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A word about credit risk mitigation
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Spoddy pointy headed law-nerd point: a charge is an equitable proprietary interest. It is a creature of equity. Not a pantomime dromedary, but an intellectual construct dreamed up by those woundrous Courts of Chancery.

A charge is the sort of security interest you take over a real thing that you can move about — legal speak: what we used to call chattels and one now calls “tangible movable property”. Good, old fashioned, real stuff. Rolling stock. Raw materials. Ships. Aeroplanes. Negotiable financial instruments. You can take a charge — probably a floating one — over the stock in trade in a factory. A fixed charge requires quite a lot of control.

You can also take a charge over book debts and the balance in a bank account — it can even be fixed, as long as you can legally prevent the chargor withdrawing its money whenever it likes - see Re Spectrum Plus

Registering charges of securities and cash in Ireland

You are having commercial relations with an Irish espievie. It grants you security. Do you need to register your charge?

Your starting point would be well, since Ireland is still a member of the EU and, as far as north-Atlantic states go, an enthusiastic one at that, and as such is obliged to implement the Financial Collateral Directive into domestic law. Since that happy directive has done away with the tiresome yet strangely exhilarating business of having to register charges with the domestic agency responsible for monitoring those things things in your member state, the answer, on a commonsense application of principles of European Law, ought to be “no”.

And, indeed the Irish Financial Collateral Arrangement Regulations, as incorporated into Part 7 of the Irish Companies Act 2014[1] provide that certain types of charges do not actually count as “charges” for the purposes of Section 408(1) of the Irish Companies Act 2014 and therefore do not need to be registered under Section 409.

These include mortgages and charges created over an “interest” in the following assets (let’s call them FCR-eligible assets):

(a) cash;[2]
(b) deposits and money credited to bank accounts;
(c) shares, bonds or debt instruments;
(d) money market funds or collective investment scheme units; or
(e) claims and rights (such as dividends or interest) over any of the above.[3]


That isn’t necessarily how the Central Bank of Ireland sees it. Matheson warns[4] that the registrar tends to take a conservative approach to excluding charges from the registration requirement on account of the Financial Collateral Arrangement Regulations — by which it means if you have a general charging clause that mainly concerns financial collateral, but includes non-FCR-eligible assets as well you still have to register the whole thing — so you may still find local counsel for Irish espievies insisting that you register charges with the CBI, notwithstanding the Emerald Isle’s continued membership of the European Union.[5]

In fairness to the CBI, they are implementing the statute literally.. Section 408(3)[6] goes on to say a charge created over both the excluded FCR-eligible assets and other, ordinary property will “other than to the extent to which it is created over an interest in FCR-eligible assets” be regarded as a registrable charge.

Here is where the lawyer’s yen for over-particularity can be a self-snooker. A prime broker or a custodian will like to take a general charge over not just securities, but the fund’s claim against the custodian in whose accounts they sit (even though that will usually be itself), and all the fund’s rights against its counterparties under market transactions (even though they will (largely) be itself). It is a moot point whether claims under a swap transaction referencing a bond or share count as “claims and rights over any of the above” so the path of least resistance, paved with good intentions though it is, is just to register the charge and be done with it.

That said, Section 408(3), in language that is no model of the deft use of the English language,[7] acknowledges that an unregistered charge will still be effective to the extent it covers FCR-eligible assets, even if it won’t work for other assets. Since the “other assets” part of a prime broker’s security, if it bites on anything at all, is basically thrown in for good measure, one might be inclined to take a bit of a view. Not that we would recommend anything quite so cavalier, of course. but if you were stuck in a corner.

Nobody puts baby in a corner.

Amending security interests

Security is deep Eagle lore. Even sensible, experienced, senior, inhouse lawyers will get the shivers whenever the topic of taking security comes up. From childhood they have been raised on gruesome stories of what happens to legal eaglets who are careless with security interests.

If you amend a document granting a security interest you risk someone trying to argue that you have terminated the old security interest and created a new one, thereby re-starting any voidable preference period, invalidating any previously registered charge, and of course relegating your interest behind those of anyone who has registered a security interest over the same assets in the mean time — the first security interest in time prevails.

Some of these risks have been de-complicated by the financial collateral regulations (insofar as they’ve done away with registration requirements, slavenburgs and so on for financial collateral arrangements), and while this is still a bit of a mine-field, basic common sense should avoid anyone but the most headless chicken-licken standing on any landmines.

For one thing, to run any risk you have to actually be amending the security interest itself, rather than other legal or economic terms that just happen to be in the same contract.

So, if you have — ooh, say a prime brokerage agreement which contains a charge but a lot of other stuff besides — you are (in the humble opinion of this bear of little brain) most likely to be amending other things and not the actual charge provision, which tends to be dull and workpersonlike. You may tweak rehypothecation limits, financing rates, transaction terms and so on — but the security package will remain intact.

In any case, the following magic words should help: “These amendments will not affect the effectiveness, time of original execution or priority of any security interests.”

See also


  2. I know, I know. You can’t take security over cash. But if you try, then even if you could, you couldn’t, unless you registered your attempt. But since you can’t ... I’ll get my coat.
  3. Irish Companies Act Section 408(1).
  4. “The Companies Act 2014: Registration and Priority of Charges”
  5. “... Charges over all categories of assets are now registerable save for certain specific exclusions (including, for example, a charge created over an interest in cash or in shares in an Irish company). Thus, particulars of every charge created by a company over any property need to be delivered to the CRO, save for charges over non-registrable assets.” — Irish Law Society bulletin.
  7. “For the avoidance of doubt, in the case of a mortgage or charge created over both—
    (a) an interest in anything specified in any of paragraphs (a) to (e) of subsection (1) [i.e., an FCR-eligible asset]; and
    (b) any property, assets or undertaking not falling within any of those paragraphs,
    the mortgage or charge shall, other than to the extent to which it is created over an interest in anything specified in any of the foregoing paragraphs of subsection (1), be regarded as a charge within the meaning of this Part.” [emphasis added]