Posted on 15th February 2017
Interim and Final Charging Orders - Registration of Charging Orders – Restrictions - Alternatives to Standard Form Restrictions – Avoiding Risk that Charged Property will be Sold Without Discharge of the Secured Debt – Land Registration Act 2002 – Charging Orders Act 1979 – CPR Rule 73
Judgment creditors who seek to protect their rights under Interim Charging Orders by applying for restrictions at the Land Registry do not always appreciate the limited protection the resulting standard form of protection provides. When a Charging Order is made final, it is essential to have the standard form of restriction replaced by a more robust and effective alternative.
Section 3 (4) of the Charging Orders Act 1979 provides that a charge imposed by a charging order “… shall have the like effect and shall be enforceable in the same courts and in the same manner as an equitable charge created by the debtor by writing under his hand.”
The only protection available to protect the interests of a judgment creditor under either an Interim or a Final Charging Order under the Land Registration Act 2002 (“the LRA 2002”) is the entry of a restriction on the register. Section 40 (1) of the LRA 2002 provides that “A restriction is an entry in the register regulating the circumstances in which a disposition of a registered estate or charge may be the subject of an entry in the register.”
The Land Registration Rules 2003 (“the LR Rules”) provide for standard form restrictions and they are contained in Schedule 4 of the LR Rules. Form K is the standard form to be used where an Interim Charging Order has been made.
Standard Form K is as follows: -
Form K (Charging order affecting beneficial interest—certificate required)
No disposition of the [choose whichever bulleted clause is appropriate]
—registered estate, other than a disposition by the proprietor of any registered charge registered before the entry of this restriction,
—registered charge dated [date] referred to above, other than a disposition by the proprietor of any registered sub-charge of that charge registered before the entry of this restriction,
is to be registered without a certificate signed by the applicant for registration or their conveyancer that written notice of the disposition was given to [name of person with the benefit of the charging order] at [address for service], being the person with the benefit of [an interim or a final] charging order on the beneficial interest of [name of judgment debtor] made by the [name of court] on [date] (Court reference [insert reference]).
It is very important to understand the effect of a Standard Form K Restriction. It merely requires that before a purchaser of a property, which is the subject of an Interim or Final Charging Order, can register the transfer of the property to him: -
The notification of the transfer to the judgment creditor can be given AFTER the transfer has taken place and, one assumes, AFTER the proceeds of the sale have passed into the hands of the judgment debtor. It follows that the Restriction is Standard Form K provides no real or effective protection for the judgment creditor. On receiving the notification that the transfer has taken place, there is very little the judgment creditor can do other than to try and trace the proceeds of sale and seek a new Charging Order in respect of the judgment debtor’s interest in any newly acquired property.
What to Do?
The White Book urges judgment creditors to apply for a non-standard restriction under section 46 of the LRA 2002 at the hearing to consider whether or not to make the interim order final. Standard Form Restrictions are entered into the Register by the Registrar under section 42 of the LRA 2002. Section 46 grants courts the power to require the registrar to enter a restriction and it is open to the judgment creditor to suggest a form of words that would require certification by an applicant for registration that he had given notice of the proposed transfer 14 days before the date of the transfer, thus giving the judgment creditor time to consider what he wants to do to protect his position. In those circumstances the judgment creditor could insist that the judgment debtor’s solicitor give an undertaking on his client’s behalf that the debt (or some of it) will be discharged out of the proceeds of sale or face the prospect of an application for an injunction stopping the transfer going ahead.