Charging orders – securing unpaid debts in the long term…
A charging order is a way of securing an unpaid judgment debt by imposing a charge over a judgment debtor’s beneficial interest in land, securities or certain other assets. If the debtor then sells the property against which the charge is registered in time, the amount owed under the order will be repaid to the creditor through the proceeds of the sale. Where there is substantial equity in the property and the Judgment debtor is the sole proprietor, a creditor may choose to use this debt recovery tool by applying for an order for sale to realise their debt much sooner.
In its 2011 consultation paper, ‘Solving disputes in the county courts: creating a simpler, quicker and more proportionate system’ the Government reviewed debt recovery and enforcement methods, with a particular focus being placed on obtaining a charging order. The use of this method of enforcement has increased greatly in years as an effective way of creditors securing their unpaid judgment debts.
The two main options put forward in the paper were:
a) to introduce the availability of a charging order even when the debtor is paying off the debt by way of instalments; and
b) overall streamline the process by removing the need for a final charging order hearing. This need would be replaced by the interim charging order becoming final through lapse of time unless the debtor objected at which point a hearing would ensue.
In brief, the proposed reforms of charging orders aimed to reduce court involvement by streamlining and improving the process of obtaining one. Moreover, in order to achieve this, it looked at widening access to such orders to improve and increase security for those looking to enforce the debt whilst at the same time maintaining safeguards from aggressively enforcing against compliant debtors.
As of 1st October 2012 s93 of the Tribunals, Courts and Enforcements Act 2007 (“TCEA”) now allows a creditor to make an application for a charging order where there is an instalment judgment in place and the debtor has not defaulted on any payments, although the Court must still consider the fact that the debtor has not defaulted when deciding in making any order final. In turn this means that an order for sale may not be requested at the same time unless the whole or part of an instalment which falls due remains unpaid.
Section 94 of the TCEA was brought into force on 17 May 2012 and introduced a new s3A into the Charging Orders Act 1979. Such section has given the Lord Chancellor power to ensure that charging orders are not imposed over a debtor’s property to secure an amount below a certain threshold. At present, such threshold remains to be set.
In conclusion, the new reforms increase a creditor’s chance of securing an instalment judgment debt even when the debtor is not in default. Although proposals were made to reduce the amount of court involvement it stills seems the case that ultimately it is up to the Judge on the day in considering wider factors to make a final charging order.