Charges and mortgages are two instruments that ensure creditors’ protection. Precisely, all creditors need to ensure that they will receive payment for their services or that their loan will be repaid. Charges give the right to creditors to resort to identified property, immovable property or personal property, in order to satisfy the debt or other liability in the case it has not been paid. It should be taken into account that neither possession nor ownership passes to the creditor. On the other hand, under a mortgage of immovable or personal property, the mortgagor possesses the mortgaged property. In the case that the debt has not been repaid then the creditor obtains title/ownership for the particular property.
A charge is similar to a mortgage. Basically, a charge embraces all the rights of a mortgagee without transferring ownership. Charges may emerge as a result of an agreement or by operation of law. It should be clarified that express charges can be either fixed or floating. A fixed charge is created over certain assets. Regarding immovable property, an express charge is still called “mortgage”. However, an express charge has substituted the use of the traditional mortgage.
Except for immovable property and capital assets, fixed charges are not applied to assets such as merchandise since there are regularly being replaced. In this case, fixed charges need to be continually created and released which is not practical. On the other hand, a “floating” charge can be created over all the assets of the company from time to time, or maybe one class of assets, i.e. stock in trade.
In Cyprus, registration of charges is regulated by the “The Companies Law” (Cap. 113). Specifically, the provisions of sections 90(1) and 90(2) of the Companies Law cover all the necessary procedures that need to be followed so that to proceed with registration of charges. According to Section 90(1), charges need to be registered with the Registrar of Companies. If they are not registered, they are not valid.