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The Court of Appeal has recently clarified the law where a debtor who has a Charging Order registered against property he/she owns is made bankrupt. In the case in question, Judgment was obtained against the debtor on 7 April 2006. An Interim Charging Order was made on 5 May 2006. Between the making of the Interim Charging Order and the Charging Order being made final on 26 June 2006, on 17 May 2006 a Bankruptcy Petition was presented. The debtor was made bankrupt on 12 July 2006. The Court decided that the clear legislative policy under Section 346(1) of the Insolvency Act 1986 is that in the absence of special circumstances, the interest of the Judgment Creditor who had the benefit of the Final Charging Order before the Bankruptcy Order was made should prevail over the interests of the unsecured creditors.
The lesson to be learned from this case is that where a creditor has a Judgment, the sooner a Charging Order is sought and obtained, the better. If the Charging Order in this case had not been made final prior to the bankruptcy, the Judgment Creditor would have lost the benefit of it.
