payment of a finance agreement, the obtaining of a charging order
over the debtor’s property is an effective way of ensuring that the
judgment is secured and that payment will, ultimately and subject
to equity, be made. The debtor cannot sell the property without
first clearing off the charge.
property without any steps being taken to enforce it?
The Court of Appeal confirmed in Yorkshire Bank Finance Ltd v
Mulhall that there is no time limit on enforcing a charging order,
and that it remains effective security and enforceable (generally
by way of an application for an order for sale and for possession
for the purposes of the sale) despite the fact that no steps have
been taken to enforce it for a considerable number of
years.
In Mulhall, the defendant had guaranteed a company loan by the
bank. The company defaulted and the bank demanded payment from the
defendant under the guarantee. Judgment in default was obtained
against her and a charging order in respect of the judgment was
secured on her property.
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The bank did nothing to enforce its security for 16 years, at
which time the defendant applied to set the judgment and charging
order aside on the basis of the bank’s delay in enforcement which
meant that they had no continuing right under it by reason of the
lapse of time. She argued that the charging order was statute
barred under s20(1) Limitation Act 1980 which provides for a 12
year limitation period for any action to recover “any principal sum
of money secured by a mortgage or other charge on
property”.
Refusing the defendant’s appeal, the Court of Appeal held that S
20(1) does not apply either to the making of the charging order nor
to any of the normal steps by way of enforcement of it. The
charging order provides security for a judgment debt and judgment
debts are, on the whole, outside the scope of the limitation
legislation. A charging order gives the judgment creditor the
rights of a secured creditor which can not be defeated by a claim
to adverse possession.
Different time limits apply in relation to a charging order as
opposed to a legal mortgage. With a charging order, the creditor
already has a judgment. There is no need to protect the defendant
from stale claims on the basis that the delay may make it difficult
for him to obtain relevant evidence. The parties’ rights have
already been established by court proceedings and it is only the
question of enforcement that remains outstanding.
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By GlobalDataThis decision is good news for lenders who may have obtained a
charging order but delayed obtaining an order for sale for any
number of reasons, including reputational risk. Lenders can take
comfort that delay in enforcement, even where it is substantial,
will not give rise to a limitation defence.
Greg Standing, partner in Wragge & Co LLP’s Finance,
Insolvency, Recoveries and Sales team
