Mohammed M. Bah, Legal Practitioner, OJPLegal
Under Section 142 of the Companies Act 2009, a company is empowered to borrow money for its business or objects and may mortgage or charge its undertaking, property and uncalled capital, or any part thereof, as security for the said loan.
To put it simply, whenever companies are short of capital and need to enhance its growth and increase its capital, the simplest way is that a company may borrow money from financial institutions or banks, keeping its security as collateral. In this event, a charge is created as a security for that loan by way of a mortgage on the assets of the company. In terms of shares, a ‘share–charge’ is what is created.
The Nature of Share Charges
A charge is simply a right created by any person, including a company referred to as the ‘borrower’ on its assets and properties, present and future, in favour of a financial institution or a bank referred to as the ‘lender’ which has agreed to extend financial assistance. The charge becomes a lien or claim to the whole or a part of a company’s asset.
Mandatory Registration of Share Charges
Once a share-charge has been created, companies are obligated to register such share-charges with the Corporate Affairs Commission of Sierra Leone. Section 170 of the Companies Act provides that a charge is void against any liquidator or creditor of the company unless the prescribed particulars of the charge together with the instrument, if any, by which the charge is created or evidenced or by a copy verified in the prescribed manner have been or are delivered to or received by the Commission for registration in the manner required within 21 days after the date of its creation; thereafter a certificate of registration will be issued by the Commission to the company. The essence of such registration is to give notice to the Commission and the people who advance money to the company about the encumbrance created on the company’s assets. In a company with multiple shareholders, registration of a share-charge becomes all the more important for the proper identification of the shares on which security is taken over.
Importance of Registration
The ramification of non-registration of a share charge is all too predictable in that it becomes void and unenforceable. This is because a registered share charge will typically enable the lender to take control of the company in which shares are held upon enforcement. Section 172, as amended by the Companies (Amendment) Act 2014, imposes a pecuniary penalty on the company and all its officers for default or non-registration of the charges created.
Obligations for Registration
By section 172 of the Companies Act 2009, the primary onus for registering any charges created is placed on the company through which its shareholders can exercise this obligation. However, shareholders are equally empowered to perform the duty of registering charges where they are personally involved. This flexibility in approach informs that the law on the registration of charges is not concerned, per se, with which the shareholder (majority or otherwise) created the charge. Instead, the point of concern is whether the charge created is registrable within the scope provided in section 170 aforesaid. This is why section 172 (3) as amended absolves a company from any liability arising from a default in registration where the said registration has been effected on the application of some other person.
To register a charge with the Commission, the law stipulates the particulars that should be contained in the registrable instrument. Sections 170 (8) and 171 provide a comprehensive guideline on the particulars for registering any of the registrable charges.
Upon receipt of the particulars of registration and the required fees, the Commission shall keep, with respect to each company, a register in the prescribed form and enter the particulars of registration in their register. The Commission will thereafter issue the company a certificate of registration. It follows that where the debt resulting in the creation of the charge has been paid, the company may inform the Commission by filing a memorandum of satisfaction and the charge would be expunged from the Commission’s register.
Share Charges Involving Assets Inside and Outside Sierra Leone
The Companies Act also provides for the processes involved in registering both charges created out of Sierra Leone and those created in Sierra Leone but that relate to or affect assets out of Sierra Leone. The procedure is slightly different, but the objective remains the same as aforesaid.
Personal Share Charges
Meanwhile, in the event that an individual shareholder creates a personal charge on his shares in a company, the obligation to register it with the Commission applies accordingly. Further, the shareholder would have to notify the company to be aware of the encumbrance created.
In conclusion, as encapsulated in the Companies Act 2009 and its amendments, Sierra Leone’s legal framework facilitates the registration of charges, particularly share charges. This regulatory requirement is underpinned by principles of best corporate governance practices and serves to protect the interests of all stakeholders involved in such financial transactions. Adherence to these statutory provisions is imperative, not only to ensure the enforceability of share charges but also to bolster transparency and accountability within the corporate sector.