Erroneous filings in Companies House. What does it mean for lenders and what can they do about it?

UK Finance, the trade association for the banking and financial services sector, has warned its members that hundreds of erroneous filings were submitted at Companies House in February 2024. The Financial Times said that the roughly 800 filings related to 190 companies.  These filings appeared to show property owned by the corporate borrowers subject to security had been incorrectly released.  Lenders will obviously be concerned that such releases may impinge on the ability of lenders to take possession of the asset in case of failure to repay by the borrower. It appears that the filings have been made fraudulently, without the knowledge of the companies or the lenders.

It is worth noting that an incorrect release on the public register on Companies House does not release or invalidate the security.  The formal way to release English security granted by an English company is for the parties to execute and complete a deed of release. Charges over certain assets require further formalities before the charge is released, for example a legal charge over land registered at the HM Land Registry, requires the form DS1 to be executed by the chargeholder.

Whilst the underlying security itself is not released due to the erroneous filings, there are other consequences that should be considered by lenders.  Lenders do rely on the public register to check whether they will be first ranking on insolvency or whether there is prior ranking security in place before they make available facilities or extend credit.  An inaccurate register could obscure the priority position of charges in respect of a company potentially exposing lenders to unexpected risks when providing loans.

Although a Companies House spokesperson stated that they would use the new powers available to them under the Economic Crime and Corporate Transparency Act 2023 to remove the related filings.  It is also worth noting that, under the Companies Act 2006, it is a criminal offence for a person, without reasonable excuse or knowingly, to deliver or cause to be delivered to the registrar a document that is misleading, false or deceptive.

It is highly recommended that lenders check their security is correctly registered at Companies House. Additionally, lenders should, as a matter of course, set up alerts and subscribe to the Companies House using the “Follow this company” function Follow companies for free – GOV.UK (www.gov.uk) for all companies that have granted registerable security in favour of the lender.  This would notify the lender if a charge is marked satisfied at Companies House incorrectly.

There is a rise in fraudulent filings at Companies House, if lenders are aware of any incorrect filings, they should notify Companies House immediately.   Companies House may exercise their new powers allowing the Registrar to remove filings where:

1. information in a document is false;
2. a document has been sent without the company’s knowledge or authorisation; or
3. a document records a transaction that never occurred.

Lenders should also act promptly to avoid any allegation that they have consented to the release of security. Whilst the release of security has to be formally documented as set out above, a delay in acting when the lender has actual knowledge of the incorrect filing  could be constructed as a waiver.  In the case of fraud, this argument is unlikely to succeed.