What? Overseas companies with a registered UK establishment will no longer be required to submit details of security they create over assets in the UK for registration with Companies House.
So What? Over the medium to long term this will involve significant changes to the way we find out what security has previously been granted by an overseas company. The process is likely to become more cumbersome, time consuming and expensive.
When? From 1 October 2011.
From 1 October 2011, overseas companies with a registered UK establishment will no longer be required to submit details of security they create over assets in the UK for registration with Companies House. Form OSMG01 will therefore become obsolete. Instead, such companies are required to maintain an in-house register of certain security interests they create (over land, IP, ships, aircraft and any floating charges) and to make details of the contents of such registers available for inspection.
What’s new? From 1 October 2011, overseas companies with a registered UK establishment will no longer have to register charges they create over assets in the UK at Companies House. The relevant regulations are The Overseas Companies (Execution of Documents and Registration of Charges) (Amendment) Regulations 2011. In this note the new regulations are referred to as the “Amending Regulations” and the original 2009 regulations as the “2009 Regulations”.
So what do I do now?
Where a transaction involves the execution (on or after 1 October 2011) of security by an overseas company over assets located in the UK, there is no longer a need to complete a form OSMG01 and submit the document to Companies House.
This change will also remove any argument about the need for “son-of-Slavenburg” applications – i.e. submitting documents even where a search of Companies House records reveals no UK registered establishment. Some have continued to submit applications in these circumstances, although the benefit of such action has never been clear.
Impact on facility agreements and legal opinions
With effect from 1 October 2011, you should include in your facility agreements:
- a representation that the charges register of the company is up to date and that the company has disclosed to the bank the existence of any other security not required to be entered into the register;
- as a new condition precedent, a director’s certificate that the charges register maintained by the company is complete and up to date and that the company has disclosed to the bank the existence of any other security not required to be entered into the register; and
- a condition subsequent that the company will, promptly and within no less than 14 days following completion, provide the bank with a copy of the charges register showing the bank’s security duly entered within. You may also want to make it an event of default if the condition subsequent is not fulfilled.
How do I find out what security has been granted by an overseas company over its UK assets?
The following searches are possible:
- Companies House search against registered UK establishment will reveal any security granted prior to 1 October 2011;
- Search of register maintained by charger under reg. 24 of the 2009 Regulations will reveal security over land, ships, aircraft, IP rights and certain floating charges (see further below);
- Land Registry search against title number will reveal any fixed charges;
- Search against various IP registries will reveal certain IP rights subject to existing security; and
- Search (by asset number) of aircraft and ship mortgage registers will reveal security over relevant asset.
The Company’s register of charges
Under regulation 24 of the 2009 Regulations, an overseas company with a registered UK establishment is required to maintain a register of certain charges and to make the register, together with copies of the relevant charging instruments, available for public inspection at a location in the UK. This obligation has been slightly tweaked by the Amending Regulations and will take on greatly increased significance.
Overseas companies with a UK registered establishment must maintain a register of:
- any charges over land situated in the UK or any interest in such land;
- any charges over ships, aircraft or IP rights registered in the UK; and
- any floating charges (but not floating charges which expressly exclude all assets of the charger situated in the UK or which purport to be a fixed charge).
Other charges (e.g. fixed charge over assets other than land, ships, aircraft or IP rights) are not required to be recorded in the register.
The overseas company must enter details of the relevant charge in the register within 21 days of its creation. It must also notify the registrar of the location of the register and any relevant documents within 21 days of the first entry in the register.
Note that there is no “invalidity sanction” for failure to enter details in the register – the company and its directors commit an offence but the validity of un-recorded security is not affected. Failure to register will of course adversely affect future lenders who may then be unaware of security granted to earlier creditors which will take priority.
Searching the mortgages and charges register of an overseas company
It will be possible to search the mortgages and charges register of an overseas company by following the procedure specified in the 2009 Regulations:
- 10 business days’ notice must be given; and
- the search must be conducted between 9am and 5pm (UK time) on a UK business day.
The requirement for 10 business days’ notice may cause difficulties on urgent transactions.
However, the Amending Regulations make provision for “electronic” searching of the register where both parties agree. No details are provided as to how a search “by electronic means” can be carried out. Presumably a person can email the company and ask for a copy of the register together with copies of the relevant instruments to be returned by email.
Creditors and shareholders may search the register for free. All other persons must pay an hourly search fee of £3.50.
Failure to make the register available for inspection constitutes an offence punishable by a fine. A court order may be sought to allow immediate inspection where a company refuses a request for inspection.
Clearly, there is potential for the search process to be significantly more complex and time consuming than at present under the Companies House system.
Due diligence now more essential
The Companies House register was very useful in revealing security granted by overseas companies. The invalidity sanction meant that lenders were very careful to register their security. The registers maintained by overseas companies may not be so comprehensive and lenders are unlikely to be able to take as much comfort from searching these registers as from searching the records maintained by Companies House.
As a consequence, more detailed due diligence, particularly around IP assets, is likely to be required and this may make borrowing by overseas borrowers more expensive as they will need to pay more in terms of lenders’ legal fees etc.
Satisfaction/release of security
The Amending Regulations remove the mechanism for filing forms OSMG02/OSMG04 regarding the release/satisfaction of charges granted by overseas companies. Companies House has confirmed that it will continue to accept these forms in respect of charges granted before 1 October 2011. Where debt has been repaid or security released, the overseas company is likely to want to have its public record updated to reflect this.
More information can be obtained from the Companies House website (Click here).