CHARGING ORDERS-When a Charging Order does not guarantee security

A Charging Order needs to be registered at the Land Registry; otherwise it could be ignored when the property is sold. Despite having a Court Order, creditors should not always assume the registration will be automatic. Article appearing in "Consumer Credit" (June - September 2013) published by the Consumer Credit Trade Association.

The Order only attaches to a debtor’s beneficial interest in a property.   Beneficial interests are not usually shown by a Land Registry search, but the assumption that they are also owned by   the legal proprietor(s) is usually correct.  However, it is a possibility that beneficial and legal interests can be held by different people which provides scope for objecting to a Charging Order.

Land Registry procedures allow any interested party to oppose registration of the Charging Order against the property.  Typically it is alleged the debtor had already transferred his/her beneficial interest to a family member and so no longer has an interest in the property against which the Charging Order can attach.  The reason for and timing of such a transfer is something a creditor will want to investigate.

Unless settled amicably, any objection to registration of a Charging Order is determined by proceedings before the Adjudicator to Her Majesty’s Land Registry. To allow the registration, the Adjudicator has to be satisfied that the debtor had a beneficial interest in the property.

However, in principle this question was already considered by the District Judge when the Charging Order was made.  Prior notice of the Charging Order hearing has to be given to any person who has an interest in the property.  That person can then argue before the court that the debtor had no beneficial interest.

Is an Adjudicator bound by an earlier Charging Order?  In 2005 an Adjudicator refused to register a Charging Order on the grounds that ownership of the beneficial interest had not been fully considered by the court.  However, in 2012 another Adjudicator said “I do not see how…… it is open to the Adjudicator to go behind the decision of the District Judge and hold that the Judgment Debtors have no beneficial interest”.  

Decisions this year show that different approaches still exist.  Generally there is reluctance to make a ruling which contradicts the earlier Charging Order, thus underlining that it is the court who should determine the issue of beneficial ownership.  However, an Adjudicator recently refused to allow registration of a Charging Order on the basis the debtor had previously assigned her interest to her father.  Despite her opposition (in the earlier court proceedings) the District Judge made the Charging Order, but specifically left open the issue of beneficial ownership.  That allowed the Adjudicator to rule in her favour.

These decisions show that sometimes creditors face the prospect of having to prove their case both before a court and the Adjudicator.  Where the Charging Order is opposed, creditors are well advised to seek a declaration from the District Judge concerning the beneficial interest.

For further information please contact Jeremy Bouchier – Senior Solicitor.

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