New Hong Kong Companies Ordinance: Registration of charges

01 Nov 2013 | Newsletter/briefing

WHEN IN FORCE: 3 March 2014

COMPANIES AFFECTED: All companies

NEW PROVISIONS: Part 8 of new CO: ss334-347

1. WHICH ENTITIES MUST FILE CHARGES WITH THE COMPANIES REGISTRY?

Summary of changes

  • under the existing legislation, specified charges created by companies incorporated in Hong Kong and the acquisition by such companies of property subject to specified charges must be registered with the Companies Registry. For a non-Hong Kong Company registered under Part XI of the current Companies Ordinance, specified charges created on property in Hong Kong and the acquisition of property in Hong Kong subject to specified charges must also be registered
  • under the new CO, no significant changes are made to the existing provisions on which entities must file charges

Implications for practice

  • as with existing practice, carrying out a company search at the Companies Registry will help determine whether a charge created or "acquired" by the company should be registered. If the relevant company is not registered at the Companies Registry, then registration of the charge is not required
  • if the company is registered at the Companies Registry, the next question is whether the relevant charge falls within the list of types of security that must be registered with the Companies Registry

2. WHAT TYPES OF SECURITY MUST BE REGISTERED WITH THE COMPANIES REGISTRY?

Summary of changes

  • under the existing legislation, the following charges must be registered with the Companies Registry:
    • a charge for the purpose of securing any issue of debentures (but see below as to the changed position under the new CO)
    • a charge on uncalled share capital of the company
    • a charge created or evidenced by an instrument which, if executed by an individual, would require registration as a bill of sale
    • a charge on land
    • a charge on book debts of the company (but see below as to clarifications made under the new CO)
    • a floating charge
    • a charge on calls made but not paid
    • a charge on a ship or any share in a ship
    • a charge on goodwill, on a patent or a licence under a patent, on a trademark or on a copyright or licence under a copyright
  • under the new CO, the following two new heads of charge are also registrable:
    • charges over an aircraft or any share in an aircraft
    • charges on instalments on the issue price of shares which are due but not paid
  • under the new CO, charges for the purpose of securing an issue of debentures are no longer registrable
  • the new CO clarifies that charges over bank accounts and a shipowner’s lien on subfreights are not "charges on book debts" and are therefore not registrable

3. HOW TO REGISTER CHARGES WITH THE COMPANIES REGISTRY

Summary of changes

  • under the existing legislation, the original charge instrument together with the prescribed particulars of the charge contained in the Form M1 must be submitted to the Companies Registry for registration. Only the prescribed particulars are available for public inspection
  • under the new CO, both a statement of particulars of the charge created by the company and a certified copy of the instrument (if any) creating the charge must be delivered to the Companies Registry for registration. The charge instrument itself will be available for public inspection

Implications for practice

  • a certified copy (not an original) of the charge instrument must be filed along with the prescribed particulars of charge. Section 333(4) of the new CO explains that a “certified copy” may be certified by a director, company secretary or other authorized person
  • when drafting a charge instrument, parties should be aware that its contents will be publicly available. Commercially sensitive information should not be set out in the charge instrument
  • the registration of a charge instrument may give rise to constructive notice of all the terms in the charge instrument, including negative pledge clauses, on the part of those who may reasonably be expected to search the companies register, such as banks, financiers and relevant professionals. Market practice for secured financings will therefore involve due diligence against registered charge instruments in order for lenders to avoid being attributed with constructive notice of matters not known to them
  • reinforcing the above, the Companies Registry has stated it is “more important than ever” for lenders to make enquiries and search the companies register for charges

4. DEADLINE FOR REGISTRATION OF CHARGES

Summary of changes

  • under the new CO, the prescribed time for registration is shortened from five weeks to one calendar month

5. CONSEQUENCES OF DEFAULT

Summary of changes

  • under the existing legislation, if a company fails to register particulars of a charge, the charge is void against the company’s liquidator and creditors and the money secured by such charge is automatically accelerated and becomes immediately payable. In addition, the company and every officer in default are liable on summary conviction to a Level 5 fine, with an additional $1,500 fine for each day that the default continues
  • under the new CO, as before, failure to register results in the charge being void. However, the automatic acceleration of the money secured by the charge as a consequence of failing to register is removed. The lender will, instead, determine whether or not the money (which was meant to be secured) becomes immediately payable. The company and every responsible person in default continue to be liable to a Level 5 fine, with the additional fine reduced from $1,500 to $1,000 for each day that the default continues

6. EXTENSION OF TIME FOR REGISTRATION AND RECTIFICATION OF PARTICULARS

Summary of changes

  • the new CO follows the existing legislation, in that the court may, on application by the company or a person interested in the charge, order an extension of time for registration or to rectify an omission or misstatement in the particulars of the charge, or accompanying instrument
  • under the existing legislation, it is unclear whether s86(2) of the current Companies Ordinance means that a grant of relief by the Court automatically relieves the company and its officers from criminal liability. The new CO clarifies that if the failure to register a charge is rectified within the extended time period as ordered by the Court, the liability incurred under the relevant offence provision will be extinguished

7. TRANSITIONAL ARRANGEMENTS

  • for the registration of charges created before the commencement date of the new CO, the provisions of the current Companies Ordinance and the general transitional provisions (ss62-75 of Schedule 11 to the new CO) apply
  • to ensure a smooth transition in the registration process, a cut off date has been included in the transitional provisions. The cut off date is 8 weeks from the commencement of the new CO, and is relevant only to a charge created before the commencement of the new CO but presented for registration out of time

 

For related publications, see also: New Hong Kong Companies Ordinance Tool Kit.

Contacts

Peter Brien (partner), Lisa Chung (partner), Peter Lake (partner)


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