A charging order over property is a useful way of securing a judgment debt; but doesn’t lead to immediate payment of a debt.
However, if there is equity in the charged property, the next step could be to apply for an order for sale. The attitude taken by the Courts is that there is “economic importance” in ensuring that there are effective mechanisms for the enforcement of debts, but the Courts have historically considered a number of factors in deciding whether to make an order for sale, including:
• the debtor’s conduct
• the prospects of payment of the debt without a sale of the property
• the size of the debt
• the value of the property.
Human rights issues are also now important following the approval of the Supreme Court in Manchester City Council v Pinnock [2010] of an ECHR decision, where it was held that a person at risk of eviction from their home should be entitled to have ‘the proportionality of the measure determined by an independent tribunal in light of the relevant (Human Rights) principles.”
So when will be it proportionate to evict a person from his home to satisfy a debt? S94 of The Tribunals, Courts and Enforcement Act 2007 enables the Government to introduce a minimum financial threshold for orders for sale.
This is rather at odds with the position in bankruptcy which specifies that any unsecured creditor owed at least £750 may petition for the bankruptcy of a debtor (s267 (4) Insolvency Act 1986) and where there is a property in a bankruptcy estate, unless there are exceptional circumstances, on a Trustee’s application at least 12 months from the Bankruptcy Order a Court will usually order that the property be sold to benefit the estate.
No such threshold has been introduced yet, but the Coalition Statement of May 2010 stated that the Government may “… ban orders for sale on unsecured debts of less than £25,000.”
This is rather at odds with the position in bankruptcy.
Any unsecured creditor owed at least £750 may petition for the bankruptcy of a debtor (s267 (4) Insolvency Act 1986).
Where there is a property in a bankruptcy estate, unless there are exceptional circumstances, on a Trustee’s application at least 12 months from the Bankruptcy Order a Court will usually order that the property be sold to benefit the estate.
As long as there will be some net benefit to the bankruptcy estate, an order for sale is likely to be made. Proportionality alone is unlikely to constitute ‘exceptional circumstances.’
The Trustee has a statutory duty to realise the assets for the estate - even if the bankruptcy order itself was based on debt of only £750.
This is a contrast to the suggested minimum financial threshold for an order for sale based on a charging order.
However, the security afforded by a charging order is of course rather more attractive than petitioning for bankruptcy as an unsecured creditor.
So where does the present position leave the secured creditor seeking an order for sale? In view of the recent cases and the likelihood of a future minimum financial threshold, our advice is that a creditor seeking such order in respect of debt of under £25,000 should ensure that they carefully, thoroughly and convincingly address.
Gillian Pastuch – Solicitor, Insolvency, Sheffield
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