It is story familiar to creditors and solicitors alike, when a debtor enters into an IVA or goes bankrupt shortly after the creditor has obtained a judgment or order against them.

This can appear like a deliberate attempt by a debtor to frustrate the enforcement process. All the hard work undertaken by the creditor seems like a wasted exercise. However this does not always need to be the case.

What is a charging order

A charging order is defined by section 1 of the Charging Orders Act 1979. Under this section, a creditor may apply to the court for an order imposing a charge on any property belonging to the debtor (specified under section 2 of the Act) to secure payment of monies due. The court will carefully consider whether the creditor’s application should be granted.

Why apply for a charging order

More and more often creditors are applying for charging orders as soon as they realise payment of the judgment or order may not be forthcoming from a debtor. This is often as a precautionary measure and has the effect of making a creditor’s unsecured debt become a secured debt against the debtor’s property – but only when it is sold.

Priorities of interests in registered land

The process for determining the order of priority of competing interests in registered land is now governed by statute.

The general rule of priority of interests affecting registered land is that the priority is based upon the date of creation of the interest; the first to be created having priority.

When used with High Court enforcement

The granting of a charging order only means that the debt will be repaid when the property is sold – unless you are able to convince a court to make an order for sale, you may need to wait years before you recover your money.

So, while a creditor may obtain a charging order to have a fall-back position in the event of IVA or bankruptcy, they would be well advised to still proceed with enforcement of the judgment using a High Court Enforcement Officer under a writ of control (formerly known as a writ of fieri facias). The one does not preclude the other.

Charging orders and bankruptcy or IVA

Provided the charging order is made absolute prior to the commencement of the IVA or bankruptcy, a creditor would normally be entitled to retain the benefit of the charging order.

If the debtor does not repay the debt to which the charging order relates, it may be possible for the creditor to obtain an order for sale from the court. However, in our experience at The Sheriffs Office, this is relatively rare.

Once the debtor discharges the debt, then the court will remove the charging order on receipt of the relevant application.

Charging orders are therefore something a creditor should consider. They are a way of trying to ensure a debtor does not use the insolvency process to intentionally evade settling the monies they owe another party.

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