A registered charge stays on the record until someone takes it off. Section 227 of the Companies Act 1997 is how that is done.
Section 227(1) — when a memorandum may be lodged
(a) the debt for which the charge was given has been paid or satisfied in whole or in part; or
(b) the property or undertaking charged, or any part of it —
(i) has been released from the charge; or
(ii) has ceased to form part of the property or undertaking of the company,
any person who is interested in the debt or the property or undertaking may submit to the Registrar, in the prescribed form, a memorandum of satisfaction — in whole or in part, or of the fact of release or of the property having ceased to form part of the company’s property — and the Registrar shall enter particulars of the memorandum in the register.
Paragraph (a) — the debt has been paid or satisfied. This is the ordinary discharge on repayment of a loan.
Paragraph (b)(i) — the property has been released, though the debt continues. This is the partial release a lender gives when a company sells a charged asset and applies part of the proceeds.
Paragraph (b)(ii) — the property has ceased to form part of the company’s undertaking. This covers an asset sold or otherwise disposed of, where the charge no longer bites on anything the company owns.
Each may be in whole or in part, so a memorandum can record that a facility has been partly repaid or that some of the charged property has been released.
“Any person who is interested”
Section 227(1) is deliberately wide. It is not confined to the company or the chargee. A person interested in the debt or the property may lodge the memorandum — which includes:
- the company, wanting a clean register;
- the chargee, or a trustee for debenture holders;
- a purchaser of charged property, who needs the register to show the release;
- a subsequent chargee, whose priority position depends on what remains registered;
- a liquidator or receiver, tidying the position; and
- a guarantor who has paid the debt.
This matches section 230, under which any person interested may register a charge or other document required to be registered, and may recover the fees from the company.
Section 227(2) — the Registrar may require evidence
The memorandum shall be supported by such evidence as the Registrar requires to satisfy the Registrar as to any relevant matter referred to in subsection (1)(a) or (b).
In practice, a signed discharge or release from the chargee, or a letter confirming repayment. Where the memorandum is lodged by someone other than the chargee — a purchaser, a guarantor, a liquidator — more will be needed: evidence of payment, the deed of release, or the sale documents showing the property has ceased to form part of the company’s undertaking.
The Registrar’s discretion here is a protection for the chargee. A charge cannot be removed from the register on a bare assertion that the debt has been paid.
Why getting the release registered matters
| Affected party | Consequence |
|---|---|
| The company | A discharged charge still shown on the register makes the company look encumbered; new lenders will require it cleared before advancing |
| A buyer of the property | The register is where a purchaser looks. An uncleared entry stalls settlement |
| A later chargee | Priority under section 231 and Schedule 15 is worked out from the register — a stale entry clouds the analysis |
| The former chargee | Continues to appear as the person entitled to a charge under section 225(2)(v), and may receive notices and demands |
| A liquidator | Must investigate every registered charge; an unreleased entry costs time and money in the estate |
If the Registrar will not enter the release
On being satisfied that an omission or misstatement of any particular in the register of charges or notice referred to in section 227 was accidental or due to inadvertence or to some other sufficient cause, or is not of a nature to prejudice the position of creditors or shareholders, or that on other grounds it is just and equitable to grant relief, the Registrar may grant relief or rectify the register or the section 227 notice, on such conditions as he thinks fit.
Section 228 expressly extends to a section 227 notice, so it covers an error in a memorandum of satisfaction as well as in the original registration. Under section 228(2) a dissatisfied applicant may apply to the Court, and under section 228(3) no order for costs shall be made against the Registrar.
Where the dispute is with the chargee rather than the Registrar — the debt is paid but the chargee will not release — the routes are an application under section 142(1)(b) for an order requiring the person to do what is required, or ordinary proceedings on the security document.
Checklist on repaying a secured facility
- Obtain a written discharge or release from the chargee, executed in accordance with section 155 if the chargee is a company.
- Lodge the memorandum of satisfaction in the prescribed form under section 227(1), with the supporting evidence.
- Check the register afterwards to confirm the particulars have been entered.
- Deal with related registers — a financing statement under the Personal Property Security Act 2011, a mortgage on a land title, and any registration against a trade mark or other intellectual property.
- Retrieve the security documents, including any share certificates and signed blank transfers held by the lender.
- Update the company’s own records — the register of charges kept as part of the company records.
Sources
- Companies Act 1997 — ss 142, 155, 164, 222–231; Schedule 15
- Personal Property Security Act 2011
Before relying on anything here, read the current text of the Companies Act 1997 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.