Corporate Update: Modernisation of the Security Registration Regime
After a period of extensive consultation, a new regime relating to the registration of corporate security is about to come into force on 6 April 2013. Its main objectives are to provide a single streamlined scheme which applies to all UK companies and limited liability partnerships.
The Companies Act 2006 (Amendment of Part 25) Regulations 2012 (the "Regulations") were approved by Parliament on 6 March 2013 and will amend the Companies Act 2006 (the "Act") to introduce a new system of registration to all charges created by companies on or after 6 April 2013. The system will also be applied with a few modifications to LLPs by a separate statutory instrument.
The main changes proposed by the Regulations, which are intended to reduce costs and uncertainty, are as follows:
• the introduction of an assumption that all security (other than exceptions detailed in the Regulations) can be registered;
• the removal of the mandatory requirement to register security and the criminal sanction for failing to do so;
• improving access to information available on the public register;
• the removal of the requirement for companies to keep a register of charges; and
• the introduction of electronic filing ("e-filing").
1. Types of Charges which are registerable
Under the current regime, where a company or LLP creates a charge which is not listed in the Act, the charge does not have to be registered. However, under the Regulations, all charges other than those specifically excluded in the Regulations are required to be registered at Companies House. In particular, the Regulations do not apply to a charge over a cash deposit held by a landlord given as security under a lease. Therefore, a charge created by a rent deposit deed will no longer need to be registered at Companies House.
This change should provide greater clarity when making a decision over whether to register a charge at Companies House since the presumption will be that all security is registerable unless otherwise expressly excluded by the Regulations.
2. Time Limit for Registration and Sanctions for failing to Register
Under the current regime, there is a mandatory requirement for a company to register a charge at Companies House within 21 days of its creation. Failure to register a charge results in two sanctions: (1) the company (or LLP) and its officers commit a criminal offence and are liable to be fined (criminal sanction) and (2) the charge is deemed void against any liquidator or administrator of the company (or LLP) as well as against any of its other creditors (commercial sanction). Although the obligation to register falls upon the company, the threat of the commercial sanction (which results in void security) means it is very much in a creditor's interest to ensure that their security is correctly registered at Companies House.
Under the Regulations, the charge still needs to be delivered to Companies House within 21 days or it will be rejected. The Regulations remove the criminal sanction for non-registration but retain the commercial sanction. There will therefore still be a commercial necessity to register a charge created by a company or LLP in time to ensure the security is not deemed void. It is worth pointing out that the existing methods for obtaining a Court Order to extend the time for registration will continue to be available under the new regime; but any other charge created and registered before the charge is eventually registered will take priority.
3. Practicalities of filing
Under the new regime, applications can be submitted either by paper or electronically (see below – E-filing). Rather than file the original copy of the charge (as is currently the case), a certified copy of the instrument of charge will be filed. The certified copy of the charge will need to be accompanied by a brief statement of particulars, which must include the following:
• the name of the beneficiary of the charge;
• whether the instrument is expressed to contain a floating charge and whether it covers all of the property and undertakings;
• whether the terms of the charge prohibit or restrict the company or LLP from creating further security which will rank ahead of the charge. Unlike under the current regime, this is now a mandatory requirement; and
• whether the terms of the charge instrument create a fixed charge over any land, ship, aircraft or intellectual property that is registered in the UK. Again, this is a new requirement under the new regime, and companies and LLP's must ensure that the information on the registration form matches the information contained within the instrument itself.
The submission of particulars with the security or charge instrument on registration will improve the ability to search the register for a particular document, as well as enabling those searching the register to locate documents more easily.
Where a charge is registered in accordance with the Regulations, a certificate of registration together with a unique reference code will be issued. This code will not only assist with the ability to locate a specific document, but also enable the register to provide a more accurate picture of the state of a company's or LLP's assets and the charges registered over them. Where filings are subsequently made in relation to the charge, the presenter will need to supply this code.
4. E-filing
E-filing represents a significant modernisation to the current registration system. Companies House has advised that in order to file electronically, lenders (or anyone other than the company or LLP itself) which are presenting the particulars for registration will have to apply to Companies House for a 'Lender Authentication Code'. Companies House has advised that this will be a one-off application for lenders enabling them to send future charge documents for registration.
Using these authentication codes, applications can be submitted online as long as the attachments are no larger than 10MB. Companies House will then confirm receipt by email and supply an electronic certificate of registration.
5. Information available on the Public Register
One of the main focuses of the Regulations is to increase transparency and the quality of information which is available on the public register. Under the new regime, the full text of the charge or security instrument will be available on the register at Companies House and can be downloaded. For companies concerned about data protection issues, the Regulations allow certain personal information to be redacted prior to registration such as personal information relating to individuals (other than the name of an individual), bank account numbers and people's signatures. However, it is worth noting that commercially sensitive information cannot be redacted under the Regulations.
6. Register of Charges
In contrast to the current regime, companies are no longer required to maintain a register of charges. As such, the internal administration of dealing with company assets and the charges created over them will be reduced.
However, it is important to note that the new regime will require companies and LLPs to keep available for inspection every instrument creating a charge capable of registration, as well as any instrument effecting any variation or amendment to such charge. If a company or LLP fails to do so, an offence is committed by the company and by every officer of the company and a fine may be imposed. Therefore, companies and LLPs must ensure that adequate provisions are made for the retention of security documents following registration.
7. Registration of new charges at the Land Registry
The new regime will also affect the way in which charges over land are registered at the Land Registry. Recent Land Registry guidance advises that when applying to the Land Registry to register a charge after 6 April 2013, it will be necessary to submit a copy of the certificate of registration issued by Companies House, along with the original charge and a certificate or written confirmation that (i) the charge lodged for registration is identical to the copy charge filed at Companies House and (ii) is the charge to which the accompanying certificate of registration relates.
8. Impact
The new regime should have a positive impact on the system of registering charges, making it simpler by streamlining the process and creating greater clarity by providing access to copies of the actual security taken.
However, with just under one month to go until the Regulations come into force, Companies House has yet to publish comprehensive guidance on e-filing and has indicated it will not make available copies of the new application forms until 6 April 2013. This all means that corporate borrowers, lenders and their advisers will have to react very quickly to the new regime when it takes effect.
For further information please contact James Walton or the partner with whom you usually deal.
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