A Charging Order is one potential method of enforcing a Judgment debt or Liability Order. However, this only serves to secure a debt. An ‘Order for Sale’ may be required to achieve a recovery.
An Application for a Charging Order may be made pursuant to the Charging Orders Act 1979 or the Council Tax (Administration & Enforcement) Regulations 1992, depending on the nature of the debt. In the main, such Applications are made to secure the debt against property owned by the debtor(s) (though, with strategic enforcement, it may be an equally viable method of enforcement against securities).
Obtaining a Charging Order is relatively straightforward process. Firstly:
- An Application is made, which will invariably result in an Interim Charging Order being granted; and
- A Hearing will be listed, at which it will be decided whether the Charging Order is to be made Final.
The most significant volumes of debt secured in this way will be those held by local authorities and other public bodies. Vast swathes of Charging Orders are regularly secured by and on behalf of local authorities, in respect of Council Tax arrears. We help our local authority clients to achieve this in a cost-effective way, using economies of scale to achieve significant savings for them.
Securing a debt by way of Charging Order can be a less ‘confrontational’ method of enforcement. Once registered against a property, there is a perception that a charge may simply be left in place until the point of sale; some debts may even be interest bearing until that point. However, in certain circumstances this can be at risk and a creditor would be well advised to keep a portfolio of securities of this nature under regular review.
In any event, a Charging Order only provides security for a debt, not satisfaction of it. The natural extension to this security is then to enforce the Charging Order by sale, what is known as an ‘Order for Sale’.
Order for Sale - viability increasing
With the value of homes in the UK resuming an upward trend and a commensurate decline in the number of homes in negative equity, the general viability of pursuing an Order for Sale continues to increase.
Whilst there is a minimum threshold for below which an Application for an Order for Sale cannot be made in respect of regulated agreements – currently set at £1,000 under The Charging Orders (Orders for Sale: Financial Thresholds) Regulations 2013 – this is not applicable generally. The explanation provided by the Government for this level being set is noteworthy; it was apparently concluded to be “the most appropriate level at which the necessary balance between the rights of debtors and the rights of creditors could most effectively be struck”. This level is also analogous to the minimum level in respect of which an Application for a Charging Order may be made pursuant to the Council Tax (Administration & Enforcement) Regulations 1992...
This indication need not deter a creditor seeking to enforce an unregulated debt from pursuing an Order for Sale below this level, particularly in the case of ‘contumelious neglect’ or refusal to pay where, without sale, the debt will not be paid off. Indeed, with the bankruptcy level rising to £5,000 from October 2015 and that ultimate sanction said to be “a more draconian outcome for debtors than an Order for Sale”, we anticipate that more clients, both in local authorities but also more generally), will continue to consider enforcing their Charging Orders in this bracket by sale.
The Recoveries Department at DWF has vast experience in advising on and managing the Order for Sale process from pre-action to sale, with the objective of achieving a recovery. Our statistics show that it is an extremely effective method of obtaining debtor’s active engagement and, as a consequence, only a minority of matters ever proceed to taking possession and fewer still to sale.
We have a number of tools to help provide strategic enforcement advice to clients on a daily basis, even before any action is taken and all with the aim of preventing our clients from ‘throwing good money after bad’.
For more information, please do not hesitate to contact one of our specialists below.This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.