Vol 1 (2004) - Issue 1

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Notice Filing and the Law Commission Consultation Paper No. 164 on Registration of Security Interests

The broad thrust of this July 2002 consultation paper is that English law should move over to a system of notice filing, first developed in the US under Article 9 of the Uniform Commercial Code and then refined in Personal Property Security legislation in the common law provinces of Canada and more recently in New Zealand with the Personal Property Securities Act 1999. A final report is awaited but there are indications that while the Law Commission will stick to main features of the proposed scheme they are prepared to modify the details. This engagement with consultees is very welcome and bodes well for a thorough and convincing final report. It remains to be seen however whether the Law Commission’s proposals will ultimately translate onto the statute book. Unfortunately, the precedents of the Crowther and Diamond Reports do not augur well in this respect. Be that as it may, this short article will address the principal aspects of the consultation paper.

Notice filing versus transaction filing

The present company charge registration regime laid down in Part 12, Companies Act 1985 maybe dubbed a “transaction filing” system. Once a charge has been created, particulars of the charge along with the instrument of charge must be delivered to the registrar of companies within 21 days of creation and, if this is not done, the charge is invalid in the event of the corporate borrower going into liquidation. The legislation is premised on the assumption that the registrar compares the filed particulars with the charging instrument and, if satisfied that there is a concordance, issues a certificate of due registration which is stated to be conclusive evidence that all the requirements of the Act as to registration have been complied with. Under the “notice filing” system however, only a bare bones statement needs to be submitted which states that the lender either has taken or intends to take a security interest in the debtor’s property.
There are definite advantages in moving over to a system of notice filing. These advantages stem from deep-rooted problems with the existing process. For a start the process is a burdensome, time-consuming one and the duties imposed on the staff at companies house may not be ones that are capable of easy fulfillment. Secondly, there is not much flexibility in the procedure as far as the secured lender is concerned. There is no procedure whereby registration may be achieved in advance of negotiations for a loan agreement and moreover, a single filing cannot cover more than one instrument of charge. Thirdly, the time of registration does not determine priorities if there is more than one charge over the same property.
The Law Commission in their consultation paper concluded that the current English system for registration of company charges has a number of weaknesses such that reform was needed. Moreover, the Commission concluded that a notice-filing system would have very significant advantages over any amended version of the current system.