Register online

In a consultation paper issued in July 2002, the Law Commission recommended major reforms for the law on the registration and priority of security. At the heart of the proposals are plans to introduce a system for the electronic filing of financing statements at Companies House, to extend the range of registrable interests and to shake up the rules governing priority of security.

Over the years there have been several reviews of the existing registration regime, but they have mostly come to nothing. This exercise, however, was prompted by the wide-ranging Company Law Review and looks much more likely to come to fruition, particularly as the technology now exists to support the sort of online filing system that would be required.

A further consultation paper is due to be published this summer on the draft regulations for the new filing scheme. That makes this an opportune time to look at the scope of these important proposals and how they will impact on the banking sector.

Why register?

The Law Commission believes that any registration system should give notice to the world at large of the existence of security, enabling a person dealing with a company or other entity to establish the extent to which it has created security over its assets. It should also operate to determine priority issues, so that anyone proposing to take security can generally be sure that, once their own interest has been registered, it will take priority over any security interests created subsequently.

What is wrong with the present system?

The Law Commission found several problems with the current system for registration of security, concluding that it is “unnecessarily complicated, incomplete and restrictive”. For example, the existing regime does not adequately meet the requirement to give public notice, as many types of security interest, such as receivables purchase agreements, finance leases and charges of shares, are not registrable at all.

The current system also does only part of the job as regards priority. If a chargee does not register then someone else can get priority, but even if it does register it will not automatically have priority. The 21-day period allowed for registration means that a search by a lender proposing to take a new charge will not necessarily reveal all charges previously created and yet any such prior charge is likely to take priority.

There are other issues as well. The position on foreign companies is unclear and there is some overlap between the Companies House regime and the registration requirements in respect of certain types of assets, such as land, ships, aircraft and trademarks, at other specialist registries.

The proposed new regime

Reversing the current position, where security is not registrable unless listed in the legislation, all security interests and quasi-security interests would be registrable unless specifically exempt.

It would be necessary to register not only charges and mortgages, but also all transactions that secure payment or performance of an obligation. This quasi-security would encompass such arrangements as hire purchase and conditional sale, retention of title, finance leases, factoring, securitisation and receivables purchase.

The perpetual debate over what amounts to a ‘book debt’ for the purpose of the legislation would no longer be relevant, as all security over all kinds of monetary would be registrable.

There would be exemptions for charges over shares, dividends and other securities and charges over bank accounts, as in each case, the chargee’s position can be protected by other means, such as possession of share certificates or control of an account.
Registration is not essential as a means of perfection.

The new system would be straightforward. A secured lender would file a financing statement online that would contain only brief information about the security, not the level of detail currently required in a Form 395. It could do so in advance, before completion, and a single financing statement could cover a series of security transactions.

The new registration system would be voluntary in the sense that there would be no criminal sanctions for failure to file. However, if no financing statement were filed, the relevant security interest would not take priority over any subsequently registered security interest. It would also be void against an administrator or liquidator. Lenders would continue to register in any event.

Also, there would be no time limit within which a filing was required to be made. In practice, no doubt, most filings would actually be made in advance.

There would be no equivalent of the current certificate of registration, which serves as conclusive evidence of compliance with the registration requirements. Consequently, it would be possible to challenge the validity of a security interest if the financing statement was ‘seriously misleading’.

The new rules would apply to all foreign companies with a registered branch or place of business here, but to no others, even if they should have registered here but had failed to do so. It is possible that the new regime would also extend to sole traders and partnerships, as well as to companies.


One of the most important aspects of the Law Commission’s report is the proposal to revise the rules on priority of competing interests in an asset, such as where there are two lenders, each with its own security, or where there is a secured lender and a purchaser. The issues are too complex for us to do them justice here, suffice to say that in most cases under the new rules, priority would be determined by the date of filing of a financing statement.

The changes to priorities would include the introduction of a rule that a registered floating charge would take priority over any subsequent fixed charge.

The Law Commission’s thorough review of the rules on registration of security and related issues is welcomed, but any attempt to revise the rules on priority is intrinsically risky. It will be difficult to cut through the long-established and complex principles and to emerge on the other side with a cohesive, logical, balanced and user-friendly piece of legislation.

The extension of the registration regime to quasi-security could also cause some difficulty. Business people arrange their affairs in all kinds of different ways for valid reasons. If, for example, two parties have deliberately chosen to enter into an arrangement that traditionally would not have been classified as a security interest, it might appear inappropriate to recharacterise it for this purpose. In principle, however, it must be right that the register should give as full a picture as possible as to the extent of third party interests in a company’s assets.

Despite these possible trouble spots, there should be no objection to the introduction of a simple, modern, online filing system. It looks likely to benefit all those involved in secured lending.

Indraj Mangat is a banking partner at Eversheds