Company Security rules from 6 April 2013

Introduction
The rules for registering security created by UK companies and limited liability partnerships (“LLPs”) are set to be reformed next month in the biggest shakeup of the Companies House registration regime in years. The new regime will provide a single UKwide security registration regime that applies to all UK companies and LLPs. There will be an assumption that all types of security will be registrable at Companies House unless specifically excluded. This is a welcome simplification and will help to address the current confusion around whether the security is a type which must be registered. Electronic registration will also be possible for the first time in a modernisation of the current system.
The Department for Business, Innovation and Skills (“BIS”) first published the draft Companies Act 2006 (Amendment of Part 25) Regulations 2012 on 9 August 2012 and these were updated again on 14 January 2013 following a lengthy consultation exercise. The new regulations are expected to come into force on 6 April 2013. A detailed overview of the key changes and their impact in practice is set out below.
Types of charges

All charges will be registrable other than some limited exceptions set out in the regulations (such as a rent deposit taken as security in connection with the lease of land). The term “charge” includes a mortgage and Scottish security (but not a pledge) and so covers virtually all types of security.

It is worth noting that the original draft regulations published in August 2012 expressly excluded pledges and liens from the definition of “charge”, however the updated regulations only expressly exclude pledges. By their nature, liens depend upon possession and common law has not sought to characterise them as charges, therefore the absence of the express exclusion of a lien as a charge in the regulations should not mean that a lien is therefore registrable security. A lender may, however, wish to take a cautious approach in relation to contractual liens and so seek to register these in accordance with the regulations.

Time limit for registration
Registration of security continues to be time critical. The “period allowed for delivery” is 21 days beginning with the day after the date of creation of the charge and Companies House will reject filings received after the 21day period. An extension may be possible, as at present, following an application to the court in limited circumstances.

Statement of particulars

It will be possible to deliver a certified copy of the security instrument (instead of the original security instrument as is currently required) with a brief statement of particulars. The “section 859D statement of particulars” must include the following information:

• the name of the beneficiary of the charge or the security agent or trustee;

• whether the instrument is expressed to contain a floating charge and whether it covers all the property and undertaking of the company;

• whether the terms of the charge prohibit or restrict the company from creating further security that will rank equally or ahead of the charge (a negative pledge); and

• whether the instrument creates a fixed charge or mortgage over any land, ship, aircraft or intellectual property that is registered (or required to be registered) in the UK. If it does, short particulars need to be included on the form submitted for registration.

The requirement to include a short description of registrable land and intellectual property is new and care is needed as an inconsistency between the details included in the charge and on the form could result in registration being rejected. Intellectual property includes “(a) any patent, trade mark, registered design, copyright or design right; and (b) any licence under or in respect of any such right”.


The certificate of registration of the charge will still be conclusive evidence that the complete documents required for registration purposes were submitted to the Registrar on time; therefore it would appear that once secured, the certificate could not be reopened.

Separate provisions set out the section 859D statement of particulars that will be required when a charge is not created or evidenced by an instrument.

Personal information relating to an individual (other than his name), bank account numbers of companies or individuals and signatures may all be excluded from the certified copy of the security instrument submitted to Companies House. However, as is currently the case with an MG01 form, commercially sensitive information cannot be excluded.

One final difference relates to the requirement to indicate whether the charge instrument includes a negative pledge (as described above). The inclusion of this information on registration forms currently is a matter of good practice. This will now be mandatory.

If after a charge has been created, it is amended to include a negative pledge or varies or regulates the order of priority, then the instrument and a section 859D statement of particulars may be delivered to the Registrar. This is voluntary and there are no time limits for doing so.

Evidence of registration

Each charge that is registered will be allocated a unique reference code (“URC”) which will appear on the register and the certificate of registration of the charge (which is conclusive evidence that the documents required were delivered before the end of the relevant period allowed for delivery). The URC will enable those searching the register to track a charge more easily.

The Registrar will include the following documents in the register (to the extent that they were required for registration purposes):


• the certified copy of the instrument creating or evidencing the charge;

• the order extending the period allowed for delivery of the section 859D statement of particulars; and
• the certified copy of the instrument creating or evidencing a charge over any property or undertaking acquired by the company.

Consequences of failing to register


There are no longer criminal sanctions for a failure to register but an unregistered charge will be void against a liquidator, administrator or creditor of the company. If a charge becomes void against such persons, then the money secured by it will become immediately payable.


Foreign law security


The regulations provide that all charges will be registrable, save for those expressly excluded. The term “charge” is an English legal term that the regulations define to include mortgages and Scottish security. A foreign law security instrument may not be described as or include the word “charge” in it, although it may still be equivalent to the English law concept of a charge or mortgage; for example, security over a US registered patent or a foreign law pledge on shares. The cautious approach will be to submit for registration all security created by a UK registered company even if over assets located abroad or if the security is not expressly characterised as a charge.

It would therefore be prudent to register any foreign law security instrument, created by a UK company, which is sufficiently similar to the English concept of a charge or mortgage to prevent the consequences of failure to register from arising.


The practicalities


Other points to note from a practical perspective are as follows:

• The new registration requirements will apply to charges created on or after 6 April 2013; therefore a charge created on 5 April but submitted to Companies House on 7 April would need to be registered under the current regime (using form MG01).


• Registration of the satisfaction of secured debt or the release of a charge must be carried out in accordance with the new regime from 6 April 2013, regardless of whether the charge was created before 6 April or after; however differing information will be required according to when the original charge was created.

• Form 466, required for the registration of particulars of an instrument of alteration to a floating charge created by a company registered in Scotland, will remain in force (and subject to the 21day filing limit). For Scottish Floating Charges (“SFCs”) created before 6 April 2013, the current filing requirements will apply. For those SFCs created on or after 6 April, a certified copy of the alteration will be required, the 21day filing limit will apply and the section 859D statement of particulars to be delivered will require less information as prescribed in Sch 2 of the regulations.


• Electronic filing will be available via WebFiling or Software Filing. When registering a charge electronically, it will be possible to submit certified copies of the security instrument electronically in PDF form (up to 10MB in size).

• To facilitate WebFiling, lenders (or anyone other than the company itself who is presenting the particulars for registration) will have to make a one off application for a lender authentication code or presenter authentication code to enable them to register charges. Software Filing allows the transfer and acknowledgement of electronic company data between presenters and Companies House and requires the purchase or development of suitable software to enable this. The online application forms for both WebFiling and Software Filing are available to download from the Companies House website. Companies may file charges against their own company using the company’s authentication code.


• The fee for electronic filing is proposed to be £10 (although this is still to be confirmed); the fee for paper filing will remain at £13.
• There will be a new series of forms for companies and equivalent forms for LLPs which will require less information than the current “MG” forms. There will be separate forms for registration of charges created by an instrument and those created where there is no instrument. The form numbers will range from MR01 to MR10, with additional forms RM01 and RM02 available in respect of giving notice of the appointment of a receiver.
• Companies and LLPs are no longer required to keep an internal register of security. Copies of the full security instrument must be available for inspection instead.

 

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