Company Security Interests

Current project status

• Initiation: Could include discussing scope and terms of reference with lead Government Department
• Pre-consultation: Could include approaching interest groups and specialists, producing scoping and issues papers, finalising terms of project
• Consultation: Likely to include consultation events and paper, making provisional proposals for comment
• Policy development: Will include analysis of consultation responses. Could include further issues papers and consultation on draft Bill
• Reported: Usually recommendations for law reform but can be advice to government, scoping report or other recommendations

Many, but not all, of our recommendations were implemented in the Companies Act 2006 (Amendment of Part 25) Regulations 2013

Companies often grant charges and other security interests over their assets to secure loans. This project looked at how such security interests should be registered. It also considered how to resolve conflicts between different secured lenders and between lenders and buyers.

The project

We presented our final report on this project to Government on 31 August 2005. In our report, we recommended:

• a new online system to register charges cheaply;
• all charges are registrable unless specifically exempted;
• lenders will only be required to send brief details of the charge in a statement of particulars – not the charge documents themselves;
• Companies House should not issue a conclusive certificate of registration, as this requires staff to check through lengthy paperwork;
• removing the 21-day time-limit for registration, and making it possible to register in advance of the transaction;
• removing the criminal offence of failing to register a charge;
• a simpler system of priority, based on the ‘first to register’ principle; and
• sharing of information between Companies House and the Land Registry, so charges over properties will need to be registered only once.

Our report also recommended extending the scheme to the sale of receivables, such as factoring. At present, a factor can only be sure of its priority if it writes to each account debtor. Under the proposals, it would be able to secure its position more cheaply and easily by registering with Companies House.

The final report followed a Consultation Paper, in July 2002 (LCCP No 164) and a Consultative Report, in August 2004 (Law Com No 176).

Implementation

A power to amend the scheme for registration of charges, which could be used to implement some of the Law Commission’s recommendations contained within this report, was included in the Companies Act 2006. In 2010, the Government consulted on the Law Commission’s proposals, with discussions with stakeholders continuing into 2011-2012.

In April 2013, the Companies Act 2006 (Amendment of Part 25) Regulations 2013 came into force. The Regulations amend the Companies Act 2006 relating to company security interests. Under the new provisions:

• it is possible to file electronically;
• all charges are registrable unless specifically exempted;
• lenders are no longer required to deliver the original charge documents to Companies House – instead, a statement of particulars along with a certified copy of the charge documents must be delivered, to be available on the public register;
• the list of summary information that must be provided in the statement of particulars is changed, so as to improve the usefulness of the information on the register;
• Companies House staff will no longer be required to check through documentation, as the certificate of registration is now conclusive only as to the charge being filed within the (unchanged) time-limit for registration;
• a mechanism for UK-wide registration is established, which works with both the provisions of Scottish law on security interests and the law of England & Wales on charges; and
• the criminal offence of failing to register a charge is removed.

In this way, the Regulations have given effect to many (though not all) of our proposals concerning registration of charges. The broader proposals (such as those regarding priority, the Land Registry and the sale of receivables) have not been implemented.