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You are here: BAILII >> Databases >> The Law Commission >> REGISTRATION OF SECURITY INTERESTS: COMPANY CHARGES AND PROPERTY OTHER THAN LAND (A Consultation Paper) [2002] EWLC 164(APPENDIX A) (14 June 2002) URL: http://www.bailii.org/ew/other/EWLC/2002/164(APPENDIX_A).html Cite as: [2002] EWLC 164(APPENDIX A) |
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Appendix A
amending the current registration scheme for company charges
A.2 Amendment of the current scheme was the initial approach of the Steering Group. Its Final Report refers to this approach as an alternative should its (by then) preferred option of notice-filing be rejected.[1] The Diamond report also made a number of proposals for improving the existing scheme, in this case intended as a temporary measure pending implementation of the wider proposed notice-filing system.[2] Some of the proposals found their way into the unimplemented provisions of the Companies Act 1989.
A.6 As we noted earlier, the particulars that have to be supplied to the registrar under the Companies Act 1985 are set out in secondary legislation.[3] We saw that for registering a mortgage or charge, the requirements included the name and number of the company; the date of the creation of the charge; a description of the instrument (if any) creating or evidencing the charge; the amount secured by the charge; the names and addresses of the persons entitled to the charge; short particulars of all the property charged; details of the presentor; particulars as to any commission allowance or discount, and a signature of the company or the chargee.
A.7 The Steering Group proposed a mandatory list of particulars to be sent to the registrar that was largely identical to the list it suggested for its proposed notice-filing system.[4] The proposed list has much in common with the current list.[5] The suggested additions are:
(1) whether the chargor is acting as trustee of the property;
(2) whether the charge is in respect of a monetary obligation and, if so, the amount secured, for example, whether ‘all monies’ or a specific figure or other variable obligation (although it should be noted that the amount secured is a current requirement); and
(3) whether there is an automatic crystallisation clause.
A.10 We will discuss here only the additions and omissions. We discussed most of the proposed listed particulars when we considered the contents of a financing statement in Part IV,[6] and insofar as they apply to a registration scheme, we would make the same points here. Thus we do not think it useful to state whether the charge is in respect of a monetary obligation (together with the amount secured) or other variable obligation. That information is, in the case of an ‘all monies’ clause, incomplete and in other cases likely to be out of date.[7] Nor do we think it useful to include notice of an automatic crystallisation clause; instead, we think there should be provision for the registration of a crystallisation that has occurred only as the result of an ‘automatic’ clause.[8] One respondent to the Steering Group’s consultation document suggested adding whether the charge was a market charge, and this was something that would have been allowed under the proposed amendments of the Companies Act 1989.[9] We discussed this issue in Part V and asked for views on whether the particulars should be required to state whether a charge is a market charge.[10] We also discussed the question of chargors who are acting as trustees and concluded that the financing statement should indicate whether the chargor is acting as trustee.[11]
A.11 We therefore provisionally propose that the particulars required should not include:
(1) whether the charge is in respect of a monetary obligation (together with the amount secured) or other variable obligation; or
(2) whether a floating charge includes an automatic crystallisation clause.
We consider that there should be provision for the registration of a crystallisation that has occurred as the result of an ‘automatic’ clause. We ask for views on the inclusion of statements as to whether a charge is a market charge. We propose that if the chargor is acting as a trustee, that should be indicated as one of the required particulars.
A.12 The Steering Group suggested that there should be provision to allow voluntary registration of negative pledge clauses. When we considered notice-filing and floating charges we provisionally proposed that the new legislation should provide that a floating charge does not give the company authority to create subsequent security interests having priority to the floating charge.[12] This would preserve the floating charge’s priority as from the date of filing. Under a scheme of amendment to the current system of registration, priority would not, of course, be from the date of filing; and to retain priority over subsequent fixed charges the floating charge-holder would need to include a negative pledge clause. We pointed out in Part II that this is not an infallible method. If subsequent creditors do not have actual knowledge of the negative pledge they will probably take free of it, as they will not be treated as having constructive notice of it even if it has been included among the particulars of the charge that are registered. This is because it seems that they will be fixed with constructive notice only of those matters that must be shown. It seems sensible to avoid this and therefore we provisionally propose that a negative pledge clause be listed as a registrable particular.
A.13 We do not think it needs to be made compulsory to register such a clause (it is a matter for the floating charge-holder whether it wishes to make sure it will retain priority) provided that it is made clear that a voluntary registration will constitute constructive notice to other creditors.[13] However we would welcome views on whether registration of a negative pledge clause should be voluntary or compulsory.
A.15 Should the particulars be signed?To require a signature, when what is required is only the signature of either the chargor or the chargee, seems to us to create an additional burden but to provide little benefit. If there is a question of whether the particulars were indeed filed by one of those parties or a person authorised to act on their behalf, the matter can be resolved as a question of fact and we suspect that the apparent signature will add little by way of evidence. It was thought in the Diamond report that a signature would be regarded as a formality, and it was not thought necessary to introduce any new rules as to signatures (accuracy being ensured by the effect of mistakes on a party’s rights[14]).[15] It is our provisional proposal that the particulars need not be signed.
A.16 We have already noted the criticisms that the Steering Group, like the Jenkins report[16] and the Diamond report before it, made of the present requirements that the chargor, or some other interested party (normally the chargee), lodge particulars of the charge and the charge instrument itself with the registrar of companies; and of the unrealistic expectation that the registrar must check the accuracy of the particulars against the charge document.[17]
A.18 The Steering Group proposed that provided that some particulars had been delivered, the charge would not be invalidated by defects in the particulars.[18] There would be a sanction against failing to describe the reach of the charge accurately in that the charge would be valid only for the property or classes of property included in both the particulars and the charging instrument. The Steering Group did not see the need for an additional sanction against the chargor who included in the particulars assets not in fact covered by the charge;[19] the charge should be valid for the assets rightly included. The chargor would be able to have the registration cancelled in part. Similar recommendations had been made in the Diamond report, although this had also recommended that a person delivering incorrect particulars should be under a civil liability to any person who suffered loss as a result of the inaccuracy.[20]
A.19 The Steering Group then turned to the role Companies House should play:
Companies House would merely check that the form was complete, that the particulars showed the same date as the instrument in respect of the date on which the charge had been created, and that the form and instrument creating the charge had been delivered within 21 days of its creation. … The conclusive certificate would then only validate those facts: it would be conclusive only as to the timeliness … .[21]
this would remove the timing problem that arises when the documents have also to be delivered to a specialist registry.[22]
Another would be to dispense entirely with delivery of the charge instrument or a copy: only the particulars would have to be submitted, and Companies House would simply certify that the particulars had been received within 21 days of the date of creation as stated in the particulars.
A.21 It is hard to see how Companies House could usefully certify that the charge had been filed in time without checking the date of registration as against the date of creation stated in the charge instrument itself (or a copy). In effect any certificate could be conclusive of no more than the date of registration. This would be evident from the Companies Register itself, although it would be possible for receipts to be issued and possibly even confirmation of registrations sent to the parties listed.[23]
A clear majority of consultees considered that evidence of registration on the Companies House register should only be conclusive as to the date on which the charge was registered, and in this case, presentation of the instrument (or a copy) would serve little purpose.[24]
A.23 The proposal made by the Steering Group that the registrar’s certificate should be conclusive only as to the date of delivery of the particulars for registration seems at first sight very similar to the change that the Companies Act 1989 would have introduced, that the registrar’s certificate would be conclusive evidence only as to the date of delivery of the particulars for registration.[25] That change was said to be one of the reasons why the 1989 provisions have not been implemented: limiting the effect of the certificate in that way “while leaving the sanction of invalidity operative in respect of any breach of the registration requirements”[26] would have caused grave difficulties for the Land Registry, which requires that an application to register be accompanied by a conclusive certificate that the charge has been registered at Companies House.[27] However, the context of the Steering Group proposal was very different. The Steering Group had, as we have just seen, recommended that defects in the particulars would not invalidate a registration.[28]
A.24 We have considered the Steering Group’s proposal, and it seems to us to be a sensible way of reducing the burdens on those responsible for registering charges and on Companies House. In the light of the recommendation of the Jenkins report that the registrar should merely have to provide an accurate copy of the particulars lodged and that the charge document itself (or a copy) should not be required; the Diamond report’s endorsement of the Jenkins report’s proposal, and the views of respondents to the Steering Group’s consultation document, we provisionally propose that, if reform is to take the form of amendments to the current scheme rather than the adoption of notice-filing, the Steering Group’s proposals should be followed.[29]
A.25 In order to encourage accurate submission of particulars, it might be sensible to have a provision making the person submitting the particulars liable in damages for loss arising out of their inaccuracy, a recommendation that was made in the Diamond report.[30] This would move the obligation for ensuring that the accuracy of the information about the charge from the registrar to the supplier of that information, which seems to us to be a fairer approach.
A.26 The Steering Group pointed out that, as under its proposals the registrar would not see the charge instrument, there might be a danger of confusion between similar charges. It therefore proposed that the particulars should include a unique company reference number that cross-refers to each instrument.[31] However, this proposal did not feature in the list of particulars proposed in the Final Report: several consultees were unsure as to what was meant by this, and others thought it unnecessary. Provisionally, we would not propose to adopt this suggestion.
(1) defects in the particulars submitted would not render the registration invalid;
(2) it should not be necessary to submit either the original or a copy of the charge document with the particulars;
(3) the charge would only be valid for the property or classes of property included in both the particulars and the charging instrument, and
(4) there should be civil liability on the applicant for loss suffered as a result of any inaccuracy in the particulars.
A.28 As we shall see below, the Diamond report recommended (even in the context of improvements to the existing system of registration),[32] a change to the rules of priority so that priority between competing charges would depend in part on the date of registration.[33] It then considered whether it would still be necessary to maintain a fixed period for registration, and doubted whether the sanction of the loss of priority would be enough by itself because the creation of more than one charge over a single piece of property “is not all that common”.[34] The main sanction against delay in registration was and should remain that the charge would be invalid against the liquidator, administrator or other creditors in the event of insolvency. There should be a period for registration after which a charge could not be registered if the company had in the meanwhile become insolvent. Thus it was recommended that the present 21-day rule be maintained.[35] The Steering Group, which in the context of reforming the present system did not consider changing the rules of priority, also considered that the charge should be registered within 21 days.[36]
A.29 The Diamond report recommended that it should no longer be necessary to obtain a court order in order to register a charge outside the 21-day period. Provided that the applicant made certain declarations, the charge would be registered without prejudice to the rights of other parties acquired before the date of registration.[37] The amendments made by the Companies Act 1989 would have implemented such a scheme but these have not been brought into force.[38]
A.30 The Steering Group similarly proposed that late registration should be possible without making application to the court, provided that at the time of registration there had been neither the presentation of a winding up petition nor the convening of a meeting to pass a resolution for a creditors’ voluntary winding up petition.[39] In the event of late registration, the charge would be treated as if it were registered in time, although it would rank behind any prior registered charges. This would not retrospectively validate the late registered charge where either a liquidator had been appointed or enforcement action had been commenced by a creditor before the charge had been registered.[40] Allowing late registration in this way would save the cost of either an application to the court or executing a new charge.[41]
A.31 The Diamond report had recommended that the applicant should have to declare that the omission to register in time was accidental or due to inadvertence. As the Steering Group also suggested that registration should no longer be compulsory,[42] it did not recommend that such a declaration be required.
A.32 The Steering Group’s recommendation was supported by a clear majority of those who commented on the issue.[43] We provisionally propose that registration after the 21-day period should be possible without a court order, subject to the same points as made by the Steering Group.
A.33 The 1989 amendments to the Companies Act 1985 would have provided that the late-registered charge would also become void against a liquidator or administrator if the company became insolvent within stated periods of the date of registration.[44] The Steering Group considered that this would be an “unnecessary and undesirable complication in insolvency law”, which would benefit only those creditors whose claim arose after registration and were therefore deemed to be aware of it. “It is not clear why such creditors should receive this benefit merely as a result of the delay.”[45] A possible answer is that earlier creditors might have left their debts uncollected for longer on the assumption that the company’s assets were unencumbered,[46] but the Steering Group reported that most respondents considered the appropriate deadline to be the onset of insolvency.[47] We explained when we considered this point in relation to notice-filing[48] that we see no reason to differ from the Steering Group’s view in general. However we pointed out that under a system of notice-filing in which filing can be made at any time before insolvency, special provisions might be needed to prevent last-minute filing by connected persons. The same issue would arise under the current scheme if it were to be amended in the way we proposed above, to permit late filing without a court order at any time before insolvency or winding up.
(1) registration after the 21-day period should be possible without a court order, provided that at the time of registration there had been neither the presentation of a winding up petition nor the convening of a meeting to pass a resolution for a creditors’ voluntary winding up petition;
(2) a late registered charge should be void against the liquidator, administrator and other creditors where it is registered following the onset of insolvency; and
(3) that there should be a provision to prevent ‘last-minute registration’ by connected persons?
A.35 In its consultation document the Steering Group agreed with the Diamond report that the most potent sanction against non-registration is that the charge will be invalid on insolvency. It questioned the need for a criminal sanction currently set out in section 399(2) of the Companies Act 1985. In its consultation document the Steering Group suggested that a criminal sanction might be needed first, to ensure that the proper details of the charge, rather than its mere existence,[49] were registered; and secondly, in the case in which the company has acquired property already subject to a charge.[50] In its Final Report, however, it stated that the majority of consultees considered that the criminal sanction should be abolished and that it agreed.[51] Further, on the assumption that its proposals in respect of late registration were adopted,[52] it proposed that the sanction of the secured sum being repayable on demand in the event of a failure to correctly register the charge[53] should also be abolished. The Steering Group did make it clear that chargees should be free to contract that the money should be repayable in the event of non-registration.[54] We see no reason to differ from the Steering Group’s view on the effect of non-registration and the sanctions for failure to register.
A.36 We provisionally propose that the criminal sanction for failure to register a charge created by the company[55] should be abolished; that the sanction of the secured sum being repayable on demand in the event of a failure to correctly register the charge should also be abolished; but that chargees should be free to contract that the money should be repayable in the event of non-registration.
A.37 There has been some doubt as to the position if there are two registrable charges over an asset and neither is registered within the 21-day period,[56] the point at which an unregistered charge becomes invalid as against a second, properly registered charge[57] and also over the effect if an unregistered charge is in fact enforced: must the chargeholder account for the proceeds to the holder of a second, properly registered charge?[58] These issues would have been resolved by the Companies Act 1989.[59] Broadly speaking, the first charge would not be void against the second unless the second charge was registered within 21 days (or before the first was registered).[60] If the first charge was void against the second, any proceeds of sale obtained by the first chargeholder would be held by that chargee in trust according to a statutory scheme of distribution under which the first person entitled would be the holder of the second charge.[61]
A.38 The Diamond report recommended that alterations to charges[62] and information about satisfaction of the debt secured, or release of any of the assets from the charge, should be registered.[63] The unimplemented provisions of the Companies Act 1989 would have made registration of further additional or varied particulars[64] possible but not compulsory. There is already provision for registration of a memorandum that a charge has ceased to affect a company’s property.[65] It is consistent with our provisional approach that registration should be, in effect, voluntary[66] that there should be no obligation to file particulars of alterations; but there should be provision for the chargor to require registration of a memorandum of satisfaction, or of a note that certain assets have been released from the charge. We provisionally propose that there should be no obligation to file particulars of alterations; but there should be provision for the chargor to require registration of a memorandum of satisfaction, or of a note that certain assets have been released from the charge.
A.39 The case of the charge that has been assigned by the creditor raises somewhat different issues. The debtor and third parties need to be able to discover the identity of the chargeholder. The Steering Group reported that it had been put to them that assignments should be registrable, but it considered that to make it a criminal offence not to provide details of the assignment would be inappropriate and to invalidate the assigned charge would be disproportionate.[67] Provided that there is a mechanism whereby the debtor who wishes to secure registration of a memorandum of satisfaction or a note of release can discover who is the assignee,[68] we agree. We provisionally propose that there should be a mechanism to ensure that the debtor can identify a person to whom the creditor has assigned its interest, but that there should be no criminal penalty for failure to provide details.
A.40 In Part II we pointed out that although the current scheme of registration was not intended to govern questions of priority, the fact that a charge that has not been registered within 21 days may be invalid against subsequent creditors and that registration is treated as giving third persons constructive notice of the existence of the charge means that the scheme does affect priorities. The Diamond report noted that the provisions of the Companies Act 1985 applying to Scotland do set out a scheme of priorities, and so does the Companies Act 1981 (Australia).[69] As one of the suggested improvements to the current scheme, the Diamond report recommended a statutory scheme based on the Scottish model or, preferably, a more far-reaching scheme based in part on the Australian model.[70] The proposed scheme is set out in some detail in the report.[71] Its essential features are that, unless the chargees had agreed otherwise between themselves:
(1) a fixed charge would take priority over an earlier floating charge unless the floating charge contained a negative pledge clause and the registered particulars stated that fact;
(2) otherwise, charges would rank with one another in accordance with the date of receipt for registration.
A.41 This scheme would not apply to questions of priority as between a registrable and an unregistrable charge, nor would it affect property covered by a specialist asset register.[72] It is our provisional view that a similar scheme should be introduced.
A.43 The Diamond report noted that even if the scheme dated priority from the time of receipt for registration, there could still be problems regarding the accuracy of the register because of postal or administrative reasons which would still result in ‘invisibility’ problems. Consequently, it was recommended that, if the present scheme were altered so that priority would depend on the nature of the charge and the date of registration, a scheme of provisional registration should also be introduced. This would require submission of a form of particulars similar to that to be required for a charge that had been created but without the date of creation. Registration of this would give priority for a period of 21 days thereafter; if the charge were created and duly registered, the date of registration for priority purposes would be the date of the provisional registration.[73]
A.44 If the suggested changes to the priority rules were not introduced, the Diamond report suggested an alternative system. An official search would be made and if no relevant charge was found a certificate would be issued and its issue recorded. That would give priority to applications made pursuant to it within a specified period. However, it was noted that this would impose additional burdens on the registrar.[74]
A.45 Neither recommendation was adopted by Government. In Parliament it was said that the problem was “best dealt with by chargees ensuring that they leave as little time as possible between their search and the creation of the charge.”[75] The possibility of either appears not to have been explored in the Steering Group’s consultation document. In sum, the Diamond report’s proposals on these points come very close to a proposal for a system of notice-filing, but without the full advantages offered by that system. It is true that under its scheme deciding issues of priority might be simpler and the 21-day problem would be overcome. However we have already said that the 21-day problem is a relatively rare one. The principal advantage of ‘advance notice-filing’ is to permit a single filing for a series of future transactions. The Diamond report’s proposals for improvements to the present scheme, as was pointed out, would not have achieved that.[76] We consider that if there are to be changes to move to a system of priority by date of registration and to permit advance filing, this should be done by adopting a system of notice-filing.
A.46 In Part II we noted that a charge that is not properly registered under the Companies Act 1985 will be invalid only as against the administrator, liquidator or creditors; it will be valid against a purchaser. Whether the purchaser takes free of the charge will depend on the nature of the charge and the general rules of priority.[77]
It would surely be right that a purchaser of an asset subject to an unregistered (but registrable) charge should take free of it unless he actually knew of the charge. Even if the charge were registered, my own view would be that a purchaser should not be taken to know of the charge by reason of its registration alone, unless he could reasonably be expected to have inspected the register, and that if not he should take free from it if he had no knowledge of it from any other source.[78]
A.48 The Companies Act 1989 would have implemented the first of these recommendations, that an unregistered charge should be void against a purchaser,[79] with an exception not for the case in which the purchaser knew of the charge but if the acquisition were expressly subject to the charge.[80] The Steering Group endorsed those provisions.[81] We think the test of ‘knowledge’ will be easier to apply than that of ‘acquisition expressly subject to the charge.’ We provisionally propose that an unregistered charge should be void against a purchaser unless the purchaser had actual knowledge of the charge.
A.49 On the question of whether purchasers should be bound by a registered charge, the Steering Group reported “widely differing views”.[82] In the part of its Final Report dealing with notice-filing it recommended “that those not themselves taking registrable charges should not be deemed to have notice of charges that have been registered.”[83] In our provisional proposals on notice-filing we have taken a different approach. We agreed that a person who buys goods supplied by the seller in the ordinary course of its business (in the sense of sale of stock-in-trade, as opposed to sales of capital assets such as used equipment) should take free of even a registered security interest unless the buyer knows that the disposition to him is in breach of the agreement.[84] If the floating charge has crystallised or if, unusually, the stock-in-trade was subject to a fixed charge, we thought the buyer should take free of it unless he knows that the sale to him would be a breach of the agreement; but we asked whether the same protection should be given to a buyer who is buying capital equipment, as he can be expected to check the register.[85] We suggested that purchasers of investment securities should, in effect, be treated in the same way as purchasers of inventory, but purchasers of receivables should take subject to registered charges. In relation to the position of purchasers of property that is subject to a charge, we provisionally propose that amendments to the current scheme should be on the same lines as we proposed earlier for notice filing, and we ask the same question, as in paragraphs 4.173-4.198.
A.50 In Part IV we considered the implications of adopting notice-filing for the company’s own register.[86] We expressed the provisional view that the argument in favour of abolishing the requirement to keep the company’s own register depends very much on what charges or security interests come within the system of filing a financing statement. We said that if the scope of what is registrable under a notice-filing system were to be widened, as we propose in Part VII, to include all security interests (and possibly quasi-security interests) that are created by a company and are not readily discoverable by their nature or from other registers, there would be a case for abolition of the requirement to keep the company’s own register.[87] We think the same argument applies if the current scheme of registration is amended in the ways already suggested rather than being replaced by notice-filing. Similarly, the alternative seems to be to treat this register as the primary place from which interested persons may obtain information from the company, but we doubt whether this alternative is workable in practice.[88] We provisionally propose that the company’s own register of charges be abolished.
A.51 The Companies Act 1985, section 401(1) requires the registrar to keep a register of charges in respect of each company and to enter onto it particulars of registrable charges. The Diamond report recommended that no separate register be required and that the registrar be enabled to replace it by the forms submitted (it was envisaged that there would be an index giving the date, serial number of the document on file and the date and description of the instrument).[89] The Steering Group suggested that the statutory requirement to keep a separate register summarising the prescribed forms “places an additional administrative burden on Companies House, but adds nothing to the totality of information already available”,[90] and recommended that the requirement for Companies House to maintain separate registers of charges for each company should be abolished.[91]
A.53 In this Part we have considered a number of amendments to the current transaction-based registration scheme in order to overcome some of the acknowledged difficulties with it. These or similar suggestions might prove attractive to consultees who are not in favour of a notice-filing system, and might overcome some of the problems with the current law we identified in Part III. However, it seems to us that some of the proposals in this Part - such as provisional registration and priority dating from registration - are close to those we provisionally proposed as part of a notice-filing system, but without the additional benefits of such a system (such as permitting multiple transactions to be covered by a single filing[92]). Consequently, it is our provisional but firm view that the current scheme for registration of company charges should be replaced by the scheme of notice-filing described in Part IV rather than being amended in the ways that we have outlined in this Appendix.
[1]Although a majority of those who responded to the question agreed that further work should be commissioned to examine notice-filing, the substantive responses were made in respect of the proposals contained in the consultation document. Some of the points are considered inFinal Reportparas 12.70-12.82, and para 12.83 states: “In all other respects … our proposals apply whether it is decided to improve the present system or to replace it with notice-filing.”
[2]See the Diamond report ch 20.
[3]See the Companies (Forms) Regulations 1985, SI 1985 No 854 (which provides for the use of a series of forms) and see above, para 2.27.
[4]Final Reportpara 12.79. The Steering Group proposed the particulars should comprise the chargor’s name and Companies House registration number; whether the chargor is acting as a trustee; the chargee’s name and, if a registered company, its Companies House registration number; the date of creation of the charge; the property or classes of property charged; the nature of the charge (ie, whether it is a fixed or floating charge); whether the charge is in respect of a monetary obligation, and, if so, the amount secured; and whether there is an automatic crystallisation clause. Cf ibid, para 12.28. The date of the creation of the charge was not on the list for notice-filing, since it is not of particular importance under that system. Conversely, the list above does not include whether the charge had already been created or who was registering the charge. The latter two are omitted because, under the current scheme (as opposed to the notice-filing system), there is no provision for registration to take place before a charge has been created (although see further below, para 4.43).
[5] Common points are: the chargor’s name and Companies House registration number; the chargee’s name; the date of creation of the charge; the property or classes of property charged, and the amount secured.
[6]See above, paras 4.19-4.29.
[7]See above, para 4.26.
[8] See above, para 4.144.
[9]The unimplemented Companies Act 1989, s 103 would have substituted a new Companies Act 1985, s 415(2)(b), allowing a market charge to be one of the prescribed particulars.
[10]See above,para 5.77.
[11]See above, para 5.75.
[12]Or perhaps that a provision to this effect will be invalid. See above, para 4.136.
[13]The Diamond report recommended that it should be mandatory to mention the existence of a negative pledge: ibid, para 22.4.7.
[14]See below, para A.18.
[15]Diamond report paras 22.3.2-22.3.4.
[16]See above, para 4.216 n 325.
[17]See above, para 3.16.
[18]Final Reportpara 12.80. In the Final Report this is discussed principally in relation to notice-filing, but it appears to be one of those matters of which the Steering Group said that “our proposals apply whether it is decided to improve the present system or to replace it with notice-filing”: ibid, para 12.83.
[19]Although there should be an offence of knowingly or recklessly delivering false information to the registrar: Final Report para 12.29.
[20]Diamond report para 22.3.3.
[21]See Registration of Company Charges para 3.21. The Diamond report seems to have reached a similar conclusion: “In my view we should preserve the rule that that it is not open to a receiver, liquidator or administrator to allege that because of a mistake in the particulars the charge has never been registered … . On the other hand, I have already indicated that in the case of divergences between the contents of the charge and the particulars registered the person entitled to the charge should be restricted to the lesser or narrower of the two.” Ibid, para 22.3.5.
[22]Registration of Company Charges para 3.23.
[23]Registration of Company Charges paras 3.26-3.28.
[24]Final Reportpara 12.82. See also para 12.80. However, when answering another question (question 15 in the consultation document), a sizeable majority of consultees were in favour of a copy (at least) of the instrument being delivered to the registrar.
[25]The Companies Act 1989, s 94 would have
introduced a new Companies Act 1985,
s 397(5).
[26]Registration of Company Charges para 3.14.
[27]See above, para 2.51.
[28]It had already recommended that where the charge is over land, the validity of the charge should not be affected by a defect in the particulars registered (and similarly with charges over other assets for which there is a specialist register): Final Report para 12.31. This recommendation seems to be overtaken by the more general one referred to in the text.
[29]NB the Diamond report paras 22.1.3-22.1.7: the Jenkins report pointed out that the registrar may be liable for mistakes. The Diamond report rejected calls that the document should be filed: see ibid, paras 22.1.9-22.1.11. Cf above, para 4.11.
[30]Diamond report para 22.3.3.
[31]Registration of Company Charges para 3.25.
[32]Cf under notice-filing: see above, paras 4.118 ff.
[33]See below, para A.40. It would also depend on the nature of the prior charge.
[34]Diamond report para 24.1.2. It was pointed out that voidness as against a creditor was less important than the fact that a receiver or judgment creditor can ignore an unregistered charge: ibid, para 24.1.3.
[35]Diamond report para 25.1. A longer period for property outside the United Kingdom was proposed: ibid, para 25.2.
[36]Final Reportpara 12.73.
[37]See the Diamond report para 25.3.
[38]The Companies Act 1989, s 95 would have inserted a new Companies Act 1985, s 400.
[39]Final Reportpara 12.76.
[40]Final Report para 12.76.
[41]Registration of Company Charges para 3.8.
[42]See below, para A.35.
[43]Final Reportpara 12.76 n 226.
[44]The Companies Act 1989, s 95 amended the Companies Act 1985, ss 400(2) and (3). The periods differed according to the nature of the charge and to whom it had been granted. This had not been proposed by the Diamond report in this context but may have reflected its views in relation to notice-filing: see above, para 4.77. The periods reflect the Insolvency Act 1986, ss 239-240 and 245.
[45]Registration of Company Charges para 3.9.
[46]See above, para 4.79.
[47]Final Reportpara 12.46.
[48]See above, para 4.78.
[49]Cf above, para 4.52.
[50]Registration of Company Charges para 3.22. In the latter case the validity of the charge does not depend on registration see above, para 2.23.
[51]Final Reportpara 12.73.
[52]Final Reportpara 12.77. See above, para A.32.
[53]Companies Act 1985, s 395(2). The Companies Act 1989 would have preserved this: the Companies Act 1989, s 99 would have amended the Companies Act 1985, s 407.
[54]Final Reportpara 12.77.
[55]It might need to be retained for failure to register a charge that exists already over property acquired by the company.
[56]The different views are summarised by de Lacy, p 364.
[57]See Registration of CompanyCharges para 3.4 and W J Gough, Company Charges (2nd ed) pp 744-746.
[58]Ibid.
[59]The Companies Act 1989, s 99 amended the Companies Act 1985, ss 404–407.
[60]See the amended Companies Act 1985, s 404(1).
[61]See the amended Companies Act 1985, s 406(2). After the prior encumbrancer the money would go to the chargeholder and subsequent chargeholders. The scheme would not apply if the charge is void against an administrator or liquidator because the company has become insolvent (semble at the date of distribution): ibid, s 406(3)(b). Cf Final Reportpara 12.53.
[62]Currently there is no provision for registering alterations or variations to existing charges, though a purported alteration might amount to a new charge that would require registration.
[63]Diamond report paras 28.1-28.2. It would not be necessary to register the fact that a revolving credit like an overdraft was temporarily in credit: ibid, para 28.2.2.
[64]The unimplemented Companies Act 1989, s 96 amended the Companies Act 1985, s 401.
[65]Companies Act 1985, s 403. The
unimplemented Companies Act 1989, s 98 amended the Companies Act 1985, s 403
and would have preserved this. Unlike the old version, the new
s 403 did not refer to part of the property being released from the charge. It
may have been intended to deal with this in Regulations to be made under the
new s 413 to be added by the Companies Act 1989, s 102.
[66]See above, para A.36.
[67]Final Reportpara 12.38 (in relation to notice-filing, but see above, para A.2 n 1). The NZPPSA, s 155 makes registration of a transfer possible but not mandatory.
[68]See Final Reportpara 12.38.
[69]Diamond report paras 24.2.2 and 24.2.5.
[70]Diamond report para 24.2.6.
[71] Diamond report para 24.2.9.
[72]Diamond report paras 24.2.7-24.2.8.
[73]Diamond report para 26.6.
[74]Diamond report paras 26.4 and 26.7.
[75]504 Deb (HL) 135 (February 14, 1989), quoted in G McCormack, Registration of Company Charges (1994) p 136.
[76]Diamond report para 26.5. It was thought that a system of full advance registration was too radical to recommend in the context of amendments to the current system.
[77]See above, paras 2.58 ff.
[78]Diamond report para 24.3.5.
[79]The unimplemented Companies Act 1989, s 95
amended the Companies Act 1985,
s 399(1).
[80]The unimplemented Companies Act 1989, s 99
amended the Companies Act 1985,
s 405(1).
[81]Registration of Company Charges para 3.7; Final Report para 12.50.
[82]See Final Reportpara 12.50.
[83]Final Reportpara 12.50. We assume that this is one of the proposals that was intended to apply whether or not notice-filing is to be adopted: see Final Reportpara 12.83 and above, para A.2 n 1.
[84]We point out that it will be rare for the security interest to be relevant since stock-in-trade will normally be subject only to a floating charge.
[85]See above, para 4.183.
[86]As required by the Companies Act 1985, s 407.
[87]See above, para 4.69.
[88]See above, para 3.18. As we noted there, this alternative might imply allowing anyone to inspect a copy of the relevant charge instrument, as would have been the effect of the unimplemented provisions of the Companies Act 1989.
[89]Diamond report paras 22.2.3-22.2.4.
[90]Registration of Company Charges para 3.77.
[91]Final Reportpara 12.69. The responses of consultees appear to have been divided, but a majority favoured abolition.
[92]See above, para 4.4.
