The Companies Act 2014: Registration and Priority of Charges
Introduction
Following a lengthy review and consultation process, the Companies Act 2014 (the “Act”) was signed into law on 23 December
2014. The Act, which consolidates the Companies Acts 1963 to 2013 (the “Repealed Legislation”) into a single statute,
commenced on 1 June 2015.
The Act is essentially a consolidation of the Repealed Legislation, but does introduce a number of innovations and changes.
While these principally affect companies incorporated as private limited companies, there are some changes which also apply to
public limited companies. However, the Act does not change the fundamental nature of any Irish company, which remains a
body corporate with separate legal personality, with a board of directors to which primary responsibility for management of the
company is delegated.
For investment companies and management companies, there are a number of key components to the Act.
discusses the provisions of the Act relating to the registration and priority of charges.
This note
Requirement to Register
The basic requirement under the Repealed Legislation to register a security interest created by a company within 21 days of its
creation remains. It remains the duty of the company to register the security but, as is the pre-existing practice, any person
interested in a charge may register it and the Act provides that this will have the same effect as if the company registered it.
This means that the pre-commencement practice of a lender’s solicitors registering the charge has continued.
The definition of a charge is, in essence, retained, as is the concept of what constitutes a registrable charge. The Financial
Collateral Arrangement Regulations provide that certain types of charges are not registrable (ie, do not need to be registered).
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These provisions have been tracked across to the Act and mean that a charge is not registrable where it is created over
(a) cash, (b) money credited to an account of a financial institution, or any other deposits, (c) shares, bonds or debt instruments,
(d) units in collective investment undertakings or money market instruments, or (e) claims and rights (such as dividends or
interest) in respect of any asset referred to in (b) to (d). However, it is worth noting that to date, a conservative approach has
been adopted to the question of whether any particular charge is excluded from the requirement to register by virtue of the
Financial Collateral Arrangement Regulations and this approach may continue to be adopted now that the Financial Collateral
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Arrangement Regulations provisions are included in the Act.
Mechanics of Registration
The pre-existing procedure, whereby the particulars of the charge were filed using a standard form with 21 days of the charge’s
creation, is retained. However, a second procedure has been introduced, whereby an initial filing of an intention to create a
security interest is made, with confirmation that the security interest has been created to follow within 21 days. This procedure is
designed to remove the “blind period” during which nothing appears on the register after the creation of the charge and before
its registration. This period has not historically been a concern in the funds industry and so it is expected that the pre-existing
procedure will continue to be the way in which charges are registered against funds.
It is no longer possible to complete a hard-copy paper filing following the commencement of the Act and all registrations of
charges must be completed online. In addition, the form used has been simplified and, in particular, the Companies
1.
There are differences between the Financial Collateral Arrangement Regulations and the Act in this context, but they are beyond the
scope of this note.
2.
The conservative approach is justified on the basis that a security document that contains both registrable and unregistrable charges
must still be registered and so where a security document primarily relates to unregistrable charges but may contain registrable charge,
it is still registered.
Registration Office (“CRO”) requirement to provide a certified copy of the relevant security document has been abolished. This
requirement applied where the relevant form was signed on behalf of one party to the security document rather than both. It is
possible for the solicitor for one party to complete the online registration on behalf of both its own client and the other party to
the security document, where that other party has authorised the solicitor to do so. In practice the solicitors for both parties
complete the registration.
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Prior to the introduction of the Act, there was a commonly perceived benefit to including additional or extraneous materials in
the relevant form. The Act removes this: the CRO is now prohibited from registering details of extraneous materials and the fact
that it has received details of any such materials has no legal effect.
Priority of Charges
The pre-existing rule that the priority of a charge was measured from the date of its creation has been amended such that the
relevant date is now the date on which the charge is registered (or, in the case of the two stage registration, the date on which
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the intention to create the charge is filed). As before, charge holders are permitted to agree as amongst themselves the
priorities of their respective charges.
Consequences of a Failure to Register
The consequences of a failure to register a charge remain the same: the charge becomes void against the relevant company’s
other creditors and its liquidator (if one has been appointed) but remains effective against the company itself and indeed
becomes immediately payable.
The power of the High Court to grant an extension of time to register a charge has been retained.
Under the Repealed Legislation, it was technically a criminal offence for a company to fail to register a charge, carrying a fine of
€1,905. This has been abolished under the Act.
Conclusiveness of the Register
Previously, entry on the register was conclusive evidence that the registration requirements had been met with respect to a
particular security interest, even where the relevant form omitted details of one or more assets charged. This has been changed
under the Act so that entry on the register is only conclusive evidence as to the particular assets detailed on the form. This
increases the importance of ensuring the relevant form fully captures the assets charged.
Satisfaction of Charges
The ability to have a charge removed from the register once it has been satisfied remains, although the relevant form no longer
needs to be sworn and is simply signed by two directors (or a director and the secretary).
It is now a criminal offence to file the relevant form knowing it to be false. In addition, where the signatories did not honestly
believe on reasonable grounds that the form was true, they may be made personally liable for the debts of the relevant
company. As a practical consequence, directors are advised to seek a confirmation from the chargeholder that the charge has
been satisfied before signing the form to that effect.
Registration of Charges against Non-Irish Companies
Where the relevant fund is not a company (eg, a unit trust, common contractual fund or investment limited partnership), the
charge is registered against the depositary as the legal owner of the assets. Certain depositaries operate in Ireland through a
3.
For example, details of a negative pledge clause, of crystallisation events for floating charges or of restriction on use of assets.
4.
This new rule is subject to other statutory provisions that are not directly relevant to funds (eg, the registrations in the Land Registry, if
made before a CRO registration, will have priority).
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branch of a non-Irish parent company rather than establishing an Irish subsidiary company and, in those cases, under the
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Repealed Legislation, the charge was registered against the non-Irish parent. The Act introduces some changes in this
context.
The Act provides that non-Irish companies with a branch in Ireland must register that branch in the CRO. Amongst other things,
charges can then be registered against that branch rather than against the parent company. However, if the branch is not
registered, the charge cannot be registered against the parent company, as was previously the case, and would therefore be
void. This is not likely to be an issue in the context of the funds industry, as it is expected that all depositaries operating via an
Irish branch will register that branch, with the result that charges can be registered against it.
Implications and Next Steps
Since the commencement of the Act on 1 June 2015, the practical mechanics of registering charges has changed, but the
substantive provisions of registration (the requirement to register and the consequences of failure to do so) remain the same.
Please get in touch with your usual Asset Management and Investment Funds Group contact or any of the contacts listed in this
publication should you require further information in relation to the material referred to in this update.
Full details of the Asset Management and Investment Funds Group, together with further updates, articles and briefing notes
written by members of the Asset Management and Investment Funds team, can be accessed at www.matheson.com.
The material is provided for general information purposes only and does not purport to cover every aspect of the themes and
subject matter discussed, nor is it intended to provide, and does not constitute, legal or any other advice on any particular
matter. The information in this document is provided subject to the Legal Terms and Liability Disclaimer contained on the
Matheson website. Copyright © Matheson
5.
Technically, this was not a CRO register and was instead known as the “Slavenburg” file.
Matheson Publication September 2016
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