Creditor protection and registration of company charges in Barbados: an evaluation

• Author: Andrew Burgess
• Position: Senior Lecturer in Law, University of the West Indies, Cave Hill Campus, Barbados
• Pages: 380-400

CREDITOR PROTECTION AND

REGISTRATION OF COMPANY CHARGES

IN BARBADOS: AN EVALUATION

ANDREW

BURGESS*

Introduction

Trading companies in

Barbados

have always enjoyed a common law

implied power to contract debts reasonably required for the purposes

of their business1 and to give security by creating Legal or equitable

charges on their assets,2 These powers have been greatly amplified by

the

Cornpanies

Act, Cap, 308, which confers on companies all the

rights, privileges and powers of an individual.3 The charges created

by a company on its assets to secure debts contracted by it in the

exercise of its borrowing power vitally affect its creditworthiness.

Consequently, the existence of company charges are of particular

interest to prudent investors who wish to extend credit to a company.4

Indeed, two of the most important indicators of a company's

creditworthiness are the level of its indebtedness and the extent to

which its assets are encumbered or charged.5 Given the foregoing,

plus the fact that the liability of a company is limited to its available

Senior Lecturer in Law, University of the West Indies, Cave Hill Campus,

Barbados.

1 Re International Life Assurance Society (1870) L.R.10 Eq,3l2; General

Auction Estate and Monetary Co. v. Smith [1891] 3 Ch.432; Re Badger,

Mansell v. Viscount Cobham [1905] 1 Ch.568, 574, per Buckley J.

2 Re International Life Assurance Society, (1870) L.R. 10 Eq.312; General

Auction Estate and Monetary Co. v. Smith [1891] 3 Ch.342; Re Florence

Land and Public Works Co. (1873) 10 Ch.D.503; Re Colonial Trusts

Corpn.t ex parte Bradshaw [1879] 15 Ch.D.645.

3 Sec in particular s. [7(1) which provides that "a company has the capacity

rights,

powers and privileges of an individual" and s,17(3) that "it is

not necessary for a by-law to be passed to confer any particular power on

a company or its directors." Presumably, this is so because any power that

may be so conferred already inheres in the company by virtue of 8.17(1).

4 See Gough, Company Charges (London: 1978) 201 et seq; Re Cardiff

Workmen's Cottage Co. lid. [1906] 2 Ch. 627, 629 per Buckley J.

5

Ibid.

assets,

the need for a system of disclosing information to persons about

to deal with a company or to become a creditor of it as to the degree

of its creditworthiness, as it might affect their position, is readily

apparent.

The system employed in Barbados is found in Part II, Division A of

the Companies Act, Cap. 308. Part II is headed "Protection of

Creditors and Investors" and Division A of this part establishes a

system of registration of company charges. The objective of Division

A, it is submitted, is as was said in the case of Re Jackson and

Bassford6 of the system of registration set up by the U.K. Companies

Act, 1900,

"that those who are minded to deal with limited companies

shall be able by searching a certain register to find whether the

company has incumbered its property or not."7

The provisions of Division A, then, are aimed at removing the

mischief of

a

company obtaining credit on the strength of property in

its possession and other assets which prospective creditors consider to

be available to satisfy debts owed to them, but which are instead

encumbered.

6 [1906] 2 Ch.467.

7

Ibid.,

at

476,

per Buckley J. See also Lord Parker in Dublin City Distillery

Ltd. v. Doherty [1914] AC 823, 854 where he stales that the object of the

U.K. system was "to give notice to all who deal with a company of certain

matters which vitally affect the company's creditors"; and Cozens-Hardy

M.R. in Re Yollard, Husson and Birketi Ltd. [1908] 152, 156, where he

said:

"I approach.... the Companies Act of 1900 as one is bound to

do,

by considering what was the mischief which had to be

remedied.

It was that companies were allowed to issue debentures,

charging very frequently all their present and future assets, and

there might be no means of ascertaining, at all events for a

considerable time, whether any debentures were issued; and

therefore, for the protection of the general creditors of the

company, or of persons desiring to trade with the company, it

was thought fit to require that there should be a register of

mortgages of that particular kind, not merely in the company's

own books, but by the register."