Company charge registration in Scotland: a guide

Hamish Patrick and Tim Davidson, of our banking and finance team, provide guidance on the company charge registration regime for Scottish security documents.

11 September 2020

1. Background

The company charge registration regime for Scottish security documents is broadly similar to the charge registration regime for other security documents entered into by UK companies. There are however several Scots law specific points that should be considered when registering Scottish security documents.

2. Requirement to register

The charge registration regime for all UK companies (including Scottish companies) is set out in Part 25 of the Companies Act 2006 (the "Act"). The regime applies to all charges created by a company and specifically includes standard securities, assignations in security, and any other rights in security constituted under the laws of Scotland. 

Part 25 of the Act places an obligation on companies to register a charge with UK Companies House within the relevant period allowed for submission (see below for more information on relevant periods). If a company fails to register a charge at Companies House within the period, the charge will be void against: 

(a) a liquidator of the company;

(b) an administrator of the company; and

(c) a creditor of the company. 

This guidance note will focus on security granted by UK companies but it is worth noting that the charge registration regime also extends to limited liability partnerships and that there is no charge registration regime in Scotland for other types of partnerships or for non-UK companies.  

3. Dates of creation

The relevant period allowed for submission of a charge to Companies House is 21 days[1], beginning with the day after the date of creation of the charge. The date of creation of a Scottish security document will differ depending on the type of security being entered into and the signing protocols followed:

  • for a standard security (fixed security over land), the date of creation will be the date of registration of the standard security at the Registers of Scotland;
  • for all other types of security:

(1) If the document has been signed using counterpart execution, the date of creation for registration purposes will be the effective date of the document (i.e. the date on which the counterparts are delivered/released); or

(2) If the document has been signed using traditional execution methods, the date of creation for registration purposes will be (a) if the document is unilateral, the date on which the document is delivered to the chargeholder; or (b) if the document is bilateral, the last date of signing. 

In the case of a standard security, the registration process at Registers of Scotland will often take longer than 21 days. This is particularly true when there are other dealings involving the property taking place at the same time as the grant of the security (e.g. a sale of the property, release of existing security, new leases being registered). The common approach in these circumstances is to proceed with registration at Companies House whilst the standard security is still in the process of being registered at Registers of Scotland. The electronic acknowledgement received from Registers of Scotland when the application is submitted will note the "Date of Application". This date will become the date of registration at Registers of Scotland and so can be used as the date of creation for the purposes of registration at Companies House.  

In the case of assignations in security (such as rental assignations), it is important to note that the date of creation is the relevant date outlined at options (1) or (2) above, and not the date of intimation of the assignation.

4. The registration process

A charge must be registered by submitting a certified copy of the instrument creating or evidencing the charge to Companies House, together with a statement of the particulars of the charge. This obligation is complied with by submitting, in the case of a company, a Form MR01. The Form MR01, together with a certified copy of the charge, can either be submitted in paper form directly to Companies House or (now the more common approach) online using the Companies House WebFiling service.  

The following information will need to be included on the Form MR01:

  • Date of creation: as discussed above, this will vary depending on the type of security being registered and the signing protocols that have be followed. 
  • Name of persons entitled to the charge: this box should note the name of the person, security agent or trustee entitled to the charge. 
  • Short description of any land, ship, aircraft or intellectual property subject to a charge: if the security document being registered is a standard security (or security over a ship, aircraft, or intellectual property) then this box should be completed with a description of the property charged including (in the case of a standard security over registered land) the title number of the property. 
  • Confirmation as to whether the instrument includes a charge (which is not a floating charge) or fixed security over any other property: if the security being registered is fixed security over any other type of asset not listed above (e.g. an assignation in security of rents or contracts, a shares pledge etc.), this question should be answered "Yes".
  • Confirmation as to whether the instrument includes a floating charge: the form should confirm whether the security document being registered includes a floating charge and, if so, whether or not the floating charge is over all the property and undertaking of the company.
  • Confirmation as to whether the charge includes a negative pledge: the form should confirm whether or not the terms of the charge prohibit or restrict the company from creating further security that will rank equally with or ahead of the charge. If a charging instrument incorporates the terms of another document by reference (e.g. a standard security may incorporate a lender's standard conditions), that document should be reviewed to consider whether it contains a negative pledge.
  • Confirmation as to whether the chargor is acting as trustee: this question will only be applicable in limited circumstances where the company is acting as trustee of the property or undertaking which is the subject of the charge. 

The certified copy can be submitted in hard copy (with the necessary certification and signature) together with a paper form. Alternatively, if using the WebFiling system, a PDF scanned copy of the original security document can be uploaded and certified electronically whilst completing the Form MR01.  

5. Key points to note when registering security

  • Redacting personal information on the charge: The Act sets out certain categories of personal information that can be redacted from the certified copy of the charge to be submitted to Companies House. Personal information relating to an individual (other than their name) can be redacted, which means that it is possible to redact, for example, the residential address of a witness contained in a signing block. The Act also permits bank details (account numbers, sort codes etc.) to be redacted. It is also standard practice to redact signatures prior to submitting the charge to Companies House, as permitted by the Act. The certified copy of the charge will be publicly available on the Companies House website so we would always recommend redacting signatures, personal addresses and bank details if it is possible and appropriate to do so.
  • Inclusion of capacity of the security holder on the form: It is common on secured lending transactions for security to be granted in favour of a security trustee, who holds the security on trust for a group of secured creditors or lenders. Where this is the case, it is common to note on the Form MR01 that the chargeholder is acting as Security Trustee or Security Agent (as applicable). We would ordinarily include this in brackets when completing the name of the person entitled to the charge on the form.
  • Charges granted by Scottish partnerships: As noted above, there is no separate charge registration regime for Scottish partnerships (other than LLPs). In the case of security granted by Scottish partnerships or Scottish limited partnerships, no charge registration at Companies House is therefore required. This is in contrast to some jurisdictions, such as England/Wales, where it is common to register such charges against the corporate general partner of the partnership / limited partnership. As a matter of Scots law, Scottish partnerships and Scottish limited partnerships have separate legal personality and so, unless the security is expressly being granted by the corporate general partner, it is not appropriate to register the charges at Companies House.
  • Scottish share pledges: The Act makes clear that charges which are “pledges” are not registrable at Companies House. However, this refers to traditional types of pledge (such as of goods) where possession of the assets passes to the security holder. Care should be taken in the case of charges creating fixed security over Scottish shares. Although these are commonly known as “share pledges”, in practice they are actually assignations / transfers in security of the shares and are therefore registrable at Companies House. A discussion with Companies House may be required to clarify the position.

6. Ranking security – registration requirements 

If a ranking or intercreditor agreement is entered into to rank standard securities over land then this will be registerable at Registers of Scotland, so that the title to the property can be updated to reflect correctly the ranking of the standard securities which have been granted over the property. There is no option to register the ranking/intercreditor agreement against the relevant standard securities at Companies House.  

One area where the Scottish registration regime diverges from the regime in other parts of the UK is in relation to registering ranking agreements or intercreditor agreements that affect the ranking of floating charges granted by Scottish companies

Part XVII of the Companies Act 1985 (and in particular s.466), which extends to Scotland only, states that an alteration to a floating charge will be void against a liquidator, administrator or creditor of the company unless a certified copy of the instrument of alteration is delivered to Companies House together with a statement of particulars (see below for more information). An "alteration" includes one which varies, or otherwise regulates the order of, the ranking of the floating charge in relation to fixed securities or to other floating charges. This therefore includes any ranking agreement or intercreditor agreement that varies or regulates the ranking of a floating charge granted by a Scottish company. 

The obligation to register applicable instruments of alteration is complied with by submitting a Form M466 to Companies House together with a certified copy of the instrument. The form and certified copy must both be submitted to Companies House within the period of 21 days beginning with the day after the date of execution of the instrument of alteration. It is worth noting that this period starts from the last date of execution, which will not necessarily be the effective date of the ranking agreement or intercreditor agreement if it is executed in counterpart and held as undelivered/unreleased as part of the completion arrangements. 

One form M466 will need to be registered against each floating charge granted by a Scottish company covered by the instrument of alteration. For example, if three floating charges granted by a Scottish company in favour of three different creditors are being ranked, then three separate M466s will need to be submitted. The form should contain:

  • the details of the Scottish company (company name, company number);
  • the details of the floating charge that is being altered (date of creation, name of person entitled to it, particulars of the property charged);
  • the details of the instrument of alteration being registered (names and addresses of the parties, dates of execution of the instrument of alteration);
  • a summary of the provisions in the instrument of alteration prohibiting or restricting the creation by the company of any fixed or floating security to have priority over, or ranking pari passu with, the floating charge to which the form relates;
  • short particulars of any property released from the floating charge;
  • the amount, if any, by which the amount secured by the floating charge has been increased; and
  • a statement of the provisions in the instrument of alteration, varying or otherwise, regulating the order of the ranking of the floating charge in relation to other fixed securities and floating charges. 

Completing the Form M466 is unfortunately more burdensome than other Companies House forms, and the common approach is to answer the more detailed questions (regarding negative pledges and ranking arrangements) by extracting the relevant sections of the ranking agreement into the form in full. The Form 466 is also not available online, and so must be completed and submitted in paper form.

If you would like further advice on this this or another related matter, please get in touch with Hamish Patrick, Tim Davidson or your usual Shepherd and Wedderburn contact.

[1] The 21-day period has been temporarily extended by an additional 10 days during the current Covid-19 pandemic, although it is expected to revert to 21 days in due course.