Section 859A (Companies Act 2006)
Definition
Section 859A of the Companies Act 2006 is the provision that requires most charges created by a company to be registered at Companies House within 21 days of creation, failing which the security is void against a liquidator, an administrator and any creditor of the company. In IP-backed lending, section 859a charge registration is a hard deadline that no lender can afford to miss: a legal mortgage, fixed charge or floating charge over intellectual property that is not registered in time still binds the borrower but collapses on insolvency, precisely when the lender most needs it. The consequence is severe, because the debt it secures becomes immediately payable and the lender is relegated to the position of an unsecured creditor, ranking behind fixed and preferential claims in the insolvency waterfall. Registration also puts the wider market on notice of the charge, which is why encumbrance searches at Companies House are a routine part of due diligence. For IP specifically, the charge should additionally be recorded at the UK Intellectual Property Office so that the security is noted against the registered rights themselves. This matters to both sides: a lender taking security over a UK SME's patents under a facility such as NatWest's High Growth IP Loan will register the charge within the 21-day window as a matter of course, and a borrower's advisers should confirm registration has been completed to avoid any later dispute about validity. The 21-day period runs from the date the charge is created, not the date funds are drawn, so diarising it from execution is essential. It is the UK analogue of perfecting a security interest, comparable in function to filing a UCC-1 in the United States, and getting it right is fundamental to the enforceability of any charge over intellectual property.
Complementary Terms
Concepts that frequently appear alongside Section 859A (Companies Act 2006) in practice.
The legal process by which a creditor's security interest in collateral becomes enforceable against third parties, typically through registration (UCC filing, PPSA registration, or Companies House filing), possession of the collateral, or control over financial assets. Perfection establishes the creditor's priority ranking relative to other secured parties.
A form of security interest, primarily used in UK and Commonwealth jurisdictions, that attaches to a class of present and future assets of a company (such as stock, receivables, or general business assets) without preventing the company from dealing with those assets in the ordinary course of business. A floating charge 'crystallises' into a fixed charge upon the occurrence of a specified event such as default, appointment of a receiver, or commencement of winding up.
Security priority ranking is the order in which competing creditors are paid from a charged asset when a borrower defaults or becomes insolvent. In IP-backed lending it determines how much a lender can realistically recover from intangible collateral, and so it directly shapes the loan-to-value the lender is prepared to offer.
A legal mortgage over intellectual property is the strongest form of security a lender can take over an intangible asset, in which legal title to the IP is transferred to the lender as collateral, subject to the borrower's right to have it returned once the loan is repaid. In practice a legal mortgage ip security is created by an assignment by way of security, almost always paired with a licence-back so the borrower can continue to exploit the very patents, trade marks or registered designs it has charged.
An assignment by way of security is the legal mechanism used to create a legal mortgage over intellectual property, whereby the borrower transfers title to the IP to the lender as collateral while retaining an equitable right to have it reassigned once the debt is repaid. Unlike an outright assignment, an assignment by way of security is conditional and reversible, and it is almost always accompanied by a licence-back so the borrower can carry on using the assigned patents, trade marks or designs in the ordinary course of business.
Debt subordination is an agreement under which one creditor's claim is ranked behind another's, so the senior lender is repaid in full before the subordinated lender receives anything. In IP-backed lending it is the mechanism that lets more than one lender share the same intangible collateral, or that reconciles a new IP-backed facility with existing security.
A loan-loss provision is an amount a lender sets aside to cover the losses it expects to incur on a loan or portfolio, reflecting the probability of default and the loss it would suffer after recoveries. The size of a loan-loss provision is driven directly by the recovery a lender can realistically expect from its collateral, which is why IP-backed facilities are provisioned conservatively.
A negative pledge is a lending covenant under which a borrower promises not to grant new security over specified assets, or over any assets, without the lender's consent. In IP-backed lending, a negative pledge covenant is the instrument that protects a lender's collateral position after the loan is advanced.
Related FAQ
Do I lose ownership of my IP if I use it as collateral?
No. Using IP as collateral grants the lender a security interest, not permanent ownership; you keep using the rights and get clear title back on repayment. Ownership only transfers if you default and the lender enforces.
Read full answer →How does a sale-and-licence-back of IP work?
In a sale-and-licence-back, a company sells its IP to a funder for cash, then immediately licences it back so it can keep using the IP in its business — releasing capital without losing operational use.
Read full answer →What is a legal mortgage over intellectual property?
A legal mortgage over IP transfers legal title of the rights to the lender as security, with a licence-back so you keep using them; it is the strongest form of IP security and is discharged when the loan is repaid.
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