Companies Act 2006 changes - Registration of mortgages and charges after 1 October 2009

On 1 October 2009, the law relating to the registration of mortgage and charges created by companies changed when Part 25 of the Companies Act 2006 (the “2006 Act”) came into force and replaced the current provisions contained in Part XIII of the Companies (Northern Ireland) Order 1986 (the “1986 Order”).

While lawyers and others having an interest in the registration of mortgages and charges (in particular, lenders) may breathe a collective sigh of relief in knowing that the categories of charge and mortgage requiring registration were not changed and that Part 25 of the 2006 Act did not make any major amendments to the existing law under the 1986 Order, certain points were clarified and some entirely new provisions inserted. The key changes are outlined below.

New Provisions
Under the terms of the new legislation Part XIII of the 1986 Order (Articles 402-417) was replaced by Sections 860-887 of Part 25 of the 2006 Act.

New Forms
With effect from 1 October 2009, the old style forms used to register details of charges became obsolete. It is, accordingly, essential that with effect from 1 October 2009, any registrations are made using the new style form as Companies House has advised that the old style forms will be rejected. The key new forms are as follows:

• Form 402 was replaced by Form MG01 – particulars of a mortgage or charge;
• Form 411A was replaced by Form MG02 – statement of satisfaction in full or in part of mortgage or charge;
• Form 411B was replaced by Form MG04 – application for registration of a memorandum of satisfaction that part (or the whole) of the property charged:
  
  (a) has been released from the charge;
  or
  (b) no longer forms part of the Company’s property.

Clarification of 21 day registration period

While Section 860 of the 2006 Act (like its predecessor, Article 402 of the 1986 Order) contains the obligation to register charges before the end of the statutory period allowed for registration, Section 870 of the 2006 Act should end previous debates around exactly how the 21 day registration period is measured. It clarifies the period as: “21 days beginning with the day after the day on which the charge is created”.

Failure to register
The implications of failure to register a charge (currently set out under Article 402 of the 1986 Order) have been substantially replicated under the 2006 Act. Section 874 of the 2006 Act provides that: “If a company creates a charge to which section 860 applies, the charge is void (so far as any security or the company’s property or undertaking is conferred by it) against:

• a liquidator of the company;
• an administrator of the company;
  and
• a creditor of the company;
  unless that section is complied
  with”.

Slavenburg Filings
The Overseas Companies (Execution of Documents and Registration of Charges) Regulations 2009 (the “2009 Regulations”) removed the requirement for the Slavenburg register and came into force on 1 October 2009. Under the 1986 Order, the statutory requirement to register charges applied to any overseas company with a place of business in the UK. Where a company had registered as having a place of business in Northern Ireland (under Part XXIII of the 1986 Order) there was no difficulty and the Registrar of Companies would note details of the charge on the relevant company’s file. Where a difficulty arose was where the relevant company had not registered as a Part XXIII company – following the judgment given by the High Court in Slavenburg's Bank N.V. v International Natural Resources Ltd [1980] I All ER 955 it became common practice for details to be presented for registration in circumstances where the company had assets located in Northern Ireland or may have been considered to be carrying on business in Northern Ireland (whether or not it had registered as a Part XXIII company). This became known as a Slavenburg filing.

The 2009 Regulations removed the need for the Slavenburg register and made it clear that the requirement to register charges with the Registrar only applies to overseas companies whose particulars have been registered with the Registrar under the 2009 Regulations and are available for public inspection. The 21 day period begins on the day after the day on which the instrument creating or evidencing the charge could, if posted with due diligence, have been received in the UK.

Registration in two registries
Charges and mortgages over certain assets currently require both registration with the Registrar of Companies and registration in another “asset specific” registry (e.g. assets such as ships and aircraft). However, the Secretary of State is given power to permit registration in a “special register” to be treated as if the charge is being registered with the Registrar of Companies. Section 893 of the 2006 Act enables provision to be made for information sharing. Anyone inspecting the register of charges must be made aware of the existence of such charges in the special register.

Conclusion
In conclusion, the new regime under the 2006 Act did not amend the substantive law relating to registration of charges as it stood prior to 1 October 2009. That said, it is important for all those parties who have an interest in a charge to be aware of the changed regime.

With regard to registration of charges created on or after 1 October 2009, the “new” regime applies and Companies House advises that if particulars of a charge are received on the “old” style forms, they will be rejected. This clearly has implications for security holders seeking to rely on the charge as failure to register the charge correctly results in the charge being void against a liquidator of the company, an administrator of the company or a creditor of the company. While it is possible to present particulars for registration “out of time” where the 21 day period has expired, this can only be done with the consent of the court, a process which is costly in terms of both time and money.

If you have any queries or concerns about how the new regime applies to your business or would like to discuss any of the matters mentioned in this article, please contact Douglas on 028 9055 3330 or by e-mail, douglas.anderson@tughans.com.
Alternatively you can speak with your usual contact in Tughans’ Banking and Finance department.