A New Approach to the Registration of Company Charges - the Law Commission's Consultation Paper

This July the Law Commission issued Consultation Paper No. 164 entitled Registration of Security Interests: Company Charges and Property other than Land. The Paper outlines plans for the wholesale reform of the existing system of registration for company charges under the Companies Act 1985 ('the Act'). The current system, which has its origins in the Companies Act 1900 and its late nineteenth-century antecedents, has been criticised for many years. Previous attempts at reform, though, have failed, most notably the amendments to ss.395-408 of the Act, which were incorporated into the Companies Act 1989 but never enacted.

The Law Commission began by identifying the two main objectives behind the system of charge registration. The Commission decided that these were:

1) to give potential creditors of a company and third parties notice of which assets a company has charged ('the public notice function'); and

2) to determine priority between the interests of secured creditors over charged company assets.

The Commission considers the current system to be seriously deficient in both these respects. Their proposals are designed to provide greater certainty to creditors about who will have priority and to clarify and extend the role played by the Register in providing the public with notice of charges.

The New Registration System

Firstly, the reforms will extend the range of registrable charges beyond those listed in s.396(1) of the Act to include 'quasi-security' interests such as assignment of earnings, hire-purchase agreements and retention of title clauses. This change reflects the fact that, though they differ in form from traditional securities, quasi-securities have the same practical effects on company assets and should therefore be registered. The new Companies Act will only list those charges that will not require registration such as possessary securities.

The Commission also proposes that those charges already listed in a specialist registry, such as the Land Registry, will not need to be registered in the Company Charges Register as well. It is suggested that these specialist registries might transfer charge information to the Charges Register themselves.

The registration procedure itself will be revolutionised with the introduction of electronic notice-filing. Instead of completing Form 395 and sending it and the charging document (plus fee) to Companies House, a chargeholder will complete a simple 'financing statement'. This will...