The current system for registration of company charges has existed for more than 100 years, but has recently been criticised for being too fixed and outdated.
Following a period of extensive consultation, and with a view to modernising and simplifying the registration of security at Companies House, the Department for Business, Innovation and Skills published draft regulations to amend the existing regime.
The draft regulations
The main changes proposed by the draft regulations are:
- introducing a single UK-wide system of registration of security irrespective of the company's place of incorporation within the UK
- introducing electronic filing
- introducing an assumption that all security (other than the exceptions in the draft regulations) can be registered
- removing the mandatory requirement to register security, this was previously enforced by a criminal sanction for failure to register a registrable security (although the commercial effect of failure to register remains unchanged)
- removing the requirement for companies and LLPs to keep a register of charges, however they are required to keep copies of the full security instrument available for inspection
- improving transparency and access to information available on the public register at Companies House
It is only the process for registration at Companies House that is being reformed. Registrations required to be made on additional security registers, such as at the Land Registry, are unaffected by these changes.
Electronic filing is arguably the most substantial change proposed. The procedure for electronic filing is currently being developed and tested by Companies House ahead of implementation, and Shoosmiths is involved in that consultation process.
The draft regulations allow for the full text of the security instrument to be available on the register. Only 'personal information' may be redacted. Commercially sensitive information in security documentation cannot be concealed.
Where information in the security instrument is redacted, the person filing the charge is required to certify that the amended document is a true representation of the actual security instrument, except for the redactions.
The security instrument will be accompanied by brief particulars which include details of:
- the name of persons in whose favour the security has been created, or the names of any trustees holding the security for the benefit of other persons
- any land, ship, aircraft or intellectual property that is subject to a charge and is required to be registered
- the nature of charges in the security instrument (fixed or floating)
The 21-day time limit for the filing of a charge at Companies House has not been amended. The draft regulations give further details as to when the 21-day period starts to run based on the type of security instrument executed: for example, in the case of a simple contract taking immediate effect, it is the date of execution; in respect of deeds, it is the date of delivery.
Implications of the changes
- It is proposed that the changes to the existing system will come into effect on 6 April 2013 and companies, LLPs and their legal advisors need to be prepared for the new system.
- One of the biggest criticisms of the existing system is the fixed time limit for filing security and the draconian consequences of failure to register in time (namely the security is unenforceable as against third parties). That remains unchanged.
- The creation of a single scheme, the use of electronic filing and improved access to information are positive signs of a move towards a simpler, quicker and more accessible system for companies and security holders, which is appropriate for the 21st century corporate world.