What is a Charging Order
A charging order is a method of enforcing a judgment debt. Where the Court orders a person (the debtor) to pay money to another person (the creditor) in satisfaction of an outstanding debt, the creditor can make an application to the Court for a charge over the debtor’s property in order to secure the payment of the money owed. Such an order by the Court is referred to as a charging order.
A charging order must specify the following:
The subject property of the charge
Interest held by the debtor
Any conditions of the charge
Date when it becomes enforceable
Any other matters as specified by the Court
Property that can be the subject of a Charging Order
The property that can be the subject of a charging order includes the debtor’s beneficially interest under a trust or his or her interest in any of the following assets:
Shares of a company (except Building Societies) which was formed in England and Wales
Shares of a company that was formed outside of England and Wales or of any State outside of the United Kingdom which was registered in England and Wales
A charging order needs to be registered against the title of the property and in the case of land an application must be made to the Land Registry in order for the charge to be secured against any disposition of the property as required by the Land Charges Act 1972 and the Land Registration Act 2002.
A person whose property is the subject of a charging order can make an application to the Court to vary or discharge the order. This is usually the case where the debtor pays the money that is owed under the judgement. In such a case the Court will order that the registered charge on the property be removed from the title register of the property.
Order for Sale
A creditor who has the benefit of a charging order against a debtor’s property may apply to the Court for an order for sale so as to realise the value of his or her security of the debt. This is considered to be a draconian measure and the Court is very conservative in granting an order for sale especially in relation to residential properties where Human Rights issues may be applicable.
The factors that the court will take into consideration in determining an application for an order for sale include the following:
The amount of the debt
The value of the property and whether or not it is in negative equity
The use of the property and its current occupiers ( for example children or vulnerable adults)
Powers of the Court
The court has varied powers to deal with an application for an order for sale which include the following:
The Court has the power to make an instalment order in relation to the judgment debt.
The Court can give the debtor time to raise the money that is owed to the creditor.
The Court can also attach conditions to the order for sale as it deems appropriate in the circumstances.
A necessary safeguard
If a debtor is required to pay an outstanding sum of money in instalments by the Court (an instalment order) and a charging order has also been made against the debtor’s property in relation to that sum, the charge cannot be enforced unless the debtor has defaulted in payments under the instalment order.
Charging Orders and Council Tax
A charging order can be made against a person who is in arrears of his or her council tax payments if a Magistrate’s Court has made a liability order in relation to the council tax arrears as stipulated by the Council Tax (Administration and Enforcement) Regulations 1992.
An application for such a charging order by the relevant local authority can only be successful if the non payment of the council tax is at least £1000.
Charging Orders and Consumer Credit Agreements
In recent years there has been a rise in the number of charging orders used by creditors in securing debts as a result of consumer credit agreements such as credit card or loan agreements.
This has prompted the Office of Fair Trading (OFT) to review the use of charging orders by its consumer credit licensees. The interim result of this review has shown that there may be potential difficulties with the measures adopted by the consumer credit licensees in recovering the debts owed.
The OFT recognises the importance of establishing a good working relationship with the consumer credit licensees in order to ensure that they use fair business practices when considering charging orders as an enforcement option. This is to ensure that consumers are not placed at an unfair disadvantage.
The role of the OFT is therefore crucial in protecting vulnerable consumers who may be at risk of having their property the subject of a charge and possibly an order for sale owing to their difficulty in repaying loans or credit card payments which in many cases stem from financial difficulties as a result of the recession.