131. Registration of charges Flashcards
- Registration of charges
General overview
[131.01] Sections 131–140 provide a system of registration of charges created over real and personal property for the purpose of giving third parties notice when giving or extending credit to the company. It declares a charge that is created over the company’s assets void, if not registered within 30 days of its creation, against the liquidator and any creditor of the company. The system of registration would also determine the priority of a registered charge over other charges that are created over the company’s assets.
[131.02] A charge shall be registered within 30 days after its creation with the registrar in the prescribed form, failing which it shall be void against the liquidator and any creditor of the company: s 131(1). As between the company and the creditor, the moneys secured by a charge that is void for not complying with subsection (1) shall immediately become payable: s 131(2).
Nature of a charge
[131.03] A charge is a security interest created in and over an asset by their owner (the “chargor”) in favour of a creditor (the “chargee”), by which it is agreed that that property shall be appropriated to the discharge of a debt or other obligation: National Provincial and Union Bank of England v Charnley [1924] 1 KB 431 at 449–450, CA . There is no transfer of title. There must be real consideration and a deed would not do: Re Earl of Lucan (1890) 45 Ch D 470 . Where a clause provides that “upon an event of default the bank would be entitled to an equitable charge to attach the outstanding debt to any property of the debtor …”, it was held that such a clause did not create a present charge: Asiatic Enterprises (Pte) Ltd v United Overseas Bank Ltd [2000] 1 SLR 300. An equitable charge may take the form either of an equitable mortgage or of an equitable charge not by way of mortgage. It is created when the legal owner of the property constituting the security enters into some instrument or does some act which, though insufficient to confer a legal estate or title in the subject matter upon the mortgagee, nevertheless demonstrates a binding intention to create a security in favour of the mortgagee, or in other words, evidences a contract to do so: Swiss Bank Corp v Lloyds Bank Ltd [1980] 3 WLR 457, CA .
[131.04] Court order for sale of property is not required as most security documents expressly empower the chargee to sell the property for this purpose without recourse to the court: per Slade J in Re Bond Worth Ltd [1980] Ch 228 .
[131.05] Sometimes it is difficult to differentiate between a charge over property and a sale and repurchase agreement
Fixed charges
[131.06] A fixed charge (or “specific” charge) is a charge created over identified property which restricts the debtor’s power to dispose of or otherwise deal with the property without the creditor’s consent. Future property, so long as sufficiently described to be identifiable when acquired, may form the subject matter of a charge: Holroyd v Marshall (1862) 10 HL Cas 191 . A charge over sub-leases and rentals was a fixed charge and not a floating charge because it related to existing assets and not future assets: Re Atlantic Computer Systems plc [1992] Ch 505, CA . Upon the creation of the debenture in the bank’s favour, the vehicles which formed the subject matter of the second fixed charge were encumbered with the interest of the chargee bank and consequently, the respondent company had no interest or title that could be passed by it to the appellants who were second hand car dealers. The appellants were not bona fide purchasers for value particularly since the respondents had registered the debentures with the Companies Commission which sufficed to serve as sufficient notice of the existence of the fixed charge
Floating charges
[131.07] On the other hand, in a floating charge, the property secured is not identified but the chargor will be free to deal with the charged property in the ordinary course of business without reference to the charge: Re Bond Worth Ltd [1980] Ch 228, HC ; Illingworth v Houldsworth [1904] AC 355, HL ; Evans v British Granite Quarries Ltd [1910] 2 KB 979, CA . It is possible for a floating charge to arise even though the parties never contemplated that this might be the result of their actions: Re Cosslett (Contractors) Ltd [1998] Ch 495, CA ; Re Lin Securities (Pte) [1988] 2 MLJ 137, HC. A floating charge having only the last two characteristics mentioned by Romer LJ could still be a floating charge
Crystallisation of floating charge
[131.08] A floating charge does not operate as an assignment to the debenture holder of the company’s book debts and other choses in action. Until the charge has crystallised, the company’s unsecured creditors may set off debts due by the company against sums which they may owe it: Biggerstaff v Rowatt’s Wharf Ltd [1896] 2 Ch 93, CA . When a floating charge crystallises, it becomes a fixed charge attaching to the assets of the company at that time: (a) when the receiver is appointed; (b) when the company goes into liquidation (since the company’s licence to deal with the assets in the ordinary course of business ceases); (c) when the company ceases to carry on business or sells its business ( Re Real Meat Co Ltd [1996] BCLC 254 ); (d) where the debenture empowers the charge holder to convert the floating charge into a fixed charge by giving the company a “notice of conversion” and such notice was given ( Re Woodroffes (Musical Instruments) Ltd [1986] Ch 366, Ch D ); and (e) where an event occurs which under the terms of the debenture causes “automatic” crystallisation ( Re Brightlife Ltd [1987] Ch 200 ). For effects of “automatic” crystallisation clauses that may prejudice third parties, see R v Consolidated Churchill Copper Corp Ltd [1978] 5 WWR 652. Relevant assets received by a company after the floating charge crystallises automatically become subject to the (now fixed) charge over the company’s property: N W Robbie & Co Ltd v Witney Warehouse Co Ltd [1963] 1 WLR 1324, CA . A floating charge crystallises when the company ceases to carry on business: Re Woodroffes (Musical Instruments) Ltd (above). A floating charge also crystallises when the charged assets are dealt with otherwise than in the ordinary course of business: Fire Nymph Products Ltd v Heating Centre Pty Ltd (1992) 7 ACSR 365, NSWCA. The institution of legal actions to obtain the share certificates of shares that were charged to the banks or the making of ex parte orders for delivery of the share certificates to the banks did not crystallise the alleged floating charge
Registrable charges
[131.09] The list was based on the Companies Act 1948 (UK) and the categories of registrable charges were added on as commercial practice developed: see the Report of the Steering Committee for Review of the Companies Act, April 2011, paras 7–16. Generally, the Steering Committee adopted the status quo of an inclusionary versus a negative listing approach. The latter approach would create major problems of uncertainty in that it might include a lot of complex financial transactions which are not registrable at the moment. Act No 36 of 2014 added onto the list by amending subsections (3)(e) and (j). Subsection (3)(e) is amended to clarify that “any rent or other periodical sum issuing out of land” is not a registrable charge. Subsection (3)(j) is amended to expand the existing categories of intellectual property rights to include a “registered design” or “a licence to use a registered design” as a registrable charge.
Book debts
[131.10] At common law, a company could not create a charge in favour of a bank over its deposits with the bank: Re Charge Card Services Ltd [1986] 3 WLR 697, HC ; affirmed in Re Bank of Credit and Commerce International SA (No 8) [1996] 2 BCLC 254, CA ; Ho Dwan Tianw v Banque Nationale de Paris [1993] 2 SLR 329. See s 9A of Civil Law Act (Cap 43) which recognises a charge by a company over such deposits: Tam Wing Chuen v Bank of Credit and Commerce Hong Kong Ltd [1992] 2 BCLC 69, PC. In Malaysia, s 108(3)(k) provides that a charge over a credit balance in a deposit account is a registrable charge. The House of Lords ruled that despite the wordings on the documentation creating a fixed charge, the charge is actually a floating charge because the chargor was allowed to deal with the proceeds of the book debts in the ordinary course of business: Re Spectrum Plus Ltd [2005] 3 WLR 58 ; affirmed Agnew v Commissioner of Inland Revenue [2001] 2 AC 710 which overruled Re New Bullas Trading Ltd [1994] 1 BCLC 485 ; Re Keenan Bros Ltd [1986] BCLC 242 ; Re Brightlife Ltd [1987] Ch 200 ; Supercool Refridgeration and Air Conditioning v Hoverd Industries Ltd [1994] 3 NZLR 300 . The ship owner’s lien on sub-freights operated to create an equitable charge on the company’s book debts, including the sub-freights, and on the clear wording of s 95 of the Companies Act 1948 (UK) (equivalent to s 131(1) of the Act), the lien was registrable under that section; and that, accordingly, since the lien was unregistered, the bank’s fixed charge took priority
Charge on land
[131.11] Whether a debenture created a charge or mortgage depends on the intention of the parties as objectively ascertained from the loan documentation. No caveat was lodged in respect of a fixed charge created over the leasehold interests under s 115 of the Land Titles Act (Cap 157) although the charge was registered pursuant to s 131 of the Act. Upon the presentation of a winding up petition, a statutory trust came into existence and the unsecured creditors of a company were in the nature of a cestui que trust with beneficial interests in the company’s unencumbered assets. The failure to register the charge in the land registry was not fatal, and the debenture holder was granted an application to remove the caveats lodged by the liquidator on the leasehold land: Power Knight Pte Ltd v Natural Fuel Pte Ltd (in compulsory liquidation) & Ors [2010] 3 SLR 82; [2010] SGHC 75, HC ; followed Ng Wei Teck Michael v Oversea-Chinese Banking Corp Ltd [1998] 1 SLR(R) 778, CA. A charge over land may be created when it was registered under the land register: Johore Para Rubber Co Ltd v Registrar of Companies [1948] MLJ 135, HC ; affirmed in Zeno Land v Prefabricated Construction Co (Malaya) Ltd [1967] 2 MLJ 104, HC ; and s 37(1) of the Land Titles Act (Cap 157); cf Selibin Tin Syndicate v Registrar of Companies [1921] 2 FMSLR 262, HC which held that the charge was created when executed and not when it was registered. A charging order registered over land by a judgment debtor against a company is not registrable under s 95 of the Companies Act 1948 (UK) (in pari materia with s 131 of the Act): Re Overseas Aviation Engineering (GB) Ltd [1962] 3 WLR 594, CA . For unregistered land, the rule in England is that the charge is created when executed and not when money is advanced on the loan agreement
Change on shares
[131.12] Where the shares charged are unascertainable, the letters of hypothecation created a fixed charge and being unregistered pursuant to s 131 of the Act, they were void against the liquidator and any creditor of the company
Priorities and competing interest
[131.13] A fixed charge (and other subsequent interests) that was created over part of assets upon which an earlier floating charge had been created would have priority: Re Castell & Brown Ltd [1898] 1 Ch 315, Ch D . It does not matter if the subsequent fixed charge is legal or equitable or whether the subsequent chargee had notice of the prior floating charge: Re Hamilton’s Windsor Ironworks (1879) 12 Ch D 707 ; United Malayan Banking Corp Bhd v Aluminex (M) Sdn Bhd [1993] 3 MLJ 587, SC. Where two floating charges are created over the same assets, and the equities being equal, the first in time prevails: Re Benjamin Cope & Sons Ltd [1914] 1 Ch 800 ; cf Re Automatic Bottle Makers Ltd [1926] Ch 412, CA. Where a subsequent floating charge becomes a fixed charge by notice from the chargee, it has priority over a prior floating charge that crystallised by virtue of an appointment of a receiver under the debenture: Griffiths & Anor v Yorkshire Bank plc & Ors [1994] 1 WLR 1427, Ch D ; followed Re Brightlife Ltd [1987] Ch 200; [1987] 2 WLR 19; [1986] 3 All ER 673 ; Re Griffin Hotel Co Ltd [1941] Ch 129 ; Joshua Tetley & Son Ltd v The Co [1940] 4 All ER 324 ; Re Lewis Merthyr Consolidated Collieries Ltd ; Lloyds Bank Ltd v The Co [1929] 1 Ch 498, CA per Tomlin J;RePortbase Clothing Ltd [1993] Ch 388; [1993] 3 WLR 14; [1993] 3 All ER 829.
[131.14] Where more than one charge is created over the same property, it is open to the charge holders to agree to vary the order of priority which would otherwise apply, and it is not necessary to obtain the company’s consent: Cheah Theam Swee v Equiticorp Finance Group Ltd [1992] 1 AC 472, PC . Priorities as between the floating charge, even after crystallisation, and other interests are determined by the usual rules: George Barker Ltd v Eynon [1974] 1 WLR 462, CA . A receiver and manager appointed upon crystallisation of a floating charge has priority over a distraining landlord who is an unsecured creditor: Haw Par Bros International Ltd v Overseas Textiles Co Ltd [1977–1978] SLR(R) 352; [1978] SGHC 12, HC. Between two fixed charges, the first in time prevails
Negative pledge clause
[131.15] A negative pledge clause which provides that a company is not at liberty to create subsequent charges ranking pari passu with or in priority to the floating charge is an equitable restriction on the company’s power to create subsequent charges. It is effective against subsequent charges taken with notice of the restriction: English & Scottish Mercantile Investment Co Ltd v Brunton [1892] 2 QB 700, CA ; Re Castell & Brown Ltd [1898] 1 Ch 315, Ch D . A floating charge that was first created over a pool of assets had priority over a subsequent charge if there is a negative pledge clause to which a subsequent charge had notice of: Siebe Gorman & Co Ltd v Barclays Bank Ltd [1979] 2 Lloyd’s Rep 142 ; Wilson v Kelland [1910] 2 Ch 306 ; followed in Kay Hian & Co (Pte) v Phua Ooi Yong Jon & Ors [1988] 2 SLR(R) 439; [1988] SGHC 90, HC where notice may be actual or constructive. Quaere: Is constructive notice of a negative pledge clause effective to preserve its validity against a subsequent charge?
Void against liquidator and any creditor
[131.16] Section 131(1) of the Act came into operation upon the appointment of the liquidator, and not when the winding up petition was presented in court. As at that date, an equitable mortgage which had been realised and thus was spent, and s 131(1) could not operate in their favour as there was nothing for it to bite on: Ng Wei Teck Michael & Ors v Oversea-Chinese Banking Corp Ltd [1998] 1 SLR(R) 778; [1998] SGCA 21, CA ; followed ReEhrmann Bros Ltd [1906] 2 Ch 697; Energy & Resource Conservation Co Ltd (in liquidation) v Abigroup Contractors Pty Ltd (1997) 22 ACSR 721 ; Re J & D Contracting Pty Ltd [1971] QLR 101 ; Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548 ; Re Molton Finance Ltd [1968] Ch 325 ; Re Ashpurton Estates Ltd [1983] Ch 110 ; Re Row Dal Constructions Pty Ltd (in liquidation) [1966] VR 249. As from the presentation of a winding up petition, a statutory trust came into existence and the unsecured creditors of a company were in the nature of a cestui que trust with beneficial interests in the company’s unencumbered asset. They had no proprietary or beneficial interests in the assets of the company
[131.17] Effect of an unregistered charge created over shares was to render the charge void against the liquidator: Re City Securities Pte [1990] 1 SLR(R) 413; [1990] SGHC 31, HC ; followed Re Ehrmann Bros Ltd (above). The words “any creditor” mean only a creditor who has acquired a property right to or an interest in the subject matter of the unregistered charge: Re Ashpurton Estates Ltd (above); Re Ehrmann Bros Ltd (above); Re Telomatic Ltd [1994] 1 BCLC 90 . See Tan Cheng Han, “Unregistered Charges and Unsecured Creditors” (1998) 114 LQR 565. The proper plaintiff to bring proceedings to avoid a charge for non-registration was the liquidator
Romalpa clauses
[131.18] Such clauses are included in agreements for the sale of goods where the seller asserts an equitable title to the goods that had been delivered but not paid for. Re Bond Worth Ltd [1980] Ch 228, HC held that such devices are registrable charges under s 131. See also Clough Mill Ltd v Martin [1984] 3 All ER 982, CA . The efficacy of such clauses has been accepted in Singapore
Charge over property situated outside Singapore
[131.19] Whether an English charge, unregistered in Scotland, granted to a US finance company by a Scottish company, now in administration, of shares in its own English subsidiary is a fixed or floating charge, and if floating, is it in consequence void as against the administrators
Set-off
[131.20] A person to whom money is owed by the company may set off this debt against any sum that he might owe to the company, at least where the debts arose before the change crystallised: Rother Iron Works Ltd v Canterbury Precision Engineers Ltd [1974] QB 1, CA ; Biggerstaff v Rowatt’s Wharf Ltd [1896] 2 Ch 93, CA . After crystallisation, there will be no mutual set-off: NW Robbie & Co Ltd v Witney Warehouse Co Ltd [1963] 3 All ER 613, CA . A receiver may collect a debt due to the company by setting it off against the company’s indebtedness to a third party
