Charging Orders: A guide
- 1 A guide to Charging Orders & Orders for Sale
- 2 Charging Orders
- 3 The Charging Order Process
- 4 When can a creditor apply for a Charging Order?
- 5 Section 86(1) The County Courts Act 1984:
- 6 How to try and stop the Interim Charging Order being applied for
- 7 What if you have been served with an Interim Charging Order
- 8 Objections to The Final Charging Order
- 9 Section 1(5) of The Charging Orders Act 1979 reads:
- 10 The Final Hearing
- 11 Orders for sale
A guide to Charging Orders & Orders for Sale
With thanks to Sequenci Original thread here
A Charging Order is an order which secures a money judgment against the judgment debtor’s property or interest in a property. Creditors usually apply for Charging Orders as they are a reasonably easy method of ensuring the likelihood of them receiving their money back at some point in the future. Some creditors have a policy of applying for Charging Orders as a matter of course, some will apply as the debtor’s debt is large or their total indebtedness is high. Some will try the Charging Order route if they are offered a nominal instalment amount by the debtor, or that it will take many years to clear the debt.
Charging Orders have many advantages for the creditor, for a start they can turn an unsecured debt into a secured one, this could put extra pressure on the debtor to treat the debt with a preference. Statutory interest will run on the order, unless it is below £5,000 or regulated by The Consumer Credit Act. Some creditors may argue that a Charging Order will secure contractual interest. There is no time limit to apply for an order and the process can start in the creditor’s chosen county court. The order would never be included within an Individual Voluntary Agreement, it is a debt which does not prove in a bankruptcy although the creditor could waive the Charging Order and apply to make the debtor bankrupt.
I must stress that on some occasions securing a charge against a property isn’t necessarily a bad thing at all, providing conditions are attached to it. If a debtor is unable to make any payments against a debt they may wish to consider offering the creditor a voluntary charge. The same might apply if the debtor is terminally ill or a single house owner with no heirs. The great thing with a voluntary charge is that it might be easy to ensure conditions are attached to the charge, these conditions could be that the creditor is not allowed to request an order for sale and also that all interest is frozen when the charge is applied.
The Charging Order Process
The process follows CPR 73.3: Application for a Charging Order.
1.The creditor successfully obtains a County Court Judgment (CCJ)
2.There is no instalment order granted / The debtor defaults on the instalment order
3.The creditor applies for the Interim Charging Order (no hearing) [n379]
4.Interim Charging Order made [n86]
5.Hearing for the Final Charging Order (Can be transferred to debtor’s local court)
6.Interim Order discharged or Final Charging Order Granted [n87]
The creditor could then start the process for an Order for Sale, this is very rare as usually the creditor is happy to sit on the Charging Order. If the creditor wishes to apply for an Order for Sale, there would be another hearing.
When can a creditor apply for a Charging Order?
First and foremost, a creditor would have had to have obtained a money judgment against the debtor. If the judgment is ‘forthwith’, the demand is for immediate payment of the debt. In theory, the debt would become due and payable at once – a creditor could apply for the Charging Order as soon as it was granted.
Section 1: The Charging Orders Act 1979:
Where, under a judgment or order of the High Court or a county court, a person (the “debtor”) is required to pay a sum of money to another person (the “creditor”) then, for the purpose of enforcing that judgment or order, the appropriate court may make an order in accordance with the provisions of this Act imposing on any such property of the debtor as may be specified in the order a charge for securing the payment of any money due or to become due under the judgment or order.
If there is an instalment order in place, a creditor would not be able to apply for a Charging Order.
Section 86(1) The County Courts Act 1984:
Where the court has made an order for payment of any sum of money by instalments, execution on the order shall not be issued until after default in payment of some instalment according to the order.
This was further considered in the case of Mercantile Credit V Ellis in The Court of Appeal 1987. It was found that the wording of the Charging Orders Act states quite clearly that no further action could be taken without a default in payment. It should be noted, however, that in the case of Ropaigealach V Allied Irish Bank CA Nov 2001 where an instalment order is made AFTER an interim charging order has been made, a court has the jurisdiction to make a Charging Order final.
There are various tactics which a creditor will use to try and obtain the Interim Order, they will try their best not to allow the court grant an instalment order on a CCJ. If a debtor wishes to admit the claim and request instalments, the creditor may argue the instalments are unacceptable and that a Charging Order is more appropriate. A creditor might also seek a re-determination if a court accepts a debtor’s offer of instalments. Some creditors have even been known to ask a district judge to consider a Time Order to change the judgment to forthwith.
How to try and stop the Interim Charging Order being applied for
Charging orders are notoriously difficult to stop, District Judges are usually reluctant to turn down the creditor’s application. Creditors do not usually opponse another creditor’s application either. The Charging Order process isn’t automatically transferred to the debtor’s local court, the would have to request this (possibly at a cost).
When a County Court claim form is received and a debtor wishes to make an admission it is imperitive that a reasonable offer of payment is made. If it is accepted then ensure that the payment is made on time each month. Never offer a nil payment. It is important to ensure that the N9A admission form is sent within time to the correct address on the claim form. It may be worth considering sending the form recorded delivery, send a copy to both the creditor and the court.
What if you have been served with an Interim Charging Order
The first thing to do is to check to see whether the correct process has been followed. Always check to ensure that the creditor is actually chasing the right person! At this point we will assume that any potential challenge to the legality of the Judgment has been carried out (CCA request, Challenging default notices etc). It is worth checking to ensure that the judgment has been entered correctly, did the N30 form outline the determination process correctly? If it didn’t you could consider a set aside. It is worth checking the day the Interim order was applied for to see if the CCJ was actually in default on that day. If an application to vary the terms of the CCJ has been sent to the court prior to the Interim Order request ensure that the court considers the variation before considering the Interim Order. The creditor must send a copy of the Interim Charging Order and Affidavit to all those with a legal and/or beneficial interest in the property, for example the mortgage lender. If this doesn’t occur the hearing will be adjourned.
Objections to The Final Charging Order
It might be worth seeing if any of your other creditors are willing to object to the Charging Order being made final especially if there are any who are owed significantly more than the original creditor. Alternatively you may well find that you have grounds to object to the charging order being made final. Any arguments that you wish to raise need to be filed with the court and the creditor at least 7 days prior to the Final Charging Order Hearing (CPR 73.8).
If there are divorce proceedings pending, the Charging Order hearing will be adjourned pending the outcome of the ancillary proceedings. If you would like to enter into an IVA, the Interim Charging Order would be dropped as an IVA Interim Order would be made.
Section 1(5) of The Charging Orders Act 1979 reads:
In deciding whether to make a charging order the court shall consider all the circumstances of the case and, in particular, any evidence before it as to—
(a) the personal circumstances of the debtor, and ( b) whether any other creditor of the debtor would be likely to be unduly prejudiced by the making of the order
Some possible arguments which could be used to oppose the Final Charging Order are:
- Could there be other methods of enforcement which could be used by the court to enforce the debt?
- If the total indebtedness of the judgment debtor is less than £5,000, could they have an administration order instead?
- Could the creditor have offered a secured loan instead of an unsecured one?
- A recent change in circumstances shows that reasonable repayments can now be made (evidence would be needed)
- All the missed payments have now been paid
- There is little or no equity in the property
- The CCJ is very small compared to the amount of equity
- If the CCJ is for a CCA regulated agreement can the court consider a Time Order instead?
- Granting a Charging Order would unfairly prejudice other creditors who have accepted pro-rata payments
- The debtor is about to go bankrupt or enter into an IVA, the creditor would have an unfair advantage if they were to have their debt secured.
If only one owner of the property is liable for the debt:
Providing there us no pending divorce proceedings, a husband/wife or any other beneficiary of the home is entitled to make representations as to all the circumstances of the case. They could try and minimise the percentage of the equity of the debtor by showing evidence of:
- Contributions towards mortgage payments
- Contributions towards the deposit
- A declaration of trust at the time the property was purchased
The Final Hearing
The court has the following options
- Make the Charging Order final
- Discharge the Interim Order and dismiss the application
- Decide any issues in dispute
- Direct a trial of any such issues
Prior to the hearing the Judge would have read any objections, each party will also have the chance to make oral representations at the hearing.
The vast majority of Charging Order applications result in the Order being made final. One thing to seriously consider is that if the Order is made final then conditions should be attached to it, these conditions would stop any further enforcement. A popular condition is that further action should not be possible providing an instalment is kept up with. Another popular condition is that no enforcement should be possible until all the children have left home. If no conditions were made at the time of the Final Charging Order hearing, it is possible to vary the terms of the Order via an application on the N245 form.
Set Asides & Variations
These are dealt with under CPR 73.9
You would need to apply to the court which made the original order.
Setting aside a Charging order is usually called “Discharging”, this is under s3(5) of the Charging Orders Act. The arguments for discharge must not have been made to the court previously. Sometimes a creditor may wish to discharge their own Charging Order, as an example they may wish to make a debtor bankrupt., they could still issue a statutory demand even though they have a charge in place (s269 Insolvency Act 1986). You can vary the terms of a charging order via form N245.
Satisfying the Charging Order
If the debt has been paid off, along with all costs, an application can be made to the court for a certificate of satisfaction, this can then be sent to the Land Registry.
Interest on Charging Orders
Statutory interest would continue to run whether or not the order specifies it. The N86/87 forms allow ‘any interest’ to be included, this means statutory interest.
This doesn’t apply to Consumer Credit Act regulated debts or Charging Orders of debts below £5,000 unless they have been transferred to the High Court for a High Court Charging Order. (The County Court (Interest on Judgment Debts) Order 1991)
The judgment would carry statutory interest if it was made on or after July 1st 1991 and the judgment is for at least £5,000.
If a judgment has a payment ordered to be made on a specified date or by instalments, no interest will be payable either until that date or, on the amount of any instalment until it falls due.
If a judgement carries statutory interest, so will the Charging Order, even if not mentioned within the order itself. [Ezekiel v Orakpo]. S3(4) COA 1979 states that “A Charging Order shall have the like effect and be enforceable in the same courts and in the same manner as an equitable charge”
Many creditors are trying to argue that Charging Orders carry contractual interest after judgment even if the judgment itself doesn’t. There are plenty of arguments against this.
- Charging orders and their effect are determined by the Charging Order Act 1979
Section 1 COA says that a Charging Order is made ‘for the purposes of enforcing that judgment or order’ and that the charge is for ‘securing the payment of any money due or to become due under a judgment or order’. Although enforcement of a Charging Order is not execution of a judgment, s1 means that the order and the judgment must be coextensive. Therefore no money can be recovered in excess of what is due or to become due under the judgment.
- Section 3(4) opens with the words ‘Subject to the provisions of this ACT…’ and so unless the interest is due under the judgment or order under the Interest on County Court Judgements Order, it cannot be included in the Charging Order
- The amount of interest depends on the amount of interest due on the judgment.
- Some CCA regulated agreement judgements do not have an interest post-judgment clause.
- Even if there is an interest post-judgement clause on a CCA regulated agreement the lender still cannot enforce these rights by levying contractual interest – unless that rate forms part of the judgment, the lender would have to bring seperated action for the interest. (Supreme Court Practice 1999 Ed. Para 42/1/24 and Re European Central Railway 1877 4 Ch.D.33
- The claimant may try to use s3(4) COA to claim that an equitable charge attracts interest on the principle sum. However, the rate of interest payable under an equitable charge depends on its terms. In the case of a CO, the judgment debt would be in essence the princinple sum. The rate payable on this sum is prescribed by statute or set out in the judgment. S3(4) wouldn’t justify applying a different rate.
Orders for sale
An Order for sale is the way to enforce a Charging Order, it would allows the claimant the right to take possession of the property and to sell it so that they can recover the monies within their charge. The process is applied via Part 73.10 CPR. For jointly owned property the court would also have to consider the Trust of Land and Appointment if Trustees Act 1996 (TLATA). S15 of TLATA outlines criteria which may give some protection against an Order for Sale. At the end of this piece I’ve outlined the relevant sections of law with additional relevant notes.
Defending an Order for Sale
Responding to a claim
Under CPR 8.30
The defendant must
(a) file an acknowledgment of service in the relevant practice form not more than 14 days after service of the claim form; and
(b) serve the acknowledgment of service on the claimant and any other party.
(2) The acknowledgment of service must state –
(a) whether the defendant contests the claim; and
(b) if the defendant seeks a different remedy from that set out in the claim form, what that remedy is.
Transferring to the debtor’s local court
There is not provision for a transfer. An application court be made under CPR Part 30 Rule 30.3(2)(b), which would give the District Judge discretion to agree to transfer the case on the grounds of fairness or convenience to the debtor.
It is vital that all preparation for the hearing has been carried out, check the Affidavit to ensure that the correct details of the Charging Order have been recorded together with outstanding balances, the value of the property and all the information required under PD73.4.3 has been provided. Anyone with a legal or equitable interest in the property has a right to be present, to be represented and to be heard. If there are divorce proceedings then ensure that the solicitor involved in the divorce has been referred to interventionist action can be taken.
At the hearing the court may do one of four things:
- Grant the order for sale
- Adjourn the case on terms
- Make a suspended order on terms
- Dismiss the application
If the house is jointly owned the court has the duty and the power to declare what the extent of the debtor(s) beneficial interest is under s14 of The Trusts of Land and Appointment of Trustees Act 1996 (TLATA). Under s15 TLATA the court should pay attention to:
- Whether there is sufficient debtor equity in the property for the Charge holder to justify the sale
- The intentions of the persons(s) who created the trust. The property is held in trust for all the beneficiaries by the named legal owner(s); and
The purposes for which the property is held. As an example this could be to provide a home for children as long as they chose to live there or for an elderly relative etc.
- The welfare of any minor who occupies or might reasonably be expected to occupy any land subject to the trust as his/her home
- The interests of any secured creditor of any beneficiary
CPR 73.10 is outlined here:
(1) Subject to the provisions of any enactment, the court may, upon a claim by a person who has obtained a charging order over an interest in property, order the sale of the property to enforce the charging order.
(2) A claim for an order for sale under this rule should be made to the court which made the charging order, unless that court does not have jurisdiction to make an order for sale. (A claim under this rule is a proceeding for the enforcement of a charge, and section 23(c) of the County Courts Act 1984 provides the extent of the county court's jurisdiction to hear and determine such proceedings.)
(3) The claimant must use the Part 8 procedure.
(4) A copy of the charging order must be filed with the claim form.
(5) The claimant's written evidence must include the information required by the relevant practice direction.
Practice Direction 73 4.3
4.3 The written evidence in support of a claim under rule 73.10 must –
(1) identify the charging order and the property sought to be sold;
(2) state the amount in respect of which the charge was imposed and the amount due at the date of issue of the claim;
(3) verify, so far as known, the debtor's title to the property charged;
(4) state, so far as the claimant is able to identify–
(a) the names and addresses of any other creditors who have a prior charge or other security over the property; and
(b) the amount owed to each such creditor; and
(5) give an estimate of the price which would be obtained on sale of the property.
(6) if the claim relates to land, give details of every person who to the best of the claimant's knowledge is in possession of the property; and
(7) if the claim relates to residential property –
(a) state whether –
(i) a land charge of Class F; or ( ii) a notice under section 31(10) of the Family Law Act 1996, or under any provision of an Act which preceded that section,
has been registered; and
(b) if so, state –
(i) on whose behalf the land charge or notice has been registered; and
(ii) that the claimant will serve notice of the claim on that person.
Practice Direction 73 4.4
4.4 The claimant must take all reasonable steps to obtain the information required by paragraph 4.3(4) before issuing the claim.
The Trusts of Land and Appointment of Trustees Act 1996 (TLATA)
TLATA only applies to jointly owned property (Wells v Pickering HC, 17th May 2002). It was determined that the considerations of s14 & s15 TLATA to protect the welfare of children do not apply to solely owned property.
14. Applications for order.
(1) Any person who is a trustee of land or has an interest in property subject to a trust of land may make an application to the court for an order under this section.
(2) On an application for an order under this section the court may make any such order:
(a) relating to the exercise by the trustees of any of their functions (including an order relieving them of any obligation to obtain the consent of, or to consult, any person in connection with the exercise of any of their functions), or
(b) declaring the nature or extent of a person’s interest in property subject to the trust, as the court thinks fit.
15. Matters relevant in determining applications.
(1) The matters to which the court is to have regard in determining an application for an order under section 14 include:
(a) the intentions of the person or persons (if any) who created the trust,
(b) the purposes for which the property subject to the trust is held,
(c) the welfare of any minor who occupies or might reasonably be expected to occupy any land subject to the trust as his home, and
(d) the interests of any secured creditor of any beneficiary.
(2) In the case of an application relating to the exercise in relation to any land of the powers conferred on the trustees by section 13, the matters to which the court is to have regard also include the circumstances and wishes of each of the beneficiaries who is (or apart from any previous exercise by the trustees of those powers would be) entitled to occupy the land under section 12.
(3) In the case of any other application, other than one relating to the exercise of the power mentioned in section 6(2), the matters to which the court is to have regard also include the circumstances and wishes of any beneficiaries of full age and entitled to an interest in possession in property subject to the trust or (in case of dispute) of the majority (according to the value of their combined interests).
County Courts have jurisdiction to determine an application under CPR 73.10 only if the amount owing under the charge does not exceed the County Court Limit, currently £30,000. If the amount is higher the application must be made to the Chancery Division of the High Court.