Thursday, May 28, 2015
There are now 2 working days until the Companies Act 2014 (the “Act”) comes into force in Ireland. The Act will radically change the existing legal framework for companies in Ireland. Each day, we will provide you with a snapshot of key changes to consider in advance of the Act commencing on June 1st.
Registration and priority of charges
One of the most significant reforms of the Companies Act 2014 (the Act) is the new system governing the priority and registration of charges. The changes are aimed at giving greater certainty to lenders and to businesses generally, particularly in relation to the priority of security interests.
Priority determined by filing date
From 1 June 2015, the priority of charges will be determined by the Companies Registration Office (CRO) by the date and time of receipt of a charge submission (section 412(3)). The date of creation of the deed of charge will no longer determine its priority. This removes the current “blind” period that exists between the date on which a charge is created and the date on which it is filed with the CRO. Currently, a lender might not benefit from a first-ranking charge if it transpires that another charge although registered after the date of creation of the lender’s security, was in fact created on an earlier date. Such a prior charge would not have been disclosed by a search against the CRO’s records.
In other respects, the law as to priority and notice remains substantially unchanged. Priority will be subject to any overriding priority applicable to certain assets, such as those applicable to land at the Land Registry, and parties will remain able to determine priority between them by way of inter-creditor agreements.
The Act introduces a new procedure for the registration of charges, which will now consist of two distinct stages (section 410). The two-stage procedure will facilitate presenters to secure the earliest possible priority date by filing a notice of intention to create a charge (Form C1A), which must be followed within 21 days by a second form (Form C1B) confirming the creation of the charge. Provided that the form C1B is submitted within the 21-day period the date of priority will be that of the first notice (Form C1A), being the notice of intention to create a charge.
There is no obligation to make two filings – presenters may still wait until after the creation of the charge and make a single Form C1 filing within 21 days. However, in such circumstances the priority date will be the date of filing rather than the date on which the charge was created. Using the two-step process allows the parties to “freeze” priority with the preliminary Form C1A, provided that the Form C1B is subsequently filed within the requisite period. It is likely that lenders will generally insist on the use of the two-stage procedure.
With some transactions it may be difficult to determine when to make the initial notice filing as the date of completion may not be easily predictable. If the charge is not actually created, and the Form C1B is not filed within 21 days of the Form C1A filing, the notice filing shall be deemed to have lapsed and will be removed from the register.
Under the old regime, the Form C1 could be filed by one party only to a transaction, provided that a copy of the deed creating the charge was attached. The Act now provides that the CRO will not accept deeds or supplemental documents (section 409(9)). Signatures of both parties will now be required on all filings, regardless of whether the one-stage or two-stage filing is made. Under the one-stage procedure, signatures on behalf of both parties will be required, while under the two-stage procedure, if either party has not signed the first notice (Form C1A) then they must sign the second notice (Form C1B).
Given that the date and time of filing will now be decisive in determining priority, it was felt that the current paper-based filing system was no longer fit for purpose. From 1 June the CRO is introducing a mandatory e-filing system, incorporating electronic (ROS) signatures to establish certainty on the date and time for the purposes of priority. All parties filing charges will need to make sure they have obtained a ROS certificate from Revenue and are familiar with the CORE online filings system.
The content of this article is provided for information purposes and does not constitute legal or other advice.