Charging Order Protection

What is a Charging Order?

• A Charging Order is a court order that essentially gives a creditor security for their debt - that is, it makes an unsecured debt secured. Typically, the debt becomes secured against a debtor’s interest in his/her home.
• A creditor can only make an application to court for a Charging Order if they have already secured a judgment against the debtor.
• There are two stages in the process - an “Interim Charging Order” and a “Final Charging Order”. The entire process normally takes between 6-8 weeks.
• An Interim Charging Order will generally be granted to the creditor when they make the application to court for a Charging Order. An Interim Charging Order is the first stage in the process and is generally made automatically without a hearing. The ICO is essentially a temporary Charging Order - the Land Registry will be notified and a debtor will be unable to dispose of the property until the outcome of the hearing (see next point) is known.
• A hearing date will be set to consider whether or not the Interim Charging Order should be made permanent, that is, whether or not a Final Charging Order should be made.
• A copy of the Interim Charging Order will be sent to the client. The ICO will advise of the date of the hearing at which it will be determined whether or not the ICO should be made into a Final Charging Order.

Charging Order protection - IVA

• Primary benefit of an IVA is that it provides charging order protection from creditors. Such protection will only be binding upon creditors when the IVA proposal is approved at the meeting of creditors. If a debtor requires protection prior to the meeting of creditors we will need to obtain an INTERIM ORDER (see below).
• A Charging Order is serious – it has a bearing on how we deal with a case and will have a significant impact on the Meeting of Creditors’ Department.
• If a creditor has obtained an Interim Charging Order it impacts on their voting rights at the creditors’ meeting. In essence, a secured creditor must waive their security in order to vote at the meeting – secured creditors do not generally waive their security.
• Consequently, a creditor with an Interim Charging Order will only have a voting value in so far as their claim exceeds the security available to them. In simple terms, their vote will be zero unless there is insufficient equity in the debtor’s property to meet the full value of their claim.

Interim Order (NOTE - NOT INTERIM CHARGING ORDER)

• It is important at this stage to stress that an Interim Order is a completely distinct and separate type of court order to an Interim Charging Order.
• Insolvency Act 1986 Section 254 – Effect of an Interim Order

  (1) At any time when an application under section 253 for an interim order is pending, the court may stay any action, execution or other legal process against the property or person of the debtor.

  (2) Any court which proceedings are pending against an individual may, on proof that an application under that section has been made in respect of that individual , either stay the proceedings or allow them to continue on such terms as it thinks fit.

• In essence, an Interim Order offers a debtor protection prior to the meeting of creditors. Remember – a debtor will not be protected until the IVA is approved.
• As such, whoever is dealing with your case (i.e. us at McCambridge Duffy) will seek to obtain an Interim Order in respect of any case where we become aware of a creditor obtaining an Interim Charging Order before the meeting of creditors is due to take place. We are simply trying to ensure that a Final Charging Order is not granted prior to the Meeting of Creditors.
• An Interim Order will be obtained in virtually all cases – the only situation where we will not seek an Interim Order will be where we believe that we have sufficient time to hold the creditors’ meeting prior to the Final Hearing. In determining whether or not we have time, we will need to factor in that we give creditors 18 days notice in respect of the initial creditors’ meeting and a further 14 days may be necessary if the meeting has to be adjourned.

Charging Orders and the IVA Process – 4 Scenarios

1. Interim Charging Order comes to light at the drafting of the proposal stage & our Court Department applies to court for an Interim Order to protect the debtor from creditor action.

2. Interim Charging Order comes to light whilst case is with the Meeting of Creditors’ Department and is awaiting the creditors’ meeting.

3. Final Charging Order is granted in error prior to Meeting of Creditors taking place. Interim Order in place to freeze creditor action.

4. Final Charging Order is granted in error after IVA has been approved at a meeting of creditors.

Note: It is possible that more than one scenario can arise in a case.

Scenario 1:    

Interim Charging Order comes to light at the drafting of the proposal stage & the Court Department applies to court for an Interim Order to protect the debtor from creditor action.

              ICO                 IO                                   MOC           FCO HEARING

NOMINEE                                      MOCD                                                  SUPS

• We will apply for an Interim Order to freeze creditor action.
• Our Court Department will write to the Court to advise that Interim Charging Order proceedings be adjourned due to the affect of the Interim Order (see COURT DEPT Letters).
• Our Court Department will write to the solicitor acting for the creditor requesting that they agree to the adjournment (see COURT DEPT Letters).

FILE REACHES MEETING OF CREDITORS’ DEPARTMENT

• IVA approved (Prior to Final Charging Order Hearing Date)
• Meeting of Creditors’ Department should write to the Court advising that the IVA has been approved and that the Final Charging Order should not therefore be granted (see MOCD Scenario 1 Letters).
• Meeting of Creditors’ Department should write to the solicitor acting for the creditor to advise that IVA has been approved and requesting that their application be withdrawn (see MOCD Scenario 1 Letters).
• Files with Charging Order issues should be separated from other MOCD files and should be specifically brought to the attention of the Manager of the Supervision Department.

FILE REACHES SUPERVISION

• File to be allocated to a Case Manager as a matter of urgency.
• Case Manager to phone to solicitor acting for the creditor seeking confirmation of the withdrawal of their application for a Final Charging Order
  And/Or
• Case Manager to phone the Court seeking confirmation of the dismissal of the Final Charging Order.

Scenario 2:   

Interim Charging Order comes to light whilst case is with the Meeting of Creditors’ Department and is awaiting the creditors’ meeting.

                                                                  ICO      IO(?)   MOC          FCO HEARING

NOMINEE                                      MOCD                                                    SUPS

• MOCD Manager to determine whether or not an Interim Order is needed (assuming one has not been obtained). This will be a matter of timing – will the creditors’ meeting be completed prior to the Final Charging Order Hearing? If yes – may not be necessary to obtain Interim Order. If No – need Interim Order ASAP.
• If an Interim Order is needed, a new Meeting of Creditors will have to be scheduled. The Meeting of Creditors’ Department will write to creditors to advise that the original meeting has been cancelled by virtue of the fact that the debtor now requires the protection of an Interim Order. The case file will be passed back to our Court Department who will make the application for the Interim Order.
• Where an Interim Order has already been obtained - MOCD to write to court advising that Interim Order in place and requesting that ICO proceedings be adjourned (use MOCD Scenario 2 Stage 1 Letters).
• Where an Interim Order has already been obtained - MOCD to write to solicitor acting for creditor advising that Interim Order in place and requesting that ICO proceedings be adjourned (use MOCD Scenario 2 stage 1 Letters).
• IVA approved (prior to Final Hearing Date)
• Meeting of Creditors’ Department should write to the Court advising that the IVA has been approved and that the Final Charging Order should not therefore be granted (use MOCD Scenario 2 Stage 2 Letters).
• Meeting of Creditors’ Department should write to the solicitor acting for the creditor to advise that IVA has been approved and requesting that their application for a Final Charging Order be withdrawn (use MOCD Scenario 2 Stage 2 Letters).
• Files with Charging Order issues should be separated from other MOCD files and should be specifically brought to the attention of the Manager of the Supervision Department.

FILE REACHES SUPERVISION

• File to be allocated to a Case Manager as a matter of urgency.
• The matter must be followed up – ensure that application for Final Charging Order has been withdrawn by solicitor or dismissed by court.
• If matter not clearly resolved on file - Case Manager to phone the solicitor acting for the creditor seeking confirmation of the withdrawal of the application for a Final Charging Order
  And/Or
• If matter not clearly resolved on file - Case Manager to phone the Court seeking confirmation of the dismissal of the Final Charging Order.

Scenario 3:    

Final Charging Order is granted in error prior to Meeting of Creditors taking place. Interim Order in place to freeze creditor action.

            ICO                         IO(?)                            FCO               MOC

NOMINEE                                             MOCD                                                    SUPS

• Key issue – do we have an Interim Order in place?

  If No – Final Charging Order cannot be challenged. This will impact on the proposal.

  If yes – Wait until IVA is approved and then MOCD write to the Court and the solicitor acting for the creditor enclosing copy Chairman’s Report, copy Interim Order and request that Final Charging Order be removed (use MOCD Scenario 3 Letters).

• If creditors’ solicitor will not agree to remove the Final Charging Order, refer file to Edward Bible at Darby’s Solicitors.

FILE REACHES SUPERVISION

• File to be allocated to a Case Manager as a matter of urgency
• The matter must be followed up – ensure that Final Charging Order has been removed.
• If matter not clearly resolved on file - Case Manager to phone the solicitor acting for the creditor seeking confirmation of the removal of the Final Charging Order.
  And/or
• If matter not clearly resolved on file - Case Manager to phone the Court seeking confirmation of the removal of the Final Charging Order.
• If Final Charging Order has not been removed and solicitor is not acting upon our request - refer to Edward Bible if necessary.

Scenario 4:    

Final Charging Order is granted after IVA has been approved at a meeting of creditors.

 

                     ICO                      IO(?)                  MOC                                          FCO

NOMINEE                             MOCD                                               SUPS

 

• MOCD should write to solicitor acting for the creditor and the court to advise that IVA has been approved and that Final Charging Order should not be granted (Use MOCD Scenario 4 Letters).
• Supervision to phone the Solicitor acting for the creditor and/or the court to ascertain whether or not the Final Charging Order was granted.
• If the Charging Order has been granted, the Case Manager should request that the solicitor acting for the creditor take steps to remove the Charging Order in light of the fact that the debtor’s IVA proposal has been approved.
• The request should also be made in writing (use SUPS Scenario 4 Letters).
• If the creditors’ solicitor will not agree to remove the Final Charging Order, refer file to Edward Bible at Darby’s Solicitors

Charging Orders – Things to note

• We will not necessarily try to stop all Charging Orders. If we know a creditor is likely to reject the proposal and has the voting power to reject the IVA proposal in its entirety it may be in the best interests of the debtor to let that creditor secure their debt and in so doing we reduce their voting power. Thus, the proposal has a better chance of being approved.
• Pay very careful attention to your post – remember that the Charging Order process starts with a judgment being made against the debtor. As such, any “Claim Form” received should be dealt with as a matter of urgency. Correspondence should be sent to the Court & Solicitor concerned advising that an IVA is either in place (in which case proceedings must cease immediately) or is being prepared (in which case we will seek to obtain an Interim Order if one has not already been obtained and we will advise the creditor accordingly).
• On receiving a file – check the firm’s IVA database. Any legal action pending in respect of the case will flag up on your monitor automatically.
• It is not an acceptable approach to simply ignore Claim Forms or Interim Charging Orders on the basis that an IVA is likely to be approved prior to the Final Charging Order Hearing. We are a professional firm and we have a duty to afford our clients as much protection as possible throughout each stage of the IVA process. Every effort should be made to deal with legal issues at the earliest possible stage by contacting the creditor and solicitor concerned.
• If the matter has to be referred to Edward Bible, the arrangement will incur additional costs of approximately £400.00 plus VAT. Such costs will not generally have been provided for in the IVA proposal and consequently this may have an impact on the minimum dividend to be achieved. As such, this will mean that either additional payments will have to be made by the client or a variation will be required. Dealing with the matter early may avoid greater work for you at a later stage.

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