Failure to register a company charge within 21 days (CA 2006 ss.859A, 859H)
Pembury Castings Ltd granted Halden Bank plc a fixed charge over its factory premises to secure a £400,000 loan. Through an oversight, neither the company nor the bank delivered a statement of particulars of the charge to the registrar of companies, and no court order extending the time for delivery was ever sought. Some months later the company goes into insolvent liquidation with the full £400,000 still owing to the bank.
What is the bank's position in the liquidation?
Choose one answer to see the reasoning.
Worked answer
Correct answer E: The charge is void against the liquidator and creditors, so the bank ranks as an unsecured creditor, though the debt remains payable.
THE RULE TO REMEMBER
A charge whose particulars are not delivered within 21 days is void against a liquidator, administrator and creditors, but the secured debt remains payable (CA 2006 ss.859A, 859H).
Failure to register a company charge within 21 days (CA 2006 ss.859A, 859H)
When a company creates a charge, the registrar must register it if a statement of particulars is delivered within the period allowed. That period is 21 days beginning with the day after the charge was created, unless the court extends it (s.859A(2) and (4) CA 2006). No particulars were delivered and no extension was obtained. Under s.859H(3), the charge is therefore void, so far as it confers security over the company's property, against a liquidator, an administrator and a creditor of the company. However, s.859H(4) preserves the contract or obligation to repay the money secured, and provides that the money immediately becomes payable when the charge becomes void. Halden Bank therefore loses its security in the liquidation but keeps its claim for £400,000, which it can prove for as an unsecured creditor.
Why A is wrong: Section 859H(3) makes an unregistered charge void against a liquidator, so failing to register affects its validity, not merely notice.
Why B is wrong: Section 859H(4) preserves the obligation to repay; only the security is lost, so the bank proves as an unsecured creditor.
Why C is wrong: Particulars must be delivered within 21 days beginning with the day after creation, unless the court extends the period.
Why D is wrong: Voidness under s.859H does not depend on the chargeholder's good or bad faith.
A little more practice done.
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