What is Section 859A and why does it matter for IP loans?

Full Explanation

Section 859A of the Companies Act 2006 is the rule that makes a lender's security enforceable. When a company grants a charge over its assets, including intellectual property, that charge must be registered at Companies House within 21 days of its creation. If the deadline is missed, the security is void against a liquidator, an administrator, or any other creditor of the company. The debt itself survives, but the lender is reduced to an unsecured creditor and loses first claim on the charged assets. For a loan built on IP collateral, that is the difference between recovering value on default and standing behind everyone else in the queue. This matters more for IP than for tangible assets because IP security is often layered. A lender may take a legal mortgage or an assignment by way of security over registered rights, plus a fixed or floating charge. Each of these is a registrable charge, and each must be recorded within the 21-day window. Registration at Companies House establishes priority against later charge-holders, so timing determines security priority ranking. Alongside Companies House, the charge should also be recorded at the UK Intellectual Property Office against the relevant patents, trade marks and registered designs, so that anyone searching the register sees the encumbrance. A prudent lender will run encumbrance searches at both registries before advancing funds, precisely to confirm that title is clean and unencumbered. For a founder, the practical takeaways are straightforward. First, expect your lender's solicitors to move quickly after completion; the 21-day clock is unforgiving and there is no routine extension. Second, understand that a floating charge, even when registered, ranks behind fixed charges, insolvency expenses and preferential creditors, so the form of security shapes how much comfort the lender takes and therefore your terms. Third, keep your own record of what has been charged, to whom, and when, because future lenders and investors will scrutinise it. As a next step, ask your corporate-finance adviser or solicitor to run a Companies House and UK IPO encumbrance search on your company before you approach any lender. Clearing prior charges, or knowing exactly what ranks ahead, removes a common cause of delay and strengthens your negotiating position.

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