My Lords, I am grateful for the opportunity to debate the proposed regulations to reform and modernise the system for the registration of company charges. For many years I worked as a business and finance consultant, and I cannot stress enough the importance of a clear, transparent system that enables companies to access the finance they need and lenders to provide finance with confidence. This is particularly important in the current economic climate.
These regulations intend to modernise the system for the registration of company charges—a system which is more than 100 years old. The changes to this system of registration are intended to retain the fundamental principle of the current system, which is internationally well regarded, while making those critical changes that will allow this system to continue in a way that is effective and efficient.
Secured lending is vital to support economic growth. It allows companies to access the finance they need to grow and enables lenders to invest in a company with greater confidence. In fact, the World Bank, in its report Doing Business 2012: Doing Business in a More Transparent World, considered the laws relating to collateral to be crucial to supporting economic growth and transparency. The statutory schemes for registration of company charges contribute to the UK being rated equal first, with Malaysia, in the section on getting credit.
In the early 1900s, a system was conceived which required companies to register debt secured against their assets. This allowed lenders to see clearly whether assets were already encumbered and to offer finance with confidence. The fundamentals of this system remain and have been the subject of further reviews and consultations, including the Crowther report in 1970, the Diamond report in 1989, the 2001 recommendations of the Company Law Review and the most recent
consultation led by the Department for Business, Innovation and Skills in 2010 on reforms to the system, based on the considerations of these earlier reviews.
Over the past 10 years there has been ongoing engagement with legal practitioners and academics as well as credit reference agencies and investors to determine what reforms should be made to this system. These stakeholders have generously offered their time and expertise to support our reforms and to test out how these may work in practice. This is vital in preventing unintended consequences later on.
The proposed system will deliver benefits to business of around £21 million every year through a reduction in unnecessary bureaucracy as well as a simplification and modernisation of the system.
I will now take a few moments to outline the key elements of the reforms. First, we have amended the regulations governing the system for the registration of company charges to take advantage of modern technology. Companies, legal advisers and accountants will now be able to submit the charge for filing electronically and will be able to pay their £13 charge electronically too. This has the twin benefit of reducing the time and bureaucracy of filing a charge, while also allowing the registrar to operate a more efficient system.
Secondly, the regulations set out a far simpler model for determining whether a charge is registrable. Lenders and companies want to be able to register charges so that they can invest or attract investment, but the complex list of types of registrable charges had led to confusion and wasted effort in simply ascertaining whether a charge could be registered. The new regulations place the onus rightly on the presenters of the charge to make this commercial decision, subject to a few clear exemptions where the registration of the charge was not in any way useful to the public, investors or companies.
Thirdly, following on from my previous point, the system recognises that the incentive on investors is to register their charge rather than risk it being void against a liquidator or administrator. In the rare instances where a company itself registers the charge, it is commonplace for investors to require the company to submit the charge for registration as part of the financial agreement. The existing criminal sanction is therefore entirely unnecessary and these regulations repeal it.
Fourthly, the system will deliver far greater transparency around financial arrangements as, due to the technological advances, the whole charge instrument or deed will now be available electronically in addition to the summary information. Of course, the regulations also include sensible safeguards against fraud and allow personal information, bank account numbers and signatures to be redacted.
Finally, the proposals will for the first time create a system that fits around the different property laws and processes that operate in different parts of the United Kingdom. Many lenders and companies operate across the UK and now they can take the same approach to the registration of the charges, regardless of where they are. I hope that nobles Lords will support these important reforms.