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CS Professional · Strategic Management and Corporate Finance · Raising of Funds from Debt and Procedural Aspects

Gupta Steel Ltd created a charge but never registered it. The company then went into liquidation. What is the legal position of the charge as regards the liquidator and other creditors, and of the repayment obligation?

An unregistered charge is not taken into account by the liquidator or other creditors unless it is registered and a registration certificate is issued. The contract or obligation to repay the money secured still stands, so the lender survives as an unsecured creditor.

  1. AThe liquidator ignores the charge, but the contractual obligation to repay the secured money is not prejudicedCorrect
  2. BThe charge is fully valid because the lender holds the instrument
  3. CThe charge and the obligation to repay are both void
  4. DThe charge counts only after a later registration with retrospective effect over earlier rights

Explanation

No charge is taken into account by the liquidator or any other creditor unless duly registered and a certificate of registration is given by the Registrar. However, this does not prejudice any contract or obligation for repayment of the money secured. So the lender remains a creditor, but without security recognition.

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