In times of financial instability commercial parties will always look for ways to protect themselves by taking whatever steps they can to ensure that they are able to recover money that is due to them. This is especially true in situations in which (as in the shipping market in recent months and years) large scale corporate insolvencies are a significant possibility. One way of helping to achieve this goal that has been developed in the time charter market (and especially in respect of time Charterparties concluded on the NYPE form) is for charterers to grant owners a lien over their sub-freight or sub-hire which they should receive from their sub-charterers. The use of this mechanism has been previously discussed in the article “Lien on Sub-Freights (and Hire?)” published on this website on 6 November 2008.
Since that article was written, the new English Companies Act 2006 (“the 2006 Act”) has come into full force in England and Wales which brings with it important considerations for shipping companies who wish to use the NYPE lien as a way of ensuring that an owner will still be entitled to receive sub-freight or sub-hire in the event that their charterer either fails to pay or becomes insolvent before the charterer themselves pays the owner hire (or freight).
The 2006 Act is a very lengthy piece of legislation comprising 1,300 main sections with a further 16 schedules which run to a total of 761A4 pages of text. Notwithstanding its length, the UK Parliament has stated that a number of the provisions are intended only to be a “consolidation” of previous legislation rather than bringing about substantive changes. Part of these “consolidated” provisions are the rules relating to the requirement for “charges” over property to be registered at Companies House. It has long been the position that a “charge” over property that was not registered was void against the insolvent company’s creditors and administrator.
It has been a difficult question as to whether the lien created by the NYPE time Charterparty (clause 18 of the 1946 form) amounts to a charge. Although there is currently litigation going through the English courts that may answer this question, there is, as yet, no clear answer provided by the decided cases. For the purposes of caution however, we would recommend that our members assume that clause 18 liens are charges that would require registration under the terms of the Companies Act.
The provisions relating to when a charge needs to be registered and how to carry such registration out are contained mostly in:
- Sections 860 to 875 of the 2006 Act in respect of companies that are incorporated and registered in England and Wales, and
- Sections 1046 to 1052 of the 2006 Act in respect of companies not incorporated in England and Wales but which have a registered establishment in England or Wales.
These provisions are somewhat complex and the full reasoning behind determining whether a charge requires registration to be “perfected” against the administrator or creditors of the company granting the charge (the charterer under the NYPE form) turns on a number of very difficult questions of English law relating to the domicile of the charterer’s sub-charterers.
Even though these provisions are complex, we would recommend that, as a “rule of thumb” clause 18 liens are registered in the following two situations:
- When a charterer who is either incorporated in England and Wales or has a registered establishment in England and Wales grants an owner (in any jurisdiction) a lien under an NYPE form. We should make it clear that it is a criminal offence in England and Wales for a company not to register a registrable charge punishable by a fine on every officer of the company in default. The charterer themselves should register the charge in that situation.
- When an owner is granted a lien under an NYPE form by a charterer he knows to be either incorporated in England and Wales or to have a registered establishment there. Under the 2006 Act, the owner (as the party benefiting from the charge) is entitled to register that charge against the charterer’s entry in Companies House so as to protect himself in the event that the charterer does not do so.
In either event, the time period for registering a charge under the 2006 Act is 21 days from the date of the creation of the charge, which will be the date of the conclusion of the Charterparty.
Members can check whether their contractual counterparty is incorporated in England and Wales or has a registered establishment in the jurisdiction by checking the name of the counterparty in the UK Companies House register which is available free of charge on the Companies House website.
The full details of how to register a charge (whether as charterer or owner) are also set out on the Companies House website however the form that a company will usually have to fill in can be found here.
When registering a charge, the party seeking registration will have to pay a fee (currently GBP13) and will have to supply the following information (as required by the form) in order to register the charge:
- The name and company number of the party granting the charge,
- The document creating the charge (or a copy of the document if the company is registered but not incorporated in England and Wales),
- The date that the charge was created (the date of the Charterparty),
- A description of the instrument creating the charge (the Charterparty),
- Details of the amount secured by the charge,
- Details of the party entitled to the benefit of the charge.
In the event that Members consider that charges should have been registered but have not been or are unsure as to whether they are required to register a particular lien as a charge, they should contact the Club to discuss their concerns individually.
*Chris Wood is an English Barrister employed by London solicitors Winter Scott. Chris has recently spent time on secondment working with Skuld Copenhagen.