Securing debts through Charging Orders
Rob Winder, Head of Property and Debt Recovery, explains how changes to legislation mean that Charging Orders can now be used to secure a debt even when a debtor is paying by instalments.
It has never been so important to ensure that small businesses utilise all the debt recovery tools at their disposal to recover debts owed to them or to enforce any County Court Judgments (“CCJ”) obtained by them.
There are various methods of recovering a debt, but by far the most common and effective is the court proceedings route. The starting point for this route is to write to the debtor , giving them 14 days in which to pay the outstanding debt. Many debtors will pay on receipt of this initial letter and if they do, no further action is required. If they fail to pay, the next step is to issue County Court Proceedings.
If, following issue of the Proceedings, the debtor still fails to pay, defend or admit the debt within 14 days, then you are entitled to seek a CCJ. Where a debtor admits the debt, they need to provide details of their income and outgoings to the Court and the Court will determine the level of payments which must be pay to repay the debt. (Unless an offer is made by the debtor which is acceptable to the creditor). In times of recession and with the banks still very cautious about to whom they will lend , having an unsatisfied CCJ can close many traditional sources of credit for businesses and individuals. Therefore obtaining a CCJ is something which carries weight and most businesses and individuals will try to prevent this happening if at all possible.
In the past, especially with larger debts, it has been desirable to obtain a Charging Order against a debtor’s property – usually their home or business premises. A Charging Order works in a similar way to a mortgage and secures the debt owed against the property. Having a Charging Order in place reduces the risk of a debtor simply selling up and moving on as the Charging Order is registered at the Land Registry and the creditor is notified of any attempt to alter the ownership of the property (either by sale or gift etc).
Prior to October 2012, if a debtor, on receipt of a claim form from the Court, admitted the debt in full and requested to pay the debt in instalments, the Court was not able to grant a Charging Order to secure that debt if the debtor maintained those instalment payments.
The could cause problems in that a debtor who owed a large debt, would admit the debt and be potentially allowed to pay off that debt over a very long period with no security for the creditor. A debtor who had several “admitted judgments” would then be free to sell their property and move, potentially leaving the creditor with the burden of trying to find them and attempt to obtain payments once more.
However, on the 1st October 2012, section 93 of Tribunal Courts and Enforcements Act 2007 came into force and amended The Charging Order Act 1979. The change means that the courts can now grant (subject to their usual discretion) a Charging Order, even when a debtor has admitted the debt and is maintaining instalment payments. However, as long of those instalments are being maintained, a creditor cannot make an application for an Order for Sale. The change in the law unfortunately only applies to judgments granted by the on or after 1st October 2012.
For further information or advice on debt recovery, contact Rob on 01228 552222 or email email@example.com
About the author
Senior Associate Rob leads the Debt and Property Recovery team and is head of the Penrith office.