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CA Intermediate · Corporate and Other Laws · Registration of Charges

Ananya Exports Ltd. created an unregistered charge on its stock in favour of a lender. The company later goes into liquidation. A trade creditor argues the lender's charge cannot be enforced against him. Which statement reflects the legal position?

An unregistered charge cannot be relied upon against the liquidator or any creditor of the company, so the lender loses its security. The underlying debt is not extinguished and remains payable by the company as an unsecured claim.

  1. AAn unregistered charge is void against the liquidator and any creditor of the company, though the money remains a debt payable by the companyCorrect
  2. BThe charge is fully valid as the lender had possession of the stock documents
  3. CThe charge is void and the debt itself is also extinguished
  4. DThe charge is valid against creditors but void against the liquidator only

Explanation

A charge that requires registration but is not registered is not taken into account by the liquidator or any other creditor. The lender loses security priority, but the debt itself continues as an unsecured claim against the company. The debt is therefore not extinguished.

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