UK: A New Approach to the Registration of Company Charges – the Law Commission’s Consultation Paper

Last Updated: 11 October 2002
Article by Nicholas Mole

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 involve filling out an on-screen electronic form requiring the following basic details:

- the identity and addresses of the parties

- a generic description of the property subject to the charge

- a statement that the chargor has consented to the filing (if the statement is not being submitted by the chargor)

- the period of the charge’s validity

- whether it is a fixed or floating charge

- confirmation that the chargor is the beneficial owner of the asset.

The financing statement will then be entered directly onto the Register, which will be publicly available on-line. There will be no need for a certificate of registration. To prevent fraudulent entries being made in the Register, the Commission proposes that there should be a criminal penalty for providing false or misleading information.

The new registration system will be voluntary and the penalties on companies for non-registration contained in s.399(3) of the Act abolished. It is anticipated, though, that creditors will make sure that company charges are registered as quickly as possible to secure their priority against subsequent secured creditors.

Finally, the Commission is considering abolishing the requirement for a company to keep its own charges register. The Paper notes that most companies do not keep their registers up to date anyway. However, given the reduced amount of information required in the financing statement, the Commission is also considering granting various rights to the debtor company, other creditors and third parties to request further information from the secured creditor concerning its charge.

New Rules on Priority: Goodbye to the “Invisibility” Period

Under the current system the date of a charge’s registration does not constitute a ‘priority point’ in determining the priority between secured creditors. Charges are ranked in order of the date of their creation (execution) not registration. This coupled with the fact that a company has 21 days in which to register a charge creates uncertainty. A potential creditor of a company who looks at the Register cannot be sure that any charge he takes over the company’s assets will have priority over all other charges except those already registered. It may be that the company has executed an earlier charge that has yet to be registered within the time period. Even if this charge is registered after our creditor registers his charge, because it was executed first it will take priority.

The Commission regards it as unfair that a creditor should lose priority to a charge that he could not have discovered through a search on the Register. It also recommends that companies should be able to guarantee to a potential creditor that their proposed charge will take priority at the negotiation stage. Therefore the Commission proposes the following:

1) the date of registration for a charge, not the date of its execution, will become the relevant date in determining the priority between charges. Registration will become the ‘priority point’;

2) there should be no time limits for the registration of charges. The old 21-day limit will be abolished; and

3) creditors will be able to register charges before they are entered into with the company. Thus a creditor will be sure that, should the company grant him a charge, his charge will take priority. The proposals do not set any limits on how far in advance of its execution a ‘provisional’ financing statement could be submitted.

Furthermore, chargeholders will no longer have to register charges individually, but instead could register a whole series of charges in one go - even charges yet to be granted. The aim is to reduce the administrative burden imposed on chargeholders by the registration requirements.

Priority: The Floating Charge and the Purchase-Money Exception

The Commission’s proposals are designed to make the date of filing the financing statement the key factor in determining priority between different charges. This has led it to overhaul the existing rules concerning priority between fixed and floating charges. Currently fixed charges take priority over floating charges, even where the floating charge has been registered prior to the fixed charge. To prevent this nearly all floating charges contain negative pledge clauses. Under the new system floating charges will have the same priority as fixed charges, doing away with the necessity for negative pledge clauses. For all charges, fixed or floating, date of registration will in future determine priority.

There will be an exception to this rule for those charges that the Paper identifies as ‘purchase-money interests’. Purchase-money interests involve a creditor providing money to a company so that it can acquire a new asset and in return securing a charge over that new asset. An example of this might be under a hire purchase agreement. It is proposed that these creditors should get priority over their particular assets above general secured creditors of the company, irrespective of the date of filing of their interest. Quasi-securities that amount to money-purchase interests will also get this priority over earlier registered charges.

Finally, under the proposals, chargeholders will also now be required to register the crystallisation of a floating charge, something that was not previously required.

Registration and the Rights of Third Parties

The Paper aims to clarify the law where a third party purchases from a company an asset of that company which is still encumbered with a charge. The current legal position is complicated by the interplay of registration with the equitable doctrine of notice. In summary, at present, if the fixed charge is unregistered, then a purchaser may still be bound by a charge if he has actual notice or constructive notice of its existence. Conversely, purchasers are generally bound by registered charges on assets. This is because most purchasers are deemed to be fixed with constructive knowledge of the contents of the Register. However case law has not specifically identified which types of purchasers will be fixed with constructive knowledge and which groups will not.

Under the Law Commission’s proposals, purchasers would no longer be bound by unregistered charges. This would be irrespective of whether or not they had actual knowledge of the charge. However, most purchasers of company assets would be bound by a registered charge. There would, though, be an important exception for purchasers who had bought assets ‘sold in the ordinary course of a business’. These purchasers would take free of the charge unless they had actual knowledge that the sale was in breach of the security arrangement.


The Law Commission’s proposals for the reform of the charges registration system represent a bold design for the future. Naturally they also leave a number of questions unanswered: how early into negotiations, for example, will creditors be allowed to register their proposed charges? How would the system deal with the situation where two creditors were in negotiations with the same company and both wished to register their charge? What exactly does ‘sold in the ordinary course of business’ mean and would such an exception for purchasers work in practice? Hopefully by the time these proposals are incorporated into a new Companies Bill we shall have answers to these important questions.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.