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Out-Law News 2 min. read

Overseas firms will not have to register creditor right over property from 1 October


 Overseas companies with a registered presence in the UK will no longer have to register charges created over UK property from 1 October 2011. A banking law expert has said that the change will affect only a small number of companies.

Banking expert Lucy Shurwood of Pinsent Masons, the law firm behind Out-Law.com, warned that the new rules mean that there would be no-publicly searchable record of charges created by UK-registered overseas companies after this date.

However as the majority of overseas companies involved in UK financial transactions do not have a registered UK establishment, the changes were likely to affect only a small number of transactions, she said.

A charge is a type of security interest in which a debtor agrees that a creditor can use a particular piece of property to satisfy a debt. A creditor who holds a charge over a particular asset will therefore be in a stronger position if the debtor goes out of business or becomes insolvent.

Charges can either be fixed to a particular piece or property, or can 'float' over a piece of property or type of property until an event occurs which causes that charge to 'crystallise'.

The new rules also reduce the number of types of charges which registered overseas companies must record on their own internal charges register and make available for public inspection.

Overseas companies with a registered UK establishment will now only have to note charges they create over land, ships, aircraft and intellectual property registered in the UK in their own records.

They will also have to record any floating charges they create over property in the UK, unless that floating charge specifically excludes all UK property.

The rules relating to the registration of these charges by overseas companies changed on 1 October 2009 to clarify that only those overseas companies with a registered establishment in the UK were required to register charges over UK property at Companies House.

Overseas companies without a registered UK establishment have not needed to register any charges created over their assets, whether held in the UK or otherwise, at Companies House since this date.

Banking law expert Shurwood warned those dealing with UK-registered overseas companies that the changes meant that publicly available information about charges they have granted would be much reduced from 1 October 2011.

Third parties would no longer be able to find details of charges over property held by UK-registered overseas companies through the public records at Companies House, she said. This means that anyone dealing with a UK-registered overseas company will find it more difficult to find out to what extent the company has charged its assets and what other creditors that company might have, she said.

"The best bet for companies who deal with overseas companies, regardless of where they are registered, is to protect themselves as part of their contractual documentation," Shurwood said.

"Without a public record there is no way know definitively whether a trading partner has created a charge over an asset. But if you can get the other party to provide contractual undertakings or warranties to confirm the position, you will have a claim against them for any loss you may suffer under the contract if their confirmation later proves to be incorrect," she said.

Companies could also seek the information directly from the overseas company, or seek assurances from legal advisors in the overseas company's country of incorporation, said Shurwood.

However, companies would have to bear in mind that information contained in a company's internal charges register could be very limited under the new rules, she said.

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