A Guide to Charging Orders

Charging orders are a good tool for creditors to use when securing a debt by imposing the debtor’s interest in land, securities, and other assets. This provides creditors with a way to get back their debt. This is a court order that a creditor applies for and the process of getting one is simple, but there are some things you need to keep in mind:

The order is going to be as good as the equity the debtor has in the property; 

The debt has to be in the name of one of the owners of the property and will only be attached to their interest. Charging orders are most effective when used in recovering debt where a debtor has enough equity in a property and is a sole owner. The simplest scenario is:

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You need to get the interim charge registered in the shortest time possible because the interim charging order is going to be determined by the priority of the charge relating to other creditors;

You can also get a charging order when the party has beneficial interest e.g., the trustee showing that there is a link between beneficiary and property.

Unregistered Land 

For unregistered land, the creditor needs to register a pending action and follow it up with an order.

It is important to make an application for registering caution against first registration.

Registered land 

The process of getting a charging order can seem simple, but it is important to know the effect a charge whether final or interim is going to have on the title. The charge can be registered by way of restriction or notice.

The equitable charge is going to be attached to the net sale proceeds instead of the land. When there is a legal charge, it creates an interest in the land and it can bind future owners of the property and also has the power of sale, but it is subject to pre-action protocol steps that the charge holder takes. The legal charge can be created by a mortgage or other deed. The registration manner is going to be determined by whether the debtor is a joint owner or sole owner. A notice (unilateral or agreed) creates a charge on the estate and a restriction creates a charge on the beneficial interest. The pros of restrictions and notices are you can register both of them without consent from the debtor.

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Unilateral notice 

This is not going to prevent the sale, but it will ensure that the beneficiary is going to receive notice of disposition. They are available when the debtor is the sole registered owner. If there are joint property owners, then a creditor can register a unilateral notice against two or more judgment debtors.

When the debtor wants to sell their property, there is going to be some communication between the creditor and vendors’ solicitors. The creditor is going to want information like the level of equity they have in the property and if the proceeds from it will be enough to settle the judgment debt. If the equity is enough, the creditor is going to be paid. If not, the mortgage will first be paid with any other secured creditors who had registered their charging order before. If the equity is not enough to pay back all the creditors, then there is a chance that some creditors are not going to be paid. Once the property is sold and the creditors have been paid, then the process of removing the notice of the title gets started.