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Government response to BIS consultation on security registration regime
Practical Law UK Legal Update 8-504-1794 (Approx. 7 pages)
Government response to BIS consultation on security registration regime
by PLC Finance
| Published on 09 Dec 2010 • United Kingdom |
The government has published its response to the BIS consultation paper on registration of charges created by companies and limited liability partnerships. (Free access.)
Speedread
On 8 December 2010, the government published its response to the consultation by the Department for Business Innovation and Skills (BIS) on the Companies House regime for the registration of charges created by companies and limited liability partnerships. The government proposes to change the current registration regime in a number of significant ways, including by:
- Altering which charges are registrable.
- Altering how charges may be registered.
- Altering the consequences of registering and not registering a registrable charge.
- Removing the requirement for an overseas company to register a charge it creates.
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On 8 December 2010, the government published its response to the consultation by the Department for Business Innovation and Skills (BIS) on the Companies House regime for the registration of charges created by companies and limited liability partnerships.
BIS consulted on a number of issues including the following:
- What security interests should be registrable, removal of the 21-day limit for registration and the consequences of registration and failure to register.
- The registration procedure, including the possibility of electronic registration of security interests.
- Whether registration of security interests in a specialist register (such as at the Land Registry) might be treated as registration of that security interest at Companies House.
- Application of the regime to non-UK companies.
For more information on the BIS consultation, see Legal update, BIS consults on security registration regime.
In its response, the government has indicated that it intends to revise the security registration regime in a number of ways. It intends to publish draft regulations implementing these changes in early 2011 and plans to bring the changes into force in 2012 or 2013.
For further information on the current Companies House registration regime under the Companies Act 2006 (CA 2006) and previous reform work on which many of BIS's proposals in the consultation were based, see Practice note, Registration of charges created by companies and limited liability partnerships on or after 1 October 2009.
Government response to proposals in the consultation
The government's response to the comments received on each proposal in the consultation document is set out below. For further information on each of the proposals, see Legal update, BIS consults on security registration regime.
Proposal A: registrable charges
The government intends that the requirement to register should apply to every mortgage or charge created by a company registered in the UK over any of its property (wherever situated), unless expressly excluded by regulation under the CA 2006 or any other statute.
Proposal B: exclusions from registration
Currently, the following charges are excluded from registration under statute:
- Those in favour of the Bank of England, the central bank of another country or the European Central Bank (section 252, Banking Act 2009).
- Charges which constitute a title transfer financial collateral arrangement or a security financial collateral arrangement (regulation 4, Financial Collateral Arrangements (No 2) Regulations 2003 (SI 2003/3226) (FC Regulations)). For more on the FC Regulations, see Practice note, Financial collateral considerations.
The government intends that the following charges will be excluded from registration:
- Lloyds trust deeds.
- Rent security deposit deeds.
Presumably, these two exclusions are in addition to the existing exclusions, although it is not entirely clear.
In addition, the government does not intend to require registration of the crystallisation of a floating charge.
Proposal C: no requirement to register charges existing on property acquired
The government intends to abolish the requirement to register charges existing on property acquired.
Proposal D: definition of a date of creation for the purposes of the time limit for registration
The government does not intend to provide a definition of the date of creation. However, the government does intend to retain the 21-day time limit for registration. For more information on the 21 day time limit, see Practice note, Registration of charges created by companies and limited liability partnerships on or after 1 October 2009: Is there a time limit for registration?.
Proposal E: modification of the sanction of invalidity for unregistered charges
The government does not intend to make any change to the sanction of invalidity. For more information on the sanction of invalidity, see Practice note, Registration of charges created by companies and limited liability partnerships on or after 1 October 2009: What is the effect of non-registration?.
The government also states in the response that the criminal sanction for failure to register a charge will be abolished.
Proposal F: when a person will be taken to have notice of a registered charge
The government intends to make provision so that:
- Any person taking a charge over a company's assets will be deemed to have notice of any previously registered charges.
- A buyer of an asset subject to an unregistered charge will take free of that charge, with an exception for assets subject to the rules of a specialist register.
Proposals G and J: definition of the required particulars of a charge and how the required particulars should be delivered
The government intends that it will be possible to register a charge electronically. The requirements for registration will be the filing of the following:
- Registered name and number of the chargor.
- The date of creation of the charge.
- Whether all assets of the chargor are covered by the charge and, if not, whether the charge covers either of the following:
- land (in England and Wales, Northern Ireland, Scotland or elsewhere); or
- intangibles.
- A copy of an extract from the charge instrument covering:
- the identities of the chargor and chargee;
- the date that purports to be the date of the charge or, in the case of a charge of land created by an electronic document, the date when the document takes effect;
- the assets covered by the charge; and
- in the case of a floating charge, whether there is an automatic crystallisation clause and/or a negative pledge.
The extract may be redacted to conceal information that is not required to be filed. If the entire instrument is not longer than a specified limit (a limit of 20,000 words is suggested), the entire instrument may be filed instead.If there is no charge instrument, the particulars will have to include a short description of the assets charged, the amount of the charge and the names of the persons entitled to it.
Once particulars have been filed, the government intends that Companies House will check the following:
- The name of the chargor is the same as that in the particulars.
- The registered name and number of the chargor match.
- The filing was made no later than 21 days after the date of creation stated in the particulars.
- The particulars include the information required.
If Companies House is satisfied as to the above requirements, then the government intends that Companies House will:
- Allocate a unique reference number to the extract of the charge and place it on the public record.
- Update the company's record to add a link to Companies House's copy of the charge instrument and to show the following information:
- the required particulars;
- the date on which the documents were placed on the public record (rather than, as now, the date on which Companies House received the documents); and
- the unique reference number.
- Update the summary for the company showing the number of charges created, and the number of charges outstanding or satisfied or part satisfied.
Proposals H and I: registration and invalidity and the Companies House certificate as conclusive evidence
The government concludes that the certificate issued by Companies House on registration of a charge for which the instrument is on the public record identified by a reference number should be conclusive evidence of:
- The identity of the chargor.
- That the charge was registered within 21 days of its date of creation.
The certificate would also record the assets covered by the charge according to the filed particulars, but would not be conclusive evidence in relation to them.
Proposal K: when conclusive evidence certificate should be issued for a late registration
The government feels there should be statutory underpinning of the current practice in the event of a court setting conditions for late registration. In the event of a late registration of a charge, as directed by a court, the conclusive evidence certificate will be evidence that:
- Any timing condition provided by the court has been satisfied.
- The charge will not be invalid because it was not registered within 21 days of its creation.
Proposal L: provision for filing of changes to filed particulars
The government has concluded that there should be a provision, but not a requirement, for a chargee to notify Companies House of both the assignment of a charge (and any other changes relating to the person entitled to the charge) and the addition of a negative pledge. If Companies House is so notified, then these filings should be added to the public record.
Proposal M: proposals for memoranda of satisfaction
The government has concluded that the filing of a memorandum of satisfaction in relation to a registered charge should generally be by the chargee. A chargor will be able to file a memorandum of satisfaction in relation to a registered charge provided that that filing is accompanied by an explanation (which would be placed on the file) of why the filing is not being made by the chargee.
Proposal N: revision of requirement to maintain a register of charges for each company at Companies House
The requirement for Companies House to maintain a register of charges for each company will be revised so that the particulars entered are the filed particulars of each charge.
Proposal O: abolishion of requirement for a company to maintain a register of all charges it has created
The government has concluded that a company should only be required to maintain a register of charges it has granted orally.
Proposal P: restriction of right to inspect instruments creating a company's charges
The government will retain the public right to inspect the instruments creating a company's charges at the company's registered office or alternative inspection location.
Proposal Q: requirement to register should be the same for all UK companies, including unregistered companies
The government will introduce legislation to provide that the new registration regime will apply to unregistered companies subject to the Unregistered Company Regulations 2009 (SI 2009/2436) as well.
Proposal R: limited liability partnerships should also be subject to the new regime
The government intends that the new registration regime will apply tolimited liability partnerships as well.
Other issues in the response
In addition, although not under the heading of any specific proposal in the response, the government comments on the following issues in its response:
Overseas companies
The government does not intend that the new regime should apply to overseas companies.
Specialist registers
Under section 893 of the CA 2006, the Secretary of State has power to make provision for facilitating information-sharing between different registries, and order that security registered properly in one registry (such as over land at the Land Registry) will not then also require a second registration at Companies House.
In its response, the government confirms that its revised proposals do not include any provision for a charge registered in a specialist registry to be treated as it if had been registered with Companies House.
However, BIS is exploring the potential for disapplication of dual registration for standard securities (charges over land in Scotland). In addition, when the Scottish legislation for the establishment of a Scottish Register of Floating Charges comes into force, the government intends to make provision so that there is not a requirement for floating charges to be registered with the Scottish Register of Floating Charges and with Companies House.