What would you do if someone failed to repay money owed?

Options might range from threatening bankruptcy, to suing for the unpaid amount, to forgiving the debt - each such option will have its own set of drawbacks.

Taking a charge is all about increasing the likelihood of getting repaid, hastening recovery of the debt, avoiding litigation, and ensuring priority over other creditors.

A charge normally has the following characteristics: (i) it is a form of security that grants a creditor direct recourse to the charged property for the purpose of satisfying some liability due to the creditor should the debtor default on his obligations; (ii) the chargor retains the right to have the charged property restored to him when the liability has been discharged The Companies Act 1981 (the "1981 Act") requires the Registrar of Companies to keep a register of charges filed against the assets of Bermuda registered companies.

Any person or company interested a charge in respect of either (i) the assets (wherever situated) of a Bermuda registered company; or (ii) assets situated in Bermuda which are granted by or to companies incorporated outside Bermuda, may apply to have a charge registered.

The registration regime established under the 1981 Act applies to a charge over virtually all types of property. The sole exceptions to this are: a mortgage over land in Bermuda should be registered at the office of the Registrar General under the Mortgage Registration Act 1976 (as amended); a mortgage or other form of security over a ship registered in Bermuda or any interest in a ship should be registered at the Department of Maritime Administration pursuant to the Merchant Shipping Act 1894 (as amended); and a mortgage or other form of security over an aircraft registered in Bermuda should be filed with the Bermuda Department of Civil Aviation (DCA) pursuant to the Mortgaging of Aircraft and Aircraft Engines Act 1999 (as amended).

Subject to the foregoing exceptions, registration under the 1981 Act is the only method of registration of charges in Bermuda over the assets of Bermuda companies. However, registration under the 1981 Act is not compulsory and does not affect the validity or enforceability of a charge.

Accordingly, failure to register a charge does not render the security interest void or invalid against the creditors or the liquidator of the company. There is no time limit within which registration of a charge must be effected. However, in view of the fact that priority of the charged interest is determined by the date of registration, it is advisable to register a charge as soon as possible following its creation.

The effect of registration, pursuant to the 1981 Act, is to confer priority based upon the date of registration of the charge and not the date of creation. Accordingly, in the event that questions of priority fall to be determined by reference to Bermuda law, any charge registered pursuant to the 1981 Act will take priority over any other charge which is registered subsequently (irrespective of the date of creation) in regard to the same assets.

It will also take priority over all other charges created over such assets after 1 July, 1983, which are not registered. It is important to note that registration will secure the priority under Bermudian law of a valid security interest but does not ensure that a Bermudian court would hold that the security interest is validly created.

When registering a charge with the Registrar, it is necessary to file the statutorily prescribed Form 9; the original or a certified copy of the document creating the charge; and the registration fee (which is based upon the value of the charged property).

Registration constitutes notice to the public of the interest of the charger in or over the charged assets. The register of charges is available for inspection by members of the public during normal working hours.

Upon satisfaction or release of a charge, it is appropriate to file with the Registrar of Companies evidence that either: the debt for which the charge was given has been paid (in whole or part); or that part of the property or undertaking charged has been released from the charge; or that part of the property or undertaking charged has ceased to form part of the company's property or undertaking.

In the event that a charge has been released, the following documents should be filed with the Registrar to evidence the company's release from its obligations: the statutorily prescribed Form 11 (to be executed on behalf of the debtor only); an original or a certified copy of the Deed of Release executed by the lending authority indicating that the company may be released from the charge; and the appropriate registration fee.

Attorney Tammy L. Richardson is a member of the Asset Finance Department at Appleby Spurling & Kempe. Copies of Ms. Richardson's columns can be obtained on the Appleby Spurling & Kempe website at www.ask.bm. This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer.