Obtaining judgment is only half the battle, as the judgment must be enforced.
Before you obtain a judgment, indeed, before commencing proceedings, it is often worth checking that the debtor has any assets to satisfy any judgment that you obtain.
If you know where the debtor lives, you can carry out a search at HM Land Registry to check if he or she owns the property where they live.
The search will also reveal if the property is in the debtor’s sole name or jointly owned with others and will also reveal whether there are any mortgages or charges over the property.
This will then provide you with an indication as to whether there may be sufficient equity in the property which could be used to pay off any judgment where the debtor refuses to pay.
Where a debtor owns land or property, a charging order under the Charging Orders Act 1979 can turn an unsecured judgment debt into a secured one.
The two-stage process
The rules regarding applying for charging orders are governed by Part 73 of the Civil Procedure Rules.
The creditor first makes an application to the Court without notifying the debtor of the application. This initial application is usually determined by the court without the need for a hearing. If successful, the court will make an “interim order”.
If made, the interim order should be protected immediately over the property at HM Land Registry. This will then prevent the debtor from selling the property without you becoming aware of their intention to sell.
The interim charging order must be served on the debtor within 21 days after it has been made. It must also be served on any other party with an interest in the property, such as other occupiers, joint owners and any lender which has a charge over the property.
The debtor and other interested parties then have up to 28 days to object to the interim charging order being made final. If objections are received by the court, then they will usually list a hearing at which it is determined whether or not to make the order final.
At the hearing, the court decides whether to make the order final, taking account of all the circumstances, including the debtor’s personal circumstances and whether other creditors would be unduly prejudiced.
Where the property is jointly owned, the charge attaches to the debtor’s beneficial interest and is protected by a restriction on the register rather than a direct charge over the whole property.
For example, if a creditor is owed £100,000 by an individual debtor and there is £150,000 worth of equity in a property which is jointly owned (in equal share) by the individual debtor and their partner, then the charging order would only attach to the individual debtor’s beneficial interest, which in this case would be £75,000.
Orders for sale
A charging order does not itself produce payment. In many cases, the charging order will simply sit on the property until it is sold. In such circumstances, if a creditor requires their money sooner, the creditor can bring a separate claim for an order for sale.
For jointly owned property, the court applies sections 14 and 15 of the Trusts of Land and Appointment of Trustees Act 1996, including the welfare of any children and the interests of secured creditors.
An order for sale cannot be sought for a regulated consumer credit debt of under £1,000, and the court may postpone sale, particularly of a family home.
If there has been a period of time between the making of the final charging order and your application for an order for sale, it is worth carrying out an updated Land Registry search to see whether there are any other charges (or mortgages) registered against the property, which will need to be paid off before your own charging order.
An up-to-date valuation of the property should also be obtained, so you can work out if there will be sufficient equity in the property to pay off your charging order after any other chargeholders have been paid.
If there is not likely to be sufficient funds to repay the creditor, then an order for sale is unlikely to be appropriate and the court may be reluctant to grant the same.
Creditors also need to double-check who lives in the property, and this information, as well as the above information, will need to be provided to the court in an application that is made for an order for sale.
The granting of an order for sale is entirely within the court’s discretion. They will take into account all the circumstances of the case and application, including:
The amount of the judgment debt and the value of the property
Whilst there are no rules about the minimum value of a debt which can be enforced by an order for sale, it is usually a factor which the courts will consider when deciding to grant an order for sale.
If the court believes that the value of the debt is too low or there is insufficient equity, then it may refuse the order for sale on the grounds that other enforcement methods may be more appropriate.
The likelihood of the debt being repaid without the property having to be sold
If the debtor can provide evidence that they will be able to repay the debt within a reasonable period of time, then the court are likely to take this into account when considering if an order for sale should be made.
The occupiers of the property and other human rights issues
If the property is occupied by the debtor’s family, including children or elderly relatives, then a court may be reluctant to force the property to be sold, especially if this would involve the upheaval of children from their local education providers.
Although other occupiers in the property do not prevent a court from granting an order for sale, it is normally a major factor in them reaching their decision.
Conversely, if all occupiers are of adult age, or only the debtor lives at the property, then the court may be more likely to grant an order for sale.
The conduct of the debtor
If the debtor has failed to engage with the creditor, not made any offers to settle the debt or broken previous promises to pay, their poor conduct is usually not looked on favourably by the court.
Notwithstanding all of the above, each case will be determined on its own facts and the debtor (and anyone else with an interest in the property) will try to persuade a court that the property is not sold.
What happens if an order for sale is granted?
If the Court grants an order, it will usually provide the debtor with one final deadline for them to repay the debt.
If they do not pay by that date, then the order will usually set out the following details:
- A date by which the debtor has to give possession of the property to the creditor for the purposes of it being sold;
- The minimum sale price for the property;
- Who has conduct of the sale (usually the creditor’s conveyancing solicitors); and
- How the proceeds of the sale will be distributed.
Debtors who refuse to vacate the property and give possession to the creditor by the date given in the order are likely to face further applications by the creditor, ultimately leading to bailiffs being appointed to evict them from the property.
How Mackrell LLP can help
We advise judgment creditors on the most effective enforcement strategy and act for debtors and co-owners opposing charging orders and orders for sale.
This article is for general information only and does not constitute legal advice. It reflects the law of England and Wales at the date of publication. Specific legal advice should be taken on your particular circumstances before taking, or refraining from, any action. Please contact Mackrell LLP to discuss your matter.
