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CS Executive · Company Law and Practice · Charges

Orchid Pharma Ltd created a charge on its assets in favour of a bank, but the charge was never registered with the Registrar. The company is now being wound up by a liquidator. Which statement is correct under the Companies Act, 2013?

The unregistered charge need not be taken into account by the liquidator or other creditors, since registration with a Registrar's certificate is required. However, the borrower's contractual obligation to repay the secured money remains unaffected, so the bank can still claim as an ordinary creditor.

  1. AThe liquidator or 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 fully enforceable against the liquidator because the instrument was signed by both parties
  3. CThe loan itself becomes irrecoverable because the charge is unregistered
  4. DThe charge is valid if the company's own register of charges records it

Explanation

Section 77(3) says an unregistered charge, or one without the Registrar's certificate of registration, is not taken into account by the liquidator or any other creditor. Section 77(4) preserves any contract or obligation to repay the money secured, so the loan stays due. Hence the loan is not wiped out, only the security status is lost.

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