Part XIII of the Companies Act 1997 makes a company’s security public — or makes it worthless.
Section 221 — who the Part applies to
A reference in this Part to a company includes an overseas company to which Part XX applies, but nothing in this Part applies to a charge on property of an overseas company which is located outside the country.
Section 222(4) — the eight registrable charges
| Charge | |
|---|---|
| (a) | Charges (other than charges solely on land) to secure any issue of debentures |
| (b) | Charges on uncalled share capital |
| (c) | Charges or assignments created or evidenced by instruments — including absolute bills of sale and absolute assignments or transfers of book debts — that, if executed by an individual, would be invalid or of limited effect if not registered under the Instruments Act (Chapter 254) |
| (d) | Floating charges on the undertaking or property of a company |
| (e) | Charges on calls made but not paid |
| (f) | Charges on a ship or aircraft, or a share in one |
| (g) | Charges on goodwill, a patent or licence under a patent, a trade mark, or a copyright or licence under a copyright |
| (h) | Charges on the book debts of a company |
Paragraph (a) expressly excludes charges solely on land — those are registered against the title under the land legislation. A general debenture that catches land and other property is still a floating charge under paragraph (d) and must be registered here as well as against the title.
Note also the Personal Property Security Act 2011, which governs security interests in personal property and their priority. A lender taking security over a company’s personal property should consider both regimes.
Section 222(1) — two months, notice and a certified copy
Where a company creates a charge to which this Part applies, the company shall submit to the Registrar for registration within two months after the creation of the charge —
(a) a notice for registration of the charge in the prescribed form; and
(b) a certified copy of the document creating or evidencing the charge.
Where the section is not complied with, the charge is, so far as it confers any security on the company’s property or undertaking, void against (a) the liquidator of the company, and (b) any creditor of the company.
This does not prejudice any contract or obligation for repayment of the money secured — and when a charge becomes void under this section the money it secures becomes immediately payable.
The debt survives; the security does not. An unregistered chargee ranks as an unsecured creditor in the liquidation and cannot assert priority against any other creditor. Everything the security was taken for is lost.
And the acceleration in subsection (3) cuts both ways: the lender may demand immediate repayment — which for a struggling company often precipitates the very insolvency the security was meant to guard against.
Under section 222(13), where default is made in complying, each director commits an offence, penalty under section 414(1).
Section 222(5) — property outside the country
Where a charge created in the country affects property outside the country, the application and certified copy may be submitted for registration under subsection (1) notwithstanding that further proceedings are necessary to make the charge valid or effectual according to the law of the place where the property is situated. Registration here is not held up by foreign formalities.
Sections 222(6) to (10) — a series of debentures
a notice stating (i) the total amount secured by the whole series; (ii) the dates of the resolutions authorising the issue and of the document creating or defining the security; (iii) a general description of the property charged; (iv) the names of the trustees (if any) for the debenture holders — with a certified copy of the document, or a copy of the first debenture of the series.
Under subsection (7), where more than one issue in the series is made, notice of the date and amount of each issue must be given within two months. Under subsection (8), particulars must include any commission, allowance or discount paid for subscribing or procuring subscriptions for debentures — though under subsection (9) the deposit of debentures as security for a debt is not treated as an issue at a discount. Under subsection (10), failure to comply with subsections (7) or (8) does not affect the validity of the debentures issued.
Section 222(11) — the Instruments Act is displaced
(a) does not need to be registered under the Instruments Act (Chapter 254); and
(b) is not subject to avoidance under that Act; and
(c) on registration under this Part, has effect and is as valid, for all purposes, as if it had been duly registered under that Act.
So company charges are registered once, in the companies register, and that registration does the work the Instruments Act would otherwise require.
Section 222(12) — the anti-avoidance rule
(a) a registrable charge is created before the expiration of two months after the creation of a prior unregistered charge; and
(b) it comprises all or part of the property comprised in the prior charge; and
(c) it is given as security for the same debt or part of it,
then, to that extent and as respects that property, the subsequent charge is not operative and has no validity — unless it is proved to the Court’s satisfaction that it was given in good faith to correct a material error in the prior charge, or under other proper circumstances, and not to avoid or evade this Part.
Without subsection (12), a lender who missed the two-month deadline could simply take a fresh charge over the same property for the same debt and register that instead — obtaining, in substance, a charge dated late but treated as valid.
The subsection forbids it, with a narrow exception for genuine correction of a material error, which the chargee must prove to the Court. Note the related risk in a liquidation: section 340A deals with voidable charges, and section 347 with a floating charge created within six months before the commencement of a liquidation.
Where the deadline has been missed, the proper course is an application under section 228 for an extension of time and rectification of the register.
Sources
- Companies Act 1997 — ss 221–231, 340A, 347, 414; Part XX
- Instruments Act (Chapter 254)
- 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.