The Companies Act 2014 was enacted on 23rd December 2014 and will become effective from 1 June 2015. For those in the business of lending, one area of reform and improvement is the introduction of new procedures for the registration and perfection of security interests. A summary of the new priority regime is set out below.
Definition of Charge
The Companies Act 2014 (the "Act") defines a charge as being a mortgage or a charge (written or oral) created over any interest in any property of a company. However, the Act specifically excludes the following from the definition of a charge:
- a mortgage or charge created over cash;
- money credited to an account of a financial institution, or any other deposits;
- shares, bonds or debt instruments;
- units in collective investment undertakings or money market instruments or
- claims and rights, such as dividends or interest, in respect of any of the foregoing, except for cash.
These specific exclusions have the effect of narrowing and refining what will constitute a security interest that requires registration in the Companies Registration Office ("CRO").
Effect of Non – Registration of a Charge
The Act states that any charge which is not filed in the CRO shall be void as against any liquidator or creditor of a company. When a charge becomes void, the money secured by it becomes immediately payable.
Priority of Charges
The Act sets out that registration of the particulars of a charge will be able to be processed by way of either the one–stage procedure or the two–stage procedure. Whichever procedure is chosen by a company may have an effect on determining priority of a charge. The date of creation of the charge will no longer determine priority. However there will be exceptions to this such as: where priority is governed by some other regime, such as by the Property Registration Authority of Ireland, or where lenders agree between themselves to priorities that differ from those set out in the Act.
The one-stage procedure is similar to the procedure used under the current regime. Particulars must be delivered, in the prescribed form, called a form C1, not later than 21 days after the date of the charge’s creation.
The two-stage procedure is a new procedure and involves the submission of prescribed particulars on two separate forms. The first of these forms to be submitted to the CRO is the form C1A which is a notice of intention by a company to create a charge. This form must be delivered to the CRO in advance of the charge being created.
The second form, a form C1B, must be delivered to the CRO within 21 days of the submission of the form C1A. The details to be completed on a form C1B essentially confirm that the charge as detailed in the form C1A has been created.
Failure to file a form C1B will lead to the CRO rejecting and returning the form C1A that has already been submitted. The particulars contained on a form C1A cannot be altered.
One-Stage Procedure v Two-Stage Procedure
The two-stage procedure allows a lender to improve the priority of its security. Priority runs from date the form C1A has been filed. Therefore even if a form C1, filed pursuant to the one-stage procedure, is filed after a form C1A but before a form C1B, the submission made by way of the two-stage procedure will have priority, provided that the C1B is filed within 21 days from its corresponding form C1A.
Further Changes to Note
- Online Filing - The CRO has advised that all particulars of a charge must be completed online. After the Commencement Date it will not be possible to submit a paper form C1, C1A or C1B to the CRO.
- Negative Pledge – Pursuant to the Act particulars contained in a form C1, C1A or C1B which attempt to fix notice on a subsequent lender of the existence of a negative pledge will be deemed to be “extraneous material”, and will not be entered on the register.
- Foreign / External Companies – Under the current regime, charges which are presented for registration by foreign companies / registered external companies are submitted to a file called the Slavenburg file. After the Commencement Date the Slavenberg file will be discontinued and there will be no obligation to register a charge created by a foreign or external company unless such a company has established a branch in the State. If a foreign or external company has established a branch in the State, it will be required to make filings. Foreign / external companies will be able to apply to register charges by way of the one-stage or two-stage procedure, although the forms to be used will be different. The form to be used for the one-stage procedure will be the form F8, for the two-stage procedure filings will have to be made by way of a F8A and F8B.
For more information, please contact our Financial Services team.
The content of this article is provided for information purposes only and does not constitute legal or other advice. Mason Hayes & Curran (www.mhc.ie) is a leading business law firm with offices in Dublin, London and New York.