Companies Act 2006: DTI Consultation on registration of Scottish floating charges

On 31 May 2007, the DTI published a consultation document seeking views on the government's proposal to use its new powers under the Companies Act 2006 to treat floating charges registered in the Scottish Register of Floating Charges as having been registered with the Registrar of Companies. If the proposal is accepted, it will remove the burden of double registration which will otherwise apply to all floating charges granted under Scots law (irrespective of whether the grantor company is registered in Scotland) once the relevant provisions of the Bankruptcy and Diligence etc (Scotland) Act 2007 have been brought into force.

Background

Part 25 of the Companies Act 2006 (the “2006 Act”) generally restates those provisions in the Companies Act 1985 which provide schemes for the registration of company charges by UK companies. Part 25 does not change the current schemes, but it does give two new powers to the Secretary of State: firstly, the power to make provision allowing a charge registered in a special register (such as the Register of Floating Charges) to be treated as if it had been registered with the Registrar (the “multiple registration power”); and secondly, a general power to amend the provisions in Part 25 of the 2006 Act.

The Bankruptcy and Diligence etc (Scotland) Act 2007 (the “2007 Act”)

Under Schedule 5 of the Scotland Act 1998, floating charges (and their registration) are a devolved matter. The 2007 Act provides for the establishment in Scotland of a new register to be called the Register of Floating Charges (“ROFC”). This register will be set up and maintained by the Keeper of the Registers of Scotland.

Advance filings

Under the 2007 Act a floating charge will only be created when it is registered in the ROFC, rather than being created when it is executed, as is the case presently. Under the current schemes, the gap between the creation and registration of a charge may be as long as 21 days. For floating charges (which do not receive any other form of publicity) the 21-day period allowed for registration is widely criticized as giving rise to an “invisibility period” which makes the register unreliable for creditors. Under the 2007 Act however, it will be possible (but not compulsory) for a creditor and debtor to jointly lodge an “advance notice” of a proposed floating charge: provided the charge is registered within 21 days of the advance notice being recorded, the date of creation of the floating charge will be backdated to the date on which the advance notice was registered. Therefore a Scottish floating charge would become visible on the company’s record within one working day.

Problem and Proposals

The main problem is that once the relevant sections of the 2007 Act come into force, a UK company creating a floating charge under Scots law will have to register a floating charge under two separate pieces of legislation: the 2006 Act and the 2007 Act. The government intends to use the multiple registration power established under the 2006 Act to overcome the obvious impracticalities of dual registration. The proposals will enable the Secretary of State to make an Order treating charges registered in special registers (such as the Scottish ROFC) as if they were registered with the Registrar. In other words, the requirement to deliver the floating charge to the Registrar will be satisfied by registration in the Scottish register. This will be the case whether or not the company granting the floating charge is itself registered in Scotland.

Information sharing arrangements

The government has stated that the exercise of the multiple registration power is dependent on the Secretary of State being satisfied that the appropriate information-sharing arrangements have been made between the Registrar and the Keeper. To ensure that potential creditors and other third parties can easily discover the extent to which a company’s assets are, or are not, available for the settlement of its debts, it is imperative that those searching a company’s record at Companies House should have quick and easy access to information on Scottish floating charges.

The proposals affect all companies that might grant a floating charge under Scots law regardless of whether the company itself is registered in Scotland. They also affect all commercial creditors. The DTI consultation closes on 24 September 2007 and the government expects to publish draft regulations implementing the proposals in early 2008. The full text is available here.