The current scheme for registering company charges, including mortgages, has been with us, largely unchanged, for more than 100 years and is arguably out of date, slow and unclear. Following numerous reports and consultations, the Department for Business, Innovation and Skills (BIS) published draft regulations in August 2012 - The Companies Act 2006 (Amendment of Part 25) Regulations 2012 and the Limited Liability Partnerships (Application of Companies Act 2006) (Amendment) Regulations 2012 (the Regulations).
BIS estimates that ‘these reforms, taken together, could save those presenting charges around £22m per annum’. What are the key changes leading to such cost savings?
Single UK-wide registration system
There will be a single registration scheme for charges created by UK companies and LLPs irrespective of their place of incorporation (including Scotland, although some provisions do not apply to Scottish companies/LLPs).
All charges to be registered unless exempt
Presently, only security listed in section 860(7) of the Companies Act 2006 (the 2006 Act) requires registration. That section is open to interpretation and where there is any doubt most security is registered in order to avoid criminal sanctions and invalid security. Going forward, all charges will be registrable unless exempt. This should lead to more clarity and reduce the need for legal advice on whether or not to file.
Registrable charges are defined in new section 859A(7) of the 2006 Act and include a mortgage, a standard security, an assignation of security and a series of debentures.
No need to register charges in rent deposit deeds
Only the following four types of charges will be excluded from registration; all other charges will be registrable, including those arising by operation of law which do not fall within one of the exceptions:
Charges in rent deposit deeds will still be effective security but will not be recorded in a public register. A search at Companies House will no longer reveal charged rent deposits created after the Regulations come into force. In order to protect themselves against a tenant's insolvency practitioner being unaware of a charged rent deposit account, landlords are more likely to insist on having the rent deposit account in their name and under their control.
Removal of criminal sanctions
The existing mandatory registration regime is replaced by registration at a company's discretion. While criminal sanctions for non-registration are removed, there will remain a commercial incentive to register. Registrable charges will continue to be invalid against a liquidator, administrator or creditor of the security provider if not registered within the 21-day time period.
21-day registration period unchanged
Although the Law Commission recommended removal of the 21-day registration period, this has been retained. Charges still need to be registered within a 21-day period beginning with the day after the ‘date of creation’ of the charge. Helpfully, the Regulations clarify when that date occurs.
Full text of the charge to be filed
In order to increase transparency, a certified copy of the entire security document and brief particulars will need to be filed instead of the current Form MG01 and original charge document. ‘Personal information’ (undefined) contained in the security document will be capable of redaction but the Regulations do not provide for commercially sensitive information to be omitted. Companies wanting to keep commercially sensitive information out of the public domain will need to consider whether such information can be incorporated into another document which does not require registration.
Guidance from Companies House or BIS giving further detail as to the practicalities of registration (and the electronic filing regime that is to be introduced) is awaited.
Unique reference code
Each charge will be allocated a unique reference code on registration which will be specified in the registration certificate and should enable those searching the register to track more easily whether a charge has been fully or partially satisfied.
Companies do not need to keep their own registers of charges
UK companies or LLPs will no longer need to maintain a register of charges. Copies of the full instruments creating or evidencing the charge (including amending instruments) will, however, need to be kept and made available for inspection. Non-compliance will result in criminal sanctions that could be imposed on the company and every company officer in default.
Overseas companies are treated differently to UK companies and they will need to continue to maintain their own register of charges.
The following amendments have also been made:
As at 8 January 2013, the Regulations had not been laid before Parliament (but this is expected imminently) and it is unclear whether they will be amended. Once enacted, the Regulations are likely to come into force on 6 April 2013. Those involved with company charges will, therefore, only have a short period of time in which to familiarise themselves with the new regime.
This article was published in Estates Gazette in January 2013.