documents are made available for inspection, and any change to that location, must be notified to Companies House (on form AD02, AD03 or AD04), unless at all times the documents have been made available for inspection at the company’s registered office.

The records must be open to the inspection of any member or creditor of the company without charge and of any other person on payment of a fee. There is no right to request a copy of any record. It is an offence not to comply with an inspection request within 14 days. If an inspection is refused, the court may order an immediate inspection.
The records must be made available for inspection at certain specified times in accordance with rules set out in the Companies (Company Records) Regulations 2008 (SI 2008/3006), which differ for public and private companies. A person wishing to inspect the records of a private company must give the company prior notice.