For lawyers dealing regularly with commercial secured lending, the requirement to register company fixed and floating charges has long been fraught with tension. It is a commercial necessity for charges over a company's assets to be registered in a publicly available register. Prospective creditors need to be able to establish how far the company's assets have been secured and are available to meet its commitments. Failure to register will result in the charge being invalid against any liquidator, administrator or creditor of the company if the company becomes insolvent. But deadlines for registration and the requirement for dual registration in the case of fixed charges impose an administrative burden that many have regarded as unnecessarily complicated. Now, a combination of proposals in the Companies Act 2006 and the Bankruptcy and Diligence (Scotland) Act 2007 should bring relief to solicitors dealing with the registration of fixed and floating charges in Scotland, and with the recent publication by the former Department of Trade and Industry of a consultative document on Registration of Scottish Floating Charges, the prospect of a simpler system moves closer.
Fixed or floating?
Companies can create fixed and floating charges both north and south of the border. In Scotland, a fixed charge over heritable property is constituted by a standard security which must be registered in one of the Property Registers (either the Sasine Register or the Land Register of Scotland), the date of such registration being the date of creation of the charge. Dual registration of standard securities has long been regarded as something of an anomaly. The Property Registers are public registers also, and so publication of fixed charges has already taken place.
A Floating Charge generally applies to the company's whole property and undertaking, the constitution of which will vary from time to time, and includes moveables. In Scotland the floating charge is created on the date on which it is signed, and in both cases registration in the Company's Charges Register is required within 21 days of the date of creation.
New Register of Floating Charges
The 2007 Act provides for the setting up of a new Scottish Register of Floating Charges, to be kept by the Keeper of the Registers of Scotland - not by the Registrar of Companies - and once the relevant provisions are in force, a floating charge will be created in Scotland by registration in this new Register. When this Register comes into being, all Scottish floating charges will require to be registered in it, and the date of creation of the floating charge will therefore become the date of registration, not the date of execution. There is also provision for advance notice of a floating charge to be lodged in the Register of Floating Charges, and provided the floating charge is itself registered within 21 days of the advance notice, then the effective date of registration of the charge will be the registration date of the advance notice.
At first sight therefore, it looks as though the dual registration issue just got worse, not better, since floating charges still need to be registered in the Company's Charges register under the provisions of the 2006 Act. It would be counter-productive if the introduction of the Register of Floating Charges were to mean that double registration would be required for floating charges as well as fixed charges.
The interplay between the 2006 and 2007 Acts
Enter the cavalry in the form of Section 893 of the 2006 Companies Act, which allows orders to be made dispensing with double registration. An order can be made which will provide that a charge granted by a company which is registered in a "special register" will not have to be separately registered in the Companies Register. Whoever keeps that special register will send details of the charge to the Registrar of Companies direct, who will then make that information available through the Companies Register.
The key criterion for becoming a special register for this purpose is that there are adequate information sharing arrangements between the special register and the Companies Register, and an order under Section 893 will not be made unless the Secretary of State is satisfied that information sharing arrangements exist. One of the critical components of this is ensuring that the identity of the company can be verified correctly. This involves ensuring that the company name and number correctly match.
The consultative document from the DTI is concerned with the issues surrounding making the Register of Floating Charges a special register, and ensuring that the position is clear from inspection of the registers. Assuming the proposals meet with approval, then the arrangements for creation of the Register of Floating Charges are likely to be activated to coincide with a section 893 order dispensing with the double registration requirement for that Register. As a result, a floating charge will only have to be registered once, in the new Register of Floating Charges.
It seems likely that the Scottish Land Register and Sasine Register will also be able to become special registers in due course. There would also need to be a section 893 order in relation to the Land and Sasine Registers, so that standard securities granted by companies would no longer have to be doubly registered. On registration in the Register of Floating Charges - or in the Land or Sasine Register when applicable - the Keeper will automatically transmit the details to the Registrar of Companies, so that the information will still appear in the Companies Register – solicitors won't have to do this any more.
What about Floating charges by English companies?
At present, when an English company grants a floating charge, the charge will apply to assets belonging to the company which are located in Scotland, without any necessity to register separately in the Scottish Charges Register, provided of course that the charge has been registered in England & Wales. This position will be altered by the 2007 Act, with the result that for such a floating charge to fully effective against the Scottish assets, it will have to be registered in the Scottish Register of Floating Charges. Obviously there will be no point in registering an English floating charge in the Scottish Register if the company has no Scottish assets and is unlikely to acquire any. However, if the company subsequently acquires Scottish assets, registration in the Register of Floating Charges in Scotland can simply be done at that time. This is an important point for English companies to bear in mind, as it is something that could easily be overlooked.