View from the bench | Enforcing charging orders where instalment payments are made

Charging orders are made in every county court in the country, every day, often in bulk, at speed, using reliable tickbox forms. Here in Swindon (an unappreciated centre of banking excellence - major local employer Nationwide Bank) we have been making interim orders on paper by the score and on Wednesdays we list hearings of final orders at about twelve to the half hour. It is so rare that anyone turns up, and when they do, we generally only have to reassure them that it won’t really make any difference to the debtor, but it gives the creditor some comfort and most creditors will be prepared to accept payment by instalments once they have their security: lenders who weren’t too concerned about a borrower’s ability to repay a credit card debt view payment by instalments sceptically when things have gone wrong and they want to protect their chances of getting a share of what is usually a family home. Debtors who do attend frequently complain that they want to make repayments, but the creditor has refused to talk to them. Heard it all before? Things are about to change.

New rules of the race

The Tribunals Courts and Enforcement Act 2007 makes two relevant changes to the Charging Orders Act 1979. Section 94, which came into force on 17 May 2012 (SI 2012/1312), inserts a new section 3A,which gives the Lord Chancellor the power to set thresholds for the imposition of charges, which may be different in different classes of cases.

These thresholds are to be set by statutory instrument. When set, these will direct the court’s existing discretion to refuse or permit a charge depending on the level of the debt.

More significantly, section 93 comes into effect on 1 October 2012. It amends section 1 of the Charging Orders Act 1979 to remove the protection from the imposition of a charging order in cases where instalment payments are being made. Previously, of course, the district judge’s checklist began with either a judgment for payment forthwith or a default on an instalment order, because the sum of money to be enforced has to be due, and an instalment order postpones the date on which payment is due.

The creditor always wants to get his charging order before anybody else – he may not achieve an order for sale to enforce it immediately, but at least he knows he has a better chance of recovering what is due to him if he has the first charge, or at least the first after the mortgage.

Once he knows there are other creditors he knows he’s in a race - hence the applications for redetermination even where it is patently clear that the debtor can’t pay other than in tiny instalments. The amended section does have a modest comfort – if there has been no default under an instalment order, the court is to take that into account on an application for an order for sale of a bankrupt’s home under section 313(4) of the Insolvency Act 1986. Big deal? There is a bigger deal under the new subsection (4C) – the court may not make an order for sale if there is an instalment order unless there has been a default in the payment of instalments – so the amendment merely removes one layer of the process, and of course the court will continue to be slow to order sales that ?will make families homeless for modest amounts of debt. The creditor has his protection because interest continues to accrue.

Protection layer

The consequences of this amendment can therefore be regarded either as removing a layer of consumer protection or as simply deferring it, and perhaps as adding a safeguard for the creditor – the consideration of default at the point of application for an order for sale should provide a major incentive to keep up instalment payments.

Incidentally, the drafting of the amendments to the Act demonstrate the ingenious imagination of the current Parliamentary draftsmen. The original Act was simply and clearly worded, easily understood and without theoretical alternatives. The new clauses provide for rules of court to made and for amendments to be made by the Lord Chancellor by statutory instrument to prescribe limited cases in which charges may be enforced even where there has been default, to limit the amounts which may be enforced and to vary the classes of assets which may be charged. Reading sections 93 and 94 is hard work, alone or alongside the 1979 Act: making sense of them takes a little patience and some expertise: they are much more accessible once combined (usefully set out at p2095 in the current Green Book), but any lawyer will need further research to understand what is in force and what rules may have been made and any layman (whom you might call a litigant in person or unrepresented party) will be justified in thinking that section 3 onwards of the amended statute make little sense to him and might almost have been designed to obfuscate ?his rights.
It is unfortunate in these days of increasing debt enforcement in the county court and decreasing access to legal advice that the district judges who will have to explain the law to unrepresented parties are not supported by lucid legislation shorn of speculative supplements.