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CS Executive · Company Law and Practice · Charges

Himalaya Steels Ltd created a charge on its machinery but never obtained a certificate of registration from the Registrar. The company is later wound up. Under Section 77, how is the charge treated, and what happens to the debt it secured?

The liquidator or other creditors cannot take the unregistered charge into account, so it has no security effect in the winding up. However, the contract or obligation to repay the secured money remains unaffected, so the lender can still claim the debt.

  1. AThe charge is taken into account by the liquidator, and the debt is cancelled
  2. BThe liquidator or any other creditor cannot take the charge into account, but the contract or obligation to repay the secured money is not prejudicedCorrect
  3. CThe charge is valid if the charge-holder has possession of the loan agreement
  4. DThe charge is valid but the debt is cancelled

Explanation

Section 77(3) says an unregistered charge, without a registration certificate, is not taken into account by the liquidator or any other creditor. Section 77(4) preserves the contract or obligation to repay the money secured, so the lender remains a creditor but without security effect. Cancelling the debt is wrong.

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