When a company is short on cash and needs to expand or raise its capital, it is easiest to borrow money from financial institutions or banks while maintaining its assets as collateral. In this case, a charge on the company’s assets is formed to obtain loans or debentures.
The main aim of registering a charge is to notify the Registrar of Companies and those who lend money to the company of the encumbrance placed on the company’s assets.
A charge, in common parlance, is a right formed by any person, including a corporation, on its assets and properties, present and future, in favor of a financial institution or a bank, referred to as “the lender,” who has committed to providing financial assistance. A charge also refers to a security interest or lien formed on a company’s property or assets, or on any of its undertakings, or both, and includes a mortgage.
Here is a brief guide on registering a charge for a company.
Different Types of Charges
It is dependent on the loan type and lender. Lenders are protected by both fixed and floating charges, which are classified as secured loans. Fixed and floating charges are the two forms of companies’ house charges used as collateral on loans. If a business cannot repay the loan or go bankrupt, the lender can seize and sell the secured assets to collect the debt.
Lenders prefer fixed charges because they are tied to specific assets and are prioritized above floating charges in the case of a company’s bankruptcy, even if both a fixed charge and a floating charge exist over that asset. Other preferred creditors, such as firm workers and insolvency practitioners, rank ahead of floaters.
Land, buildings, vehicles, permanent plant & machinery, and trade fixtures are all examples of fixed costs. A fixed charge prevents the firm from disposing of a secured asset without the charge holder’s express approval (i.e., the lender). Mortgages, leases, bank loans, and invoice factoring arrangements are examples of financial transactions frequently subject to set costs.
As long as the firm is solvent, floating charges are retained over all of a company’s assets or specified classes of assets that the corporation can use, transfer, and sell in the usual course of business. As a result, the value and quantity of various sorts of moveable assets might fluctuate over the term of the financial arrangement.
Stock, raw materials, cars, property furnishings and fittings, cash, book debts (money owing to the firm), and work in progress are all examples of floatable charges that can be held over the present and future real estate and moveable assets.
When a firm acts as a solvent, floating charges are fluid, but they ‘crystallize’ if the borrower defaults on the loan arrangement, is wound up, or enters insolvency. Whenever this occurs, the floating charge becomes a fixed charge. It is fixed to the secured asset(s), meaning the firm may no longer use or dispose of the asset(s) without the lender’s consent.
Registering the Particulars of a Charge
A charge can be recorded by anybody interested, and a corporation is not required to do so. The fee is usually registered by the lender or the lender’s representative. When a charge is produced using or proved by an instrument, Form MR01 is required to record the details of the charge. Suppose more than one charging business creates charges in the charging instrument; in that case, several MR01 forms should be employed (NB Separate certified copies of the charging instrument should be sent with each form).
The completed Form MR01, along with certified copies of any relevant charge documents, such as a debenture or mortgage, must be delivered – either online or by mail. You must ensure that the information on the instrument is correctly represented on the form since any errors will result in the form being rejected. This may cause you to miss the statutory deadline of 21 days, necessitating the need for a court order to register the charge.
Who Can Register A Charge At Companies House?
Any party who is interested can register a charge at Companies House. This also includes the company itself, the lender’s agent, or even the lender. You can also register the charge against a company online using the authentication code of the company. Agents and lenders can also register the charges against the company if they apply to the Companies House for the LAC or the lender authentication code.
The information on the charges registered by the company and the LLPs is accessible to the public online and is free of charge. You can do the following if you want to find the charges related to the particular company. This procedure includes:
- Enter the name of the company and its registration number.
- Choose the relevant company from the list that is displayed on the screen.
- Go to the filing history.
- Check the charges box.
- Select the View PDF option that you will find beside the charging document which you want to view.
When a business borrows money from a bank or another type of lender, it is generally required to provide the creditor with some security (collateral). A charge (such as a mortgage) on assets like land or buildings is one of the most frequent kinds of security. A corporation must record a charge at Companies House within 21 days, with a few exceptions.
Dealing with business expenses may be pretty tricky. Suppose your limited company or limited liability partnership is in the process of establishing charges. In that case, you should get expert advice from a chartered accountant or commercial solicitor before entering into a financial arrangement.