Informing the registrar about the satisfaction, or part satisfaction of a charge is in the best interests of the charger (company over whom the charge is registered). This is of increased importance as there is no statutory requirement for a security provider to inform Companies House of any of the following:
- that the debt secured by a registered charge or mortgage has been satisfied in whole or part
- that a registered charge or mortgage has been fully or partly released or
- that the property that was charged or mortgaged no longer belongs to the security provider
As a result, it is in the best interests of the chargor to inform third parties, such as potential investors and lenders, by ensuring their charges register is up to date at Companies House once these events have occurred. If a chargor wants a statement of satisfaction or release to be included on the register at Companies House, then it must make one of the following statements to the Registrar:
- MR04: to show that the debt secured by the charge has been paid or satisfied in whole or in part or
- MR05: to show that all or part (including a short description of that part) of the property or undertaking charged has
- been released from the charge or
- ceased to form part of the company’s property and undertaking
Deed of Releases
You do not need a deed of release from the lender to file an MR04 form or MR05 form (unlike when you register security where it is necessary to provide a certified copy of the written instrument of charge).
There are rare circumstances where an MR04 form or MR05 form can be filed without obtaining a deed of release first. The following are examples of where a deed of release might not be necessary:
- If the security is a legal mortgage over real estate granted by a company that has previously been registered both at the Land Registry as well as Companies House. If the mortgagee signs a DS1 or sends an END for filing at the Land Registry to acknowledge that the mortgage has been repaid, you may conclude that a separate deed of release is not necessary to file a MR04 form at Companies House – as long as the charge relates solely to that property.
- The debt for which the security was granted may have been discharged a long time ago but without obtaining a formal release of the related security at the time from the security holder. Under these circumstances, the security may represent a historic charge, and obtaining a deed of release now may prove difficult, especially where the security holder no longer exists. In this instance a director or other officer of the chargor may be willing to give the confirmation that the debt for the charge has been paid or satisfied in full, even though no formal deed of release was ever obtained. By carrying out due diligence relating to the charge and contacting the lender to enquire as to whether the security has been released therefore, Companies House can be notified.
However, if you file a MR04 form or MR05 form in circumstances where the debt for which the charge was granted has not been paid or satisfied in part or in full, this will later cause an issue with the lender. Where an asset that is currently charged under a security deed is to be sold, in light of the potential risk associated with incorrectly releasing security, a deed of release is often required. This is because MR04 and MR05 forms do not generate the release of security – they simply record the satisfaction of the secured debt or the release of assets and the lender is likely to want the security to be re-filed at Companies House with its priority retained which will require a court order, which is a route that the charger would not wish to go down.
As a result of the potential risks associated with incorrectly releasing security, a deed of release is often required to affect the transfer of an asset which was subject to security. Lenders frequently require the proceeds of such a disposal to be used in partial or full payment of the loan. In these circumstances, a deed of release is often executed in advance and held by the solicitors acting for the lender to be held to the lender’s order pending completion. Once the transaction documents are all agreed and the parties are ready for completion, the deed of release will usually be completed contemporaneously with the transfer of the assets and the receipt of the disposal proceeds and subsequent repayment to the lender.