Enforcing Charging Orders

New civil practice rules could make it easier for creditors to enforce charging orders but they must still follow the correct procedure, says District Judge Paul Ayers

CPR 73.3 sets out the requirements for Charging Orders and Orders for Sale. The original application is dealt with without notice, but the interim order must be served on the persons detailed in that order, not less than 21 days prior to the final hearing. Like any subsequent application for an order for sale, the making of the order is in the discretion of the judge.

By virtue of section 93 Tribunals, Courts and Enforcement Act 2007, amending section 1 Charging Orders Act 1979, a charging order can now be sought where the judgment authorises installments and there has been no default in such payments. Section 1(8) obliges the court when considering all the circumstances, to take into account the fact that there has been no default. There is no longer a need for creditors to seek a forthwith order to make the application.

Rarely seen, but CPR 73.8 provides that anyone who wishes to oppose the making of the order must not less than seven days prior to the hearing file and serve evidence setting out grounds for objecting.

Where a Bankruptcy Order is made, after the making of an interim order, great care must be taken before making the final charging order. It should only be granted in exceptional circumstances (see Wright v Nationwide Building Society [2009] EWCA Civ 811).

Debt as Asset

In years gone by few creditors sought to enforce such orders, but that does not seem to be the case presently. There is an interesting note in the White Book at 73.10.10. It indicates that a debt which would otherwise be a bad debt, but which is then secured by a charging order will now appear as an asset. The courts will often make the charging order following the normal principle to give security, not as a prelude to an order for sale. Some courts are receiving unmeritorious applications for sale for very small debts, often credit cards, from assignees who have bought the debt for a knock down price. If the application is dismissed as totally without merit an adverse costs order may follow.

When it comes to enforcement the county court limit of £30,000 decides the court in which the application is issued. This limit is presently under review and is very likely perhaps in July 2013 to be raised to £350,000. A minimum value of outstanding debt of £1,000 is also under consideration.

Most judges have views about enforcement where the sum is small, and perhaps in cases where the original loan was at a very high rate of interest, as it was unsecured, but then had become secured as a result of the order. The rules clearly set out however, what steps are required to achieve an order for sale, subject to the matter of discretion, the most important matters being the size of the debt and value of the property. Even where a sale is ordered the court may suspend the order on terms as to payment by installments, or postpone the sale until a specified future date (see Austin-Fell v Austin-Fell [1990] 2 All E.R. 455).

Filing Evidence

Part 8 must be used, and in addition a copy of the Charging Order must be filed. The claimant must include its evidence as set out in PD 73. r.4.3

This is:-

(i) identifying the charge and the property;

(ii) the amount of the charge and amount presently due;

(iii) verifying the debtors title to the property;

(iv) the names and addresses of other creditors and the amount owed;

(v) an estimate of the sale price;

(vi) if it is land, who is in possession;

(vii) and in the case of residential property, whether there is a Class F charge, or notice under s. 31(10) of the Family Law Act 1996 (relates to rights of occupation), and if so who has the benefit of the charge or notice and that they have been served.

The Ministry of Justice has recently advised The Association of Her Majesty’s District Judges that charging order applications reached a peak in 2008 of nearly 165,000 – about 134,000 orders being made. The figures for 2011 were respectively 90,000 and 81,000. For the first nine months of 2012, the last figures available, there were 50,938 applications and 46,405 orders made. This projected forward indicate a further drop in numbers.

The MoJ has limited information from 2011 on orders for sale, but believe it to be in the order of 0.5 per cent.

Solicitors should ensure that CPR 73 is complied with, remembering that any order is subject to the district Judges discretion being exercised on the day.