Charlotte Curtis discusses whether the new rules for registration of security granted by overseas companies, which came into force last October, leave security holders in a more unsatisfactory position than they were in under the unpopular Slavenburg regime.
It is of paramount importance to security holders to determine whether their security is registrable. Security which is registrable under the Companies Acts but not presented for registration will be void under English law on the insolvency of the security providing company and against the company’s other creditors (unless other legislation disapplies the requirement to register).
Under the Companies Act 1985, security granted by an overseas company over English property was registrable if the overseas company had an English “place of business”. In Slavenburg’s Bank N.V. v. International Natural Resources Ltd1 the courts gave a wide interpretation to this term. As a result, and to avoid the need to analyse whether or not a company had established an English place of business, it became standard practice to present for registration security created by all overseas companies over present or future property in England and Wales. The Registrar would enter the documents received from unregistered overseas companies on the so-called Slavenburg register. The Registrar would then return the documents to the sender with a standard form of letter as proof of delivery and compliance with the registration requirements of the relevant Companies Act. The sole purpose of the Slavenburg register was to ensure the security was not invalid.
The Companies Act 2006 and its associated secondary legislation brought in new rules from 1 October 2009. Under the new rules, security which an overseas company grants must be registered at Companies House within 21 days if (and only if):
- it is of a registrable type;
- it is over property “situated” in the United Kingdom on the date the security is given; and
- at the date it grants the security, the overseas company has registered a UK establishment at Companies House and the particulars of registration are “available for public inspection”.
Limbs (a) and (b) broadly follow the rules under the 1985 Act. But limb (c) is new, and was included to kill off the Slavenburg register and Slavenburg filings. Its aim was to clarify exactly which overseas companies were bound by the rules. But does it give security holders the certainty they need?
In theory, to check satisfaction of limb (c), a security holder should be able simply to check the online Companies House register. If on the date the overseas company grants the security it has not registered a UK establishment there is no need to file.
In practice, though, searching the Companies House register for a registered UK establishment is not always conclusive. An overseas company can carry on business in the UK under a trading name different from the name under which it is incorporated. When it registers a UK establishment, it can choose to register under the trading name. A search of the Companies House register under the name of an overseas company would reveal the existence of any UK establishment registered under that name. However, it would not reveal the existence of a UK establishment registered under the trading name. You may not always be able to search under the trading name, because you may not know it.
A related problem could arise if an overseas company is from a jurisdiction which uses a script other than Roman. How will a lender know how the company transcribed its name (or the name of its UK establishment) into the Roman alphabet in the registration documents?
With no quick technical or legislative fix on the horizon, law firms considered resurrecting Slavenburg registrations. After all, the requirement of the legislation is not to register security, but simply to deliver prescribed particulars of the security, so would it matter if Companies House rejected the registration attempts? Most practitioners opted not to carry out such registrations as a matter of course. There is no guarantee such a registration would in fact protect the security if an overseas company had actually registered a UK establishment under a different name at the time it granted the security. Under the Companies Act 2006, the different name would be the company’s name “for all purposes” under UK law. Arguably, therefore, a registration under the name by which the company was incorporated would not have been made in the correct name.
Being pragmatic, the risk of an overseas company having registered a UK establishment under a different name from its own, which the security holder does not know about, seems low.
Consequently most security holders and their representatives are trying to address the risks via safeguards in the transaction documents, for example:
(a) a representation from each overseas obligor that it has not registered any UK establishment (other than as disclosed to the facility agent) in the facility agreement; and
(b) as a condition precedent to first funding, an officer’s certificate from each overseas obligor confirming the statement made in the above representation.
This approach is not without risk: it would not help a security holder dealing with a dishonest or disorganised borrower group. However, until Companies House or the legislators grapple with the current problems, it probably represents a proportionate solution.