Creation, Modification of Charges
Need to register or modify charges on assets? We manage the filings, keeping your asset-related information updated with authorities to protect your company's financial interests.
The process of creating or modifying charges on a business's assets to ensure loan or other financial commitments are repaid is known as the Creation and Modification of Charges. A charge is a type of security interest that is recorded against a company's assets, property, or undertakings, like a mortgage or hypothecation. By establishing a defined framework for the priority of claims, this register guarantees that creditors have legal options in the case of default or insolvency.
According to the Companies Act of 2013, registering a charge is a legal need rather than only a formality. It is essential to preserving willingness because it tells stakeholders and creditors about the company's financial obligations. In the scenario of liquidation, proper registration guarantees that the charge will take priority, providing lenders with the assurance they require when granting credit to the business. Non-compliance with the registration can cause significant legal consequences, monetary fines, and possible interruptions to your business operations. For businesses looking to safeguard their financial interests and maintain regulatory compliance, prompt and proper registration is therefore important.
Our Services
Our customised services enable you to create and modify charges in full compliance with legal requirements and with seamless execution. Below is a breakdown of our core services:
| Service | Description |
|---|---|
Drafting Charge Documents |
We prepare detailed legal documents, including charge deeds and loan agreements, ensuring clarity and precision in the description of assets and obligations. |
Filing with Registrar of Companies (RoC) |
We handle all filings with the RoC, ensuring the correct forms (CHG-1 for non-debentures, CHG-9 for debentures) are submitted accurately and within deadlines. |
Verification and Execution of Documents |
All documents are verified and executed, ensuring proper signatures from relevant parties and confirmation from financial institutions. |
Modification of Existing Charges |
We prepare and file documents for the modification of any existing charge, ensuring that all changes are reflected accurately in the RoC records. |
Coordination with Lenders |
We liaise with banks and financial institutions to gather necessary documentation and ensure smooth processing of charges. |
Post-Filing Support |
After filing, we monitor the status with the RoC, provide updates, and ensure that your records are maintained and accessible for audits or future reference. |
Satisfaction of Charges |
We handle the filing of Form CHG-4 for satisfaction of charges once a loan or obligation has been fully repaid. |
Why Choose Benchmark
We stand out as a trusted partner for the creation and modification of charges due to our deep expertise in handling financial and legal matters. At Benchmark we have a team of highly qualified professionals who handle your needs in a proper way. Whether you are creating a new charge or modifying an existing one, we customise our solutions to fit your company’s unique financial structures, ensuring that your assets and obligations are accurately reflected.
From drafting legal documents like charge deeds to filing the necessary forms (CHG-1 or CHG-9) with the Registrar of Companies (RoC), we take care of every technical aspect, ensuring precision and thoroughness in every step of the process.
We are committed to timely compliance means you will never have to worry about missing another deadline and face penalties. We manage the entire process, from coordinating with lenders to verifying the execution of documents, and even providing post-filing support to track the status of your submissions with the RoC.
By choosing our service you’re not just ensuring that your company stays compliant, but also safeguarding your financial interests through a thorough and proactive approach to charge management.
Documents Required for Charge Creation and Modification
To ensure a smooth and compliant process for the creation or modification of charges, it is essential to have all necessary documentation in place. These documents are essential for both legal filings and verification with the Registrar of Companies (RoC).
Below is a list of the primary documents you will need:
| Documents | Description |
|---|---|
| Board Resolution | Approval from the company’s board for the charge creation or modification. |
| Loan Agreement | Legal agreement detailing the terms of the loan secured by the charge. |
| Asset Description and Valuation | Detailed description and valuation of the assets being charged. |
| Consent Letter from Lender | Approval from the lender for creating or modifying the charge. |
| Charge Deed | Legal document outlining the terms of the charge (for creation or modification). |
| RoC Filing Form (CHG-1 or CHG-9) | Forms for filing with the Registrar of Companies (CHG-1 for non-debentures, CHG-9 for debentures). |
| Proof of Registration from the RoC | Official proof that the charge has been registered with the RoC. |
| Property Title Documents | Documents confirming ownership of the property being charged. |
Having these documents prepared and verified in advance helps avoid delays and ensures timely compliance with regulatory requirements.
Process for Charge Creation
The Charge Creation process make sure that the assets offered as security are legally recorded, protecting both lenders and borrowers. Below is the step-by-step process to officially record an asset as security.
Step 1: Data Collection
- The first step in creating a charge involves gathering all relevant data, including the details of the assets to be charged, loan agreements with financial institutions, and board resolutions. This data is critical to ensure that the charge documents accurately reflect the assets being used as collateral and the terms of the financial obligation.
Step 2: Drafting Legal Documents
- Once the data is gathered, the next step is to draft the necessary legal documents, such as the charge deed. This document clearly describes the nature of the charge, whether fixed or floating and outlines the assets involved. It also details the obligations of the company and the lender, ensuring that both parties’ interests are protected.
Step 3: Filing with Registrar of Companies (RoC)
- The legal documents must then be filed with the Registrar of Companies (RoC). The filing process requires submitting the appropriate forms—CHG-1 for charges other than debentures, or CHG-9 for charges involving debentures. This step must be completed within 30 days of creating the charge to comply with legal deadlines.
Step 4: Verification and Execution
- After the legal documents are drafted and filed, it is crucial to verify that all parties involved have signed the necessary paperwork. This includes the company, the financial institution, and any other stakeholders. Once verified, the documents are executed, and the charge becomes legally binding.
Step 5: Coordination with Lenders
- Throughout the process, it is important to maintain clear communication with the lender or financial institution providing the loan. They are responsible for providing consent letters and loan agreements, which must be included in the filing. Benchmark ensures seamless coordination with lenders, gathering all necessary documentation to prevent delays.
Step 6: Post-Filing Support
- Once the charge is registered with the RoC, Benchmark provides ongoing post-filing support. This includes monitoring the processing of the application, obtaining the certificate of registration, and updating the company’s internal records to reflect the new charge. Post-filing support also involves ensuring compliance with any subsequent audits or queries from regulatory authorities.
Process for Charge Modification
The Charge Modification process is crucial when altering the terms of an existing charge, such as changing the loan amount or asset. Below is a structured step-by-step process for modifying a charge.
Step 1: Data Collection
- For modifying an existing charge, the company must collect updated information regarding changes in the loan terms, asset valuation, or any other relevant financial agreements.
Step 2: Drafting Legal Documents
- Agreements and legal documents need to be updated to reflect changes in the terms or conditions of the charge. This includes amendments to the original charge deed and related financial agreements.
Step 3: Filing with Registrar of Companies (RoC)
- Post board approval (where applicable) the forms CHG-1 or CHG-9 are used to update the RoC with the revised terms. The modification must also be filed within the legally required time frame (usually 30 days after signing) to avoid penalties or non-compliance.
Step 4: Verification and Execution
- All relevant parties must review and sign the updated documents. This ensures that everyone is aware of and agrees to the changes being made to the charge.
Step 5: Coordination with Lenders
- Coordination with lenders is equally important to reflect the revised terms. This may involve renegotiating loan terms or updating the collateral being used for the charge.
Step 6: Post-Filing Support
- After the modification is filed, Benchmark tracks the status of the modification with the RoC and ensures that the changes are accurately reflected in both the company’s records and the RoC’s database.
Types of Charges and Their Importance
When your business gets any financing, the lenders need to have an assurance that you are going to payback, and it is done through creation of charges on the company's assets. And a charge acts as a form of security that in case of a default, the lender has the legal rights over specific assets of your business.
These charges can be categorised into different types based on their nature, scope, and enforceability. The table below outlines the key types of charges and their importance:
| Types of charge | Description | Importance |
|---|---|---|
| Fixed Charge | A charge on specific identifiable assets such as land, buildings, machinery, or patents. The company cannot sell or transfer these assets without the lender's consent. | Provides strong security for lenders and ensures that key business assets are safeguarded. |
| Floating Charge | A charge on changing assets such as inventory, accounts receivable, or stock. The company can use, sell, or replace these assets in the normal course of business until the charge crystallizes. | Offers flexibility for businesses while still securing the lender's interests in case of default. |
| Pari Passu Charge | A charge that is shared equally among multiple lenders, meaning no single lender has priority over others. | Ensures fair distribution of claims among creditors in case of liquidation or default. |
| Negative Lien | A restriction placed by lenders that prevents the company from creating additional charges on specific assets without prior approval. | Protects lenders by preventing the dilution of their security interest over the company's assets. |
| Mortgage Charge | A charge specifically created on immovable property, such as land or buildings, where the lender has legal rights to seize the property if the borrower defaults. | Secures large loans by providing tangible collateral, reducing the lender's risk. |
| Hypothecation Charge | A charge where movable assets like vehicles, stock, or equipment are pledged as security without transferring ownership to the lender. | Allows businesses to obtain loans while retaining possession of assets. |
Non-Compliance Consequences
Failing to comply with the legal requirements for the creation or modification of charges can lead to serious repercussions for a company. Non-compliance not only affects financial standing but can also result in legal and operational setbacks. Below are some of the key consequences of not adhering to these regulations:
- Penalties and Fines
- Interest on Outstanding Charges
- Legal Action, Including Prosecution
- Imprisonment of Responsible Officers
- Reputational Damage
- Restrictions on Future Financing
- Operational Disruptions
- Loss of Priority in Claims During Liquidation
Conclusion
Proper management of charge creation and modification is essential for maintaining legal compliance, protecting your company’s assets, and ensuring transparency with creditors. At Benchmark, we provide comprehensive support to handle all aspects of this process efficiently and accurately.
Get in Touch
Ready to safeguard your company’s financial obligations? Contact us today to learn more about how our charge management services can benefit your business. Let us handle the complexities while you stay compliant and secure.
FAQs
What types of charges can be created on a company’s assets?
Companies can create fixed charges, floating charges, or a combination of both on their assets to secure loans or financial obligations.
What happens if a company fails to register a charge within the stipulated time?
Failure to register a charge on time can lead to penalties, loss of legal validity for the charge, and complications in enforcing the charge during liquidation.
What is the timeline for filing charges with the RoC?
Charges must be registered with the RoC within 30 days of their creation. Delays may require additional approval and penalties.
Can a charge be satisfied or released?
Yes, once the loan or obligation secured by the charge is fully repaid, the company can file Form CHG-4 to satisfy or release the charge.
What is the difference between a fixed charge and a floating charge?
A fixed charge is linked to specific assets like property or machinery, while a floating charge applies to general assets that can change over time, such as inventory or receivables.