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CS Executive · Company Law and Practice · Charges

Himalaya Foods Ltd obtained a loan secured by a charge on its factory, but the charge was never registered and no certificate was issued. The company is later wound up and the liquidator is dealing with creditors. Which statement is correct under Section 77?

The liquidator and other creditors need not take the unregistered charge into account, because registration and the Registrar's certificate are required. However, the borrower's contractual obligation to repay the money secured remains intact, as the lack of registration does not prejudice that obligation.

  1. AThe liquidator and other creditors need not take the charge into account, but the contractual obligation to repay the secured money is not prejudicedCorrect
  2. BThe charge is valid against the liquidator because the instrument was signed by both parties
  3. CThe loan itself becomes void and need not be repaid
  4. DThe charge ranks first because the lender holds the title deeds

Explanation

Under Section 77(3), an unregistered charge, without a certificate of registration, is not taken into account by the liquidator or any other creditor. Section 77(4) preserves the contract or obligation to repay the money, so the loan is not void.

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