Despite the abolition of the Slavenburg register by the UK Overseas Companies (Execution of Documents and Registration of Charges) (Amendment) Regulations 2011 ("the Regulations"), DQ still receive some requests to register charges granted by Isle of Man companies over property in the UK. This brief note clarifies the current position and confirms the requirements relating to registration of charges over UK based property granted by an Isle of Man company.
The Slavenburg Register
Most advisors are familiar with the ability under English law to perfect security taken from a UK company by registering the security at the UK's Companies House. Prior to 1 October 2011 there was also a requirement, established under the Companies Act 1985 (of England and Wales) ("the Act") and extended by the English case Slavenburg's Bank NV v International Natural Resources Ltd [1980] I All ER 955, to register charges at Companies House that had been granted by overseas companies that either:
- had an established place of business in the UK and had registered with Companies House as an overseas company in accordance with the Act; or
- had an established place of business in the UK and had not registered with Companies House as an overseas company.
As the test for determining whether an overseas company had an established place of business within the UK was open to much interpretation, it became commonplace to require the registration of all charges created by overseas companies over property situated in the UK, whether or not the overseas company was registrable as such in accordance with the Act. The registration of such charges was noted on the Slavenburg register.
Filing charges on the Slavenburg register was administratively onerous and, as the register was not readily searchable, offered very little comfort for future creditors of, or lenders to, overseas companies. The effect of the Regulations was to revoke the requirement to file at Companies House any security created after 1 October 2011 over property situated in the UK by overseas companies, whether registered as overseas companies in the UK or not.
Registration of security created by Isle of Man companies
Where an Isle of Man company charges property located within the UK the security can be perfected in two ways:
- registration of the security against the property at HM Land Registry; and
- registration of the security against the company's file at the Isle of Man Companies Registry.
In common with English law and in contrast to some offshore jurisdictions, where a charge created by an Isle of Man company against its property, wherever situated, is not filed against the relevant company's file at the Isle of Man Companies Registry within one month of creation, such charge is void against a liquidator and any creditor.
Hardening periods for security created by Isle of Man companies
If a company enters into a formal insolvency process certain types of transactions, such as the grant of security, may be challenged under local law for a specific period known as the 'hardening period'. As the Isle of Man does not have legislation which is equivalent to the UK Law of Property Act 1925 or the UK Insolvency Act 1986 any challenge to a grant of security would be brought under Isle of Man legislation.
The relevant Isle of Man legislation is beneficial to lenders in this respect as the hardening period for a charge created by an Isle of Man company is, depending on the terms of the charge and the grounds of any challenge, up to 6 months and often as low as 4 months. This is in contrast to the position within both the UK and other offshore jurisdictions where the hardening periods are significantly longer, thereby extending the duration of the security holder's potential vulnerability.
DQ's Expertise
DQ's corporate and commercial team are happy to assist with all aspects of security requirements including advice on taking security from an Isle of Man company, preparation or review of security documentation, due diligence investigations and registration or release of charge documentation. For further information please contact Mark Dougherty
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
