Charges changing

Saturday 6 April 2013 should be a good day for those who require to register charges against UK companies. The new Part 25 of the Companies Act 2006 is (currently) scheduled to come into force that day – to be substituted for the current regimes by the Companies Act 2006 (Amendment of Part 25) Regulations 2013, currently before the Westminster Parliament.

No longer will it be necessary to agonise over whether a given charge is in a registrable category. No longer will it be necessary to scan it anxiously for provisions that may be construed as negative pledges or ranking provisions, and summarise them equally anxiously. No longer will it be necessary, when registering charges securing specific obligations instead of “all sums”, to labour through convoluted definitions to submit a form that makes no one any the wiser on the subject. No longer will it be necessary to collect a pile of recorded delivery slips to evidence notice given to create an assignation in security.

Instead, once any security document has been executed and delivered, it will be scanned and sent electronically to Companies House, with a few boxes and a very few brief and obvious details ticked or filled in online – or equivalent certified paper documents sent to Companies House. In either case, the full security document will then be available to view, along with those headline details, and a certificate of registration will then be issued by Companies House (under the new s 859I(6)).

Currently there are separate charge registration regimes for Scottish companies and for English (and Welsh) and Northern Irish companies. The new charge registration regime will apply to Scottish, English and Northern Irish companies as a single UK registration regime. Registration at Companies House of charges granted by foreign companies was abolished in 2011.

All charges registrable

Under the new s 859A(7), a “charge” includes “a standard security, assignation in security, and any other right in security constituted under the law of Scotland… but not including a pledge”. This is intended to ensure that all traditional Scottish security interests are registrable without making the likes of hire purchase registrable, as it was not intended to extend the new regime to such “functional” securities.

Pledge has been excluded as it is a right in security under Scots law, but one of which third parties should be aware, due to the pledgee’s possession of the pledged asset. It is not intended that share or bank account “pledges” are excluded from registration, as they do not technically operate by way of pledge. Pledge was not more generally excluded, as it was thought that a pledge was not a “charge” or “mortgage” under English law (or otherwise) under the remaining part of the s 859A(7) definition.

Section 859A(6) also excludes from registration charges over cash deposits given to landlords, underwriting charges given by members of Lloyd’s, and charges excluded from registration under any other Act: the likes of the Financial Collateral Arrangements (No 2) Regulations 2003 continue to exclude relevant charges from the Companies Act registration regime.

When to register

Unregistered charges continue (s 859H) to be void against liquidators, administrators and creditors if the charge document and particulars are not delivered to the registrar within the relevant period: still 21 days beginning with the day after the date of creation (s 859A(4)), extendable by the court much as under the current regime (s 859F), but without the days of grace under the current s 886 for charges created outside the UK.

The date of “creation” of a charge has, however, been redefined in s 859E. For standard securities over Scottish land, it remains much as under the current regime, being the date of recording or registration. Confirmation of those dates by Registers of Scotland (RoS) will therefore continue to be required before standard securities can be scanned and submitted electronically (or sent manually) to Companies House, though it is hoped that in due course (a) electronic registration at RoS will streamline this, and (b) an order may be made under s 893 deeming registration or recording of standard securities at RoS also to be registration at Companies House (along with the relevant electronic data sharing arrangements).

For other Scots law charges, the position will, however, usually change. Under the current Scottish regime, a floating charge is created when executed, and other charges not until a real right is constituted in the relevant assets – thus, for example, the 21 days to register an assignation in security of Scottish trade debts start to run only when notice of assignation has been given to the debtors. Under the new regime, the 21 days will normally start to run when the assignation is delivered, as that is when the charge is considered to be “created” under s 859E(1): by subs (3) the definition of “creation” for the purposes of the new regime applies “even if further forms, notices, registrations or other actions or proceedings are necessary to make the charge valid or effectual for other purposes”.

At first sight, the table of creation dates in s 859E(1) seems over-complex:

This is largely due to the need to address, in a UK-wide registration system, issues arising under Scots, English and Northern Irish laws. From the Scottish perspective, the charge document is either (a) a standard security to which the current regime indicated above applies as a special rule, or (b) a unilateral document requiring delivery in order to take effect, or (c) a bilateral or multilateral document that takes effect when executed by all parties. It should be noted that “deed” is defined in s 859E(5) for non-English/Northern Irish purposes as an instrument which requires delivery in order to take effect.

The specific reference to documents held in escrow derives from specialities of English and Northern Irish laws, which lead also to the need for two separate references to delivery of a document where only one would be necessary from the Scottish perspective. Such specialities also explain the reference to suspension of the effect of a document not requiring delivery (as opposed to suspension of provisions in such document). The final reference to charges not created or evidenced by an instrument is not of much practical relevance.

Section 859E(2) also makes reference to ignoring, for the purposes of the 21-day period, execution by persons whose execution is not required for the instrument to take effect as a charge. This is largely designed to address countersignature by banks of English law debentures and is unlikely to be of much relevance to Scots law security documents.

As charges granted by Scottish companies will sometimes require to be registered sooner than under the current regime, it is also worth noting that the old regime will continue (under reg 6 of the 2013 Regulations) to apply to charges not yet created under the old regime when the new regime comes into effect, such as assignations in security of Scottish rents of which notice has not then been given to tenants: for such assignations the 21 days will continue to run from notice to the tenants.

Data to Companies House

In addition to an electronically or manually certified copy of a charge document (redacting sensitive data as permitted under s 859G, if required), the data to be submitted to Companies House under s 859D are as follows:

• the name and number of the charging company;
• the date of creation of the charge;
• the name of the first four chargees (including any security trustees);
• a short description of UK registered land, ships, aircraft or intellectual property subject to fixed security;
• tick boxes indicating whether (a) tangible or intangible property not described is subject to fixed security; (b) there is a floating charge and if it is over all assets; (c) there is a provision restricting further equal or prior ranking security.

It is hoped that the “short description” can be “land referred to in schedule 1 to charge instrument”, or some similar brief cross reference, as those searching the register will be able to examine the schedule in question, and otherwise some of the horrors of completing enormous forms under the current regime may be preserved.

For English and Northern Irish law charges, the date of creation will not generally change from that under the current regime, and will normally be the date written on the front of the charge document, given the way in which the law operates regarding the dating of documents and the manner in which “creation” is defined, as indicated above. For very many Scots law charges the date of creation will not be the date (or last of several dates) written on the charge document. For standard securities, the confirmed date of registration or recording from RoS will provide this. As it is common for other unilateral Scottish charge documents (such as floating charges) to be held undelivered for several days, or even weeks, there may be some advantage in adding a date of delivery to execution blocks on such documents (as well as a date of execution), in order to evidence the date of creation for Companies House.

Sections 859M and 859N make provision for rectification of data and replacement of documents submitted to Companies House by application to court, along much the same lines as application under s 859F for an extension of the 21 day registration period.

Negative pledges and ranking provisions

Under the current Scottish registration regime, specific provision is made for a summary to be provided to Companies House of provisions in a floating charge regarding ranking and restricting future security. This is intended to be a means of publicising such provisions because of the manner in which the Scottish statutory ranking regime operates. Under the new regime,

the tick box mentioned above and the public availability of the floating charge submitted address this issue – as well as providing publicity for such negative pledges and ranking provisions in other types of charges granted by Scottish companies and in floating and other charges granted by English and Northern Irish companies.

Section 859O sets up a voluntary regime under which changes to negative pledges and ranking provisions in any charge granted by a Scottish, English or Northern Irish company – such as those in a ranking agreement – may also be publicised. A certified copy of the ranking agreement is submitted to Companies House, along with the name and number of the company in question and specific details designed to identify the charge to which the changes have been made.

As s 859O is voluntary, and s 466 of the Companies Act 1985 currently invalidates such changes to floating charges granted by Scottish companies if details are not submitted to Companies House within 21 days of being made, s 466 is preserved by s 859O and restated in sched 2 to the 2013 Regulations. Unfortunately, in addition to the particulars required to be submitted for the purposes of s 859O, the restated s 466 also requires the date of the ranking agreement and its parties to be provided, and makes no provision for the altered charge to be identified by the new unique charge number that will be allocated under the new regime. It is to be hoped that Companies House will put in place mechanisms to ensure that a single simple process can be followed to ensure that ranking agreements relating to floating charges granted by Scottish companies, and also to other charges granted by English and Northern Irish companies, can be registered easily under both sections – and that this can be done electronically along with registration of the charges subject to the ranking agreement.

From the English and Northern Irish perspective, negative pledges will be publicised on initial registration and under s 859O with a view to preserving equitable priorities, but a provision proposed for the new regime under which notice of the new register would be deemed to be given to third parties has not been included in the final regulations. This is welcome from the Scottish perspective, as the effect under Scots law of such deemed notice is far from clear.

Otherwise mostly as before?

As under the current regimes, s 859B makes parallel provision to the main s 859A for registration of charges associated with series of debentures; s 859C provides for registration of charges over property acquired (but without any sanction for not doing so); and ss 859P and 859Q provide for companies to maintain their own register of charges. Section 859L provides for registration of statements of satisfaction and release in a broadly similar manner as at present, though those submitting them need only indicate “their interest in the charge”, and it is not (as at present) necessary for the holder of a floating charge granted by a Scottish company to sign.

As with most new legislation and systems, it is to be expected that a few uncertainties will require to be cleared up – though it is to be hoped that the new system will prove more efficient and useful than the ones it will replace, and that 6 April 2013 will indeed prove to be a good day for those granting and taking charges.