On 12 March 2010, the Department for Business Innovation and Skills (BIS) issued a consultation paper on the registration of charges created by companies and limited liability partnerships (LLPs).
The current scheme
Under English law, companies are able to use any or all of their assets as security for loans. This involves the creation of a charge over the company’s assets. The current scheme for the registration of company charges is set out in Part 25 of the Companies Act 2006 (CA 2006). It is the same as that provided by Part 12 of the Companies Act 1985 and is essentially the same as that first introduced by the Companies Act 1900. The main purpose of the current scheme is to make public whether a company has used certain assets to secure borrowing.
The current scheme has been criticised, particularly because the list of registrable charges has not been revised in line with changes in law and commercial practice, the particulars on the public record for a charge may not be an accurate reflection of the charge created and the procedures for registration are cumbersome.
Since 1952, there have been several reports recommending that the current registration scheme be replaced by a notice-filing scheme, most recently those from the Company Law Review (CLR) and the Law Commission. Under this system what is filed is a notice that indicates that the chargee has taken or intends to take security over the specified assets. Notice filing is now used throughout the United States, Canada and New Zealand. Under notice-filing schemes, the relative priority of registered charges is determined by their dates of registration.
Changes to the current scheme
The CA 2006 provides the Secretary of State with the power to alter, add or repeal the provisions relating to the registration of charges. However, BIS is of the view is that this does not provide the power to determine the relative priority of registered charges. Therefore it is not possible to use this power to introduce a notice-filing system or otherwise provide for priority rules. However, it is possible to use this power to address some of the inefficiencies of the current scheme. As a result, Chapter 6 of consultation document sets out proposals to revise the current scheme. These proposals include the following:
Requirement to register certain charges
- Should the same rules on registration apply to all UK companies (including companies registered in Scotland)?
- What charges should be registrable - rather than having a list of charges to be registered, should all charges created by a UK company be registrable unless specifically excluded?
- Should the 21-day time limit for registration of charges be abolished? If so, are any safeguards needed?
Procedures for registering a charge
- The consultation document considers the particulars to be provided on registration and the conclusive evidence provided by the certificate on registration issued by Companies House.
- It also suggests electronic registration of charges and in this context asks whether the time limit for registration should be reduced to 14 days.
Public access to information about a company’s charges
- BIS proposes that the requirement for Companies House to maintain a “Register of Charges” for each company should be revised so that the particulars entered are the filed particulars of each charge.
- BIS suggests that the requirement for a company to maintain a register of all the charges it has created should be abolished.
Wider application of requirements
- The consultation paper considers whether unregistered companies should have to comply with the registration of charges requirements and it also considers their application to overseas companies that have registered a UK establishment.
- BIS proposes that LLPs should be subject to the same rules relating to the registration of charges as apply to UK companies.
The CA 2006 also provides power to make provision so that a charge registered in a specialist register is treated as if it had been registered at Companies House. The consultation document considers this, particularly whether registration of a charge over land at the Land Registry can be treated as registration of that charge at Companies House.
Responses to the consultation document are required by 18 June 2010.