ANNEX 2

May 2008

CHARGING ORDERS UNDER SECTION 313 OF THE INSOLVENCY ACT 1986

1. Introduction - Nature and effects of a charging order

A charging order is an order of the court, which has the effect of creating a charge over property (in which a debtor has an interest) to secure the debt of a creditor. Prior to bankruptcy it is available to judgment creditors to apply for such an order against the property of a debtor. It has the effect of providing them with security for their debt. A charging order can be enforced by an order for sale of the property. It should be noted that it is only when the charge is enforced that the creditor will receive the benefit of the charged asset in satisfaction of his/her judgment.

Where a charging order is registered at the Land Registry as a land charge or as a notice on the charges register (dependent on whether the title to the debtor's property is registered or unregistered) this is likely to affect anyone who wishes to purchase the property by putting them on notice of the charging order which would need to be dealt with should the transaction go ahead.

Whilst it is open to the official receiver to obtain a charging order (see paragraph 2), the official receiver as trustee or other trustee appointed to deal with the bankrupt's interest in a property, generally does not need to protect his/her interest by obtaining a charging order. This is because under section 306 of the Insolvency Act 1986 the bankrupt's interest in a property vests automatically in the trustee, without any transfer or conveyance having been executed. As a result of this automatic vesting in the trustee, a charging order offers no greater protection of the asset for the first three years following the making of the bankruptcy order. Failure to deal with the property within three years will however result in the asset re-vesting in the bankrupt at the three-year anniversary following the bankruptcy order. See paragraph 3 regarding The Service's policy as to when a charging order should be obtained in order to ensure the bankrupt's interest in certain properties is not lost to the creditors of his/her estate.

2. Charging orders available to the official receiver under section 313 of the Insolvency Act 1986

3. Service policy regarding the obtaining of charging orders

As a result of the enactment of the Enterprise Act 2002, [note 3] the time period available to the trustee of the bankrupt's estate (including the official receiver when he/she is trustee) is restricted under section 283A(2) of the Insolvency Act 1986 to a maximum of 3 years from the date of the bankruptcy order (or the date the official receiver/trustee became aware of the bankrupt's interest, if more than three months after the date of the bankruptcy order [note 4]), during which the trustee can realize the bankrupt's interest in a qualifying property. A qualifying property is defined [note 5] as property which is comprised within the bankrupt's estate consisting of an interest in a dwelling-house and which, at the date of the bankruptcy order was either:

a) the sole or principal residence of the bankrupt;
b) the sole or principal residence of the bankrupt's spouse or civil partner; or
c) the sole or principal residence of the bankrupt's former spouse or former civil partner.

This means that there could be some cases where the trustee will have to deal with more than one qualifying property in which the bankrupt has an interest.

The Service policy is that the bankrupt's interest will re-vest no earlier than 2 years 3 months after the making of the bankruptcy order. RTLUs should not proactively seek to re-vest properties with negative equity prior to the 2 year 3 month date but should consider any reasoned request by the bankrupt prior to that date for re-vesting of the property.

4. Dealing with bankrupt's interest in property following implementation of section 283A(2) of the Insolvency Act 1986

If it has not been possible to deal with the bankrupt's property interest earlier, at (or close) to the 2 year 3 month date an indicative value of the property should be obtained by reference to an internet valuation e.g. http://www.upmystreet.com or www.nationwide.co.uk/.../

a) Re-vesting where bankrupt's interest is in negative equity, or equity is less than £1,000

If the internet valuation shows that there will be significant negative equity, the re-vesting procedure should be commenced immediately, there is no need to wait until the three-year time limit.

In all other cases a drive-by valuation should be obtained and an updated statement of outstanding balances obtained from the mortgagee(s) and other charge holders.  Where the calculation of interest  (see paragraph 11) using the drive-by valuation and the most recent mortgage/charge figure, confirms that the interest will be less than £1,000, the re-vesting procedure should be commenced immediately, there is no need to wait until the three years have elapsed. 

The minimum interest value of £1,000, below which the trustee is precluded from taking action to apply for an order to sell, possess or obtain a charge [note 6] in respect of a bankrupt's interest in a qualifying property, is defined by the Insolvency Proceedings (Monetary Limits) (Amendment) Order 2004 [note 7]. This further states that when determining the value of the bankrupt's interest for the purpose of section 313A(2) of the Insolvency Act 1986, the court shall disregard that part of the bankrupt's interest in the property equal to the value of : 

• any loans secured by mortgage or other charge;
• any other third party interest; and
• any reasonable costs of sale.

Therefore any other charges, third party interests and predicted reasonable sale costs must be taken into consideration when determining whether the bankrupt's interest in the property will be less than the prescribed minimum interest value of £1,000.

b) Procedure when drive-by valuation confirms interest in positive equity of £1,000 or more

i. Where the drive-by valuation confirms equity of £1,000 or more, depending on the equity available confirmed by the valuation, Insolvency Service policy is that, the bankrupt's interest in the property should be dealt with as follows:

ii. Where possible, in the first instance the interest should be sold back to the bankrupt (see paragraph 5). Where it is not possible to sell the interest back to the bankrupt, an insolvency practitioner appointment should be sought, to deal with the bankrupt's interest in the property (see paragraph 6).

iii. Charging orders should only be sought (by RTLUs usually) as a last resort and in circumstances where the value of the bankrupt's interest is too small to justify an insolvency practitioner appointment (see paragraph 7).

5. Interest to be sold back to the bankrupt (amended February 2011)

Where the valuation discloses that the value of the bankrupt's interest in a property is £1,000 or more, form MP7 [note 8] should be sent to the bankrupt. If this prompts a realistic expression of interest from the bankrupt to buy out the interest this should be pursued. The transfer must be kept under close review, and as soon as it becomes apparent that transfer is unlikely to be completed at all, or will not be completed before the three year limit is reached, the RTLU should immediately proceed with the charging order procedure or insolvency practitioner appointment, whichever is more appropriate (see paragraph 6 regarding the procedure to be followed if an insolvency practitioner appointment is to be sought).

6. Insolvency practitioner appointment

If the bankrupt's interest is £5000 or more and form MP7 [note 9] has not prompted the bankrupt to make an offer to buy out the interest, the appointment of an insolvency practitioner should be sought so that an application for possession and sale can be considered. The local official receiver's Secretary of State rota should be used.

Before making the appointment, an attempt should be made to contact the bankrupt by telephone to inform him/her that the insolvency practitioner appointment is being sought and to give him/her a further opportunity to avoid the possible consequences by making an offer to buy out the interest.

The level at which an order for possession and sale might be justified will vary between insolvency practitioners, and RTLUs will need to consider the usual insolvency practitioner practices within their region. If the RTLU is unable to obtain any insolvency practitioner's agreement to accept nomination (having contacted a minimum of 2, maximum of 3 insolvency practitioners), the RTLU should proceed to obtain a charging order.

7. Charging orders to be sought as a last resort

Where the official receiver, as trustee, is unable for any reason, to realize the bankrupt's interest in a qualifying property the official receiver may apply to a court for a charging order against that interest [note 10]. The official receiver may be unable to realize the interest in the dwelling house where:

a) The value of the interest cannot be sold back to the bankrupt and is not sufficient to attract the appointment of an insolvency practitioner, but is still above the prescribed minimum interest value of £1,000, taking in to account any secured loans, charges, third party interests and anticipated costs of selling the dwelling house; or

b) The sale of the interest in the qualifying property (as defined by section 283A(1)) might be prejudicial to the situation of others with an interest in the property. Such an interest may be the result of co-ownership, e.g. with the bankrupt's spouse/partner/civil partner, or occupation, e.g. by the bankrupt's dependants. In these circumstances the cost of litigation may deter sale and the outcome may be unpredictable.

8. Criteria required in order to obtain a charging order under section 313 of the Insolvency Act 1986

A charging order under section 313 over the bankrupt's legal and/or equitable interest i.e. beneficial interest in a property (see note below) may only be made on the application of the official receiver as trustee, or a trustee other than the official receiver, where all of the following criteria exist:

a) the bankrupt has an interest in property described as an interest in a dwelling house "including any building or part of a building which is occupied as a dwelling and any yard, garden, garage or outhouse belonging to the dwelling house and occupied with it" [note 11],

b) that interest is comprised in the bankrupt's estate, and

c) at the date of the bankruptcy order the property was the sole or primary residence of either the bankrupt, the bankrupt's spouse/civil partner, or the bankrupt's former spouse/civil partner, and the bankrupt's trustee cannot, for the time being, realize the bankrupt's interest in that property.

d) the property must be occupied by the bankrupt, the bankrupt's spouse/civil partner, or the bankrupt's former spouse/civil partner at the date of the charging order application.

If some of the above criteria are not met and the trustee finds himself unable to deal with the property interest then it may be appropriate to apply for an extension of the three year period under 283A(6).  This should be done only under exceptional circumstances, such as where the bankrupt did not disclose important information to the official receiver for example regarding the intended change of occupant.  The official receiver requires Secretary of State sanction in order to bring an application under section 283A(6) for an extension of the three year time period.  Application for sanction should be made to Technical Section which has delegated authority to act on behalf of the Secretary of State.  The application for the extension of the three year time period should be made expeditiously and prior to the expiry of the three year period.

The Service has obtained legal advice that section 283A IA86 allows an application for an extension of time to be made after the expiry of the three year period. As a matter of policy, generally official receivers should not seek to extend the three year period after it has expired. If an official receiver believes he/she has an exceptional case where such an application is appropriate, he/she should contact Technical Section.

Note: All interests in land, which are not legal interests, are equitable interests.

9. Charging order application

If there is no response to form MP7 [note 12], or the bankrupt has confirmed that he/she is unable to make an offer for the interest, and the case is not suitable for an IP appointment, the RTLU should issue form COLB [note 13], to the bankrupt and 7 days later proceed to draft the charging order application.

10. Format of charging order application to court

If the official receiver applies to the court for a charging order under section 313, the report and application, for any land situated in England and Wales, should be made using form COAO [note 14] which includes the information required by the court under rule 6.237D(3) of the Insolvency Rules 1986.

11. Calculation of the bankrupt's interest or "charged value" in the property

Rule 6.237D(10), provides how the value of the relevant interest is to be determined by reference to the property and not (always) to the unsecured liabilities. Legal advice received by the Service has confirmed that, to comply with Rule 6.237D(10),  the amount of the bankrupt's interest, that is the 'charged value', should be calculated taking in to account costs and third party interests, as per the order of deduction detailed in the following table:

The charged value is then this value to which simple interest at the rate specified at the date of the charging order (set as per section 17 of the Judgments Act 1838 - currently 8%) is added from the date of the charging order.

The official receiver should provide details of the calculation to the bankrupt under cover of form COLB [note 15]. The interest is only calculated when the charge is realized. The official receiver should thus make application for a charging order that the property shall stand charged with:

12. Exception where the value of the bankrupt's interest exceeds total unsecured liabilities

The exception to the calculation at paragraph 11 is where the value of the bankrupt's interest in the property exceeds the total amount of the bankrupt's unsecured liabilities plus fees and expenses of the bankruptcy and statutory interest. By virtue of section 313(2) the charge is only enforceable up to the amount which is payable otherwise than to the bankrupt out of the estate and of interest on that amount (from the date of the charging order). Thus, if the value of the bankrupt's interest in the property exceeds the amount payable out of the estate, then the official receiver should make application for a charge in the following terms:

The forms available on document production (forms COAO - application for a charging order, COLB - notice to bankrupt of intention to apply for a charging order and form of consent to be signed by bankrupt, and CONA - notice of application for a charging order) have been drawn up to reflect the position, anticipated in the majority of cases, where, at the date of the charging order, the amount of unsecured liabilities plus costs and fees exceeds the amount of the bankrupt's interest in the property. Where the official receiver deals with a case where this is not the position, then he/she should amend all of the document production forms in accordance with the guidance in this paragraph.

13. Allowance for sale costs

Rule 6.237D(3)(c) requires an estimate of the cost of realizing the interest to be taken in to account in establishing the amount of the charging order. Indications are that in matrimonial and similar proceeding courts allow 3% of the property value for the costs of sale. That figure should be used in making the application. It will be open to the court to apply a different figure if it deems it appropriate.

14. Notice of a charging order application

a) any spouse or former spouse or civil partner or former civil partner of the bankrupt having or claiming to have an interest in the property;

b) any other person appearing to have an interest in the property;

c) such other persons as the court may direct.

Notice of the official receiver's application should be given before the expiry of the three year period under section 283A(2) or 283A(5). A minimum of 14 days notice of the hearing date must be given [note 19]. It is not necessary for the hearing to take place, or for notice of the hearing to be served prior to the expiry of the three year period; however it is anticipated that all notices of the hearing will be served prior to the expiry of this period.   

15. Attendance at Court

Initially, the originating local official receiver will have to attend the hearing of the application to deal with any questions the court may have (or any respondent who attends). Once the application and report have been issued and served by the relevant RTLU, the papers should be passed to the originating official receiver in anticipation of his/her attendance at court.

16. (a) Post charging order - Registration

16. (b) Post charging order - inability to vary the "charged value"

June 2008

The "charged value" as calculated in paragraph 11 and included in the trustee's application to court for a charging order,  is fixed at the date of the order imposing the charge.  Legal advice has been received that once the charging order has been made, any variation of the charged amount is prevented by the restriction imposed by the provisions of section 313(5) of the Insolvency Act 1986 as construed with section 3(1), (2), (4) & (6) of the Charging Orders Act 1979. It is considered unlikely that circumvention of this restriction could be obtained by an application to vary the charged amount under section 375(1) of the Insolvency Act 1986, although this may be possible if the official receiver, as trustee, is seeking to reduce a charged value obtained in error.

17. Limitation period applicable when a charging order is made under section 313 of the Insolvency Act 1986

Section 20 of the Limitation Act 1980 prohibits the instigation of any action to recover money secured by a mortgage or other charge on a property after the expiration of 12 years from the date on which the right to receive the money accrued, see paragraph 18 regarding the effect of the Court of Appeal judgment in Doodes v Gotham.

18. Effect of the Court of Appeal decision in Doodes v Gotham

As a result of the Court of Appeal hearing in Doodes v Gotham [note 23], the court held that a charging order made under section 313 does not confer a "right to receive" (anything) for the purpose of section 20 of the Limitation Act 1980 (LA1980) until an order for sale of the property is made by the court.

Circumstances of the case: Mr. Doodes was made bankrupt in 1988. In May 1992 the trustee applied under section 313 for a charging order on the bankrupt's property for the benefit of the bankruptcy estate. In June 2004 the trustee applied for an order for sale of the property. The bankrupt contended that since more than 12 years had elapsed between the making of the charging order and the application for sale of the property, the trustee was barred from recovering any sum of money secured by the charging order by virtue of section 20(1)(a) of the LA1980. The Registrar held that the enforcement of the charging order was not time barred.

The bankrupt appealed successfully and it was held that even though the chargee of a charge imposed under section 313 had no right to require immediate payment of any sum from the chargor, for the purposes of section 20(1) of the LA1980, a chargee's "right to receive" a sum of money secured by a charge under section 313 accrued upon the entry to the charge, notwithstanding that immediately before the charge was made, the chargor had owed no debt to the chargee. Thus enforcement of the 1992 charging order was time-barred by virtue of section 20(1)(a) of the LA1980.

The trustee appealed and on 25 July 2006 the Court of Appeal held that section 313 does not confer a "right to receive" (anything) until there is an order for a sale of the property. To hold otherwise would not be consistent with the purpose of the section.

The Chancellor of the High Court commented that if section 20 of the LA1980 is to apply, then the "right to receive" must be a present not a deferred right and it must have accrued when the order for the section 313 order was made in 1992. He commented that this would seem to be quite inconsistent with the purpose of section 313 that there should be a right to receive money at that stage. The only source of payment is the proceeds of sale of the property but the whole object of section 313 is to defer the realization of the property until the circumstances justify its sale. No interest is payable in the meantime because it is rolled up until sale. An order for the sale of the property is not as of right because of the terms of section 335A(1) of the Insolvency Act 1986 which provides that any application by a trustee of a bankrupt's estate under section 14 of the Trusts of Land and Appointment of Trustees Act 1996 (powers of court in relation to trusts of land) for an order under that section for the sale of land, shall be made to the court having jurisdiction in relation to the bankruptcy.

19. Need to review charging orders obtained under section 313 of the Insolvency Act 1986

Following the decision in Doodes v Gotham, the official receiver should be aware that the (12 year) period of limitation does not run from the date of the charging order but from the date that an order for sale is obtained. It would be reasonable to assume that this would also extend to properties disposed of voluntarily.

The official receiver should ensure that the position with regard to the charging order is reviewed at least every 3 years, to check whether circumstances have changed, and ensure that he/she is aware of any potential order for sale as the enforcement of this will initiate the limitation period. The official receiver should contact the mortgagee(s)/other charge-holder(s) to discover whether steps are being taken to realize the property. Enquiries should also be made of them regarding the current amount due to them and the present value of the property, to enable the official receiver to decide whether sufficient equity exists to justify the appointment of an insolvency practitioner as trustee to enforce the charging order. See also paragraph 21(d) regarding unregistered solely owned properties and the need to review the entry of the charging order in the Register of Writs and Orders, which expires after 5 years, but which can be renewed.

The court has general discretion and can consider all the circumstances (including the interests of the family and creditors and the contribution of either party towards the bankruptcy). However, if more than one year has elapsed since the property vested in the trustee, then creditor's interests will prevail unless there are exceptional counterbalancing factors.

20. Notice from Chief Land Registrar of attempts to deal with the property

Whenever the official receiver, as trustee, receives notice from the Chief Land Registrar that attempts are being made to deal with the property, the official receiver should, as a matter of urgency, contact all of the parties concerned to ensure that they are informed (or reminded) of the amount required to satisfy the charging order.

The official receiver should ensure that in all cases where a charging order has been obtained he/she takes steps to deal with the bankrupt's interest as soon as any change occurs e.g. if the bankrupt wishes to sell the property or another charge-holder enforces the sale of the property.

21. Other matters to be considered:

a) Registration required to give notice of order
The attainment of a charging order on its own is insufficient to protect the creditors' interest in the property as some form of registration of the charge is necessary to give actual notice of the order to any purchaser of that property (see also paragraph 16). A charge or notice against registered property remains on the Register indefinitely.

b) Jointly owned property (general guidance concerning protection)
An application for a charging order in respect of jointly owned property should be pursued as a last resort, the official receiver should always seek to dispose of the bankrupt's interest in the property in the first instance as detailed at paragraph 4.

See also Chapter 50 Part 7 "Protecting property/land", in particular paragraph 50.70 "Instances where a form J restriction should be registered - bankruptcy" and paragraph 50.79 "Procedure for registration of Form J Restriction against dealings (registered land)". Also refer to Case Help Manual "Freehold property: Jointly owned - registering a Form J restriction"

c) Unregistered jointly owned property
Where the bankrupt has a joint interest in unregistered land or property, and it has not been possible to deal with the bankrupt's interest by any of the means described as preferential to obtaining a charging order at paragraph 4, the official receiver, as trustee, should attempt to obtain and hold the title deeds of the unregistered land, and obtain a charging order. As the official receiver/trustee is not the legal owner of the jointly owned unregistered land he/she is unable to obtain a caution against first registration over the unregistered land and is unable to apply for first registration of the land. (see Chapter 50 - "Dealings with the Land Registry", in particular paragraph 50.78 "Protection of jointly owned unregistered land"). As the charging order cannot be protected by registration [note 24] a copy of the charging order should be sent to all interested parties, in particular where the title deeds are held by a mortgagee, and/or where other charge-holders exist, the official receiver/trustee must notify all interested parties to ensure that his/her interest in the unregistered land is noted and acknowledged.

d) Unregistered solely owned property
Where unregistered land is solely owned by the bankrupt the legal estate vests in the trustee in bankruptcy. The trustee is able to protect his/her interest in the property by applying for first registration of the unregistered land, [note 25] or by registering the PA (B) and the WO (B) entries at the Land Charges Department (seeking a caution against first registration for unregistered solely owned land was only available up to October 2005) [note 26]. See also Chapter 50 paragraph 50.75 "Protection of unregistered land". On the making of a charging order against solely owned unregistered property, the official receiver, as trustee, should lodge an application under section 6 of the Land Charges Act 1972 [note 27] applying to the Land Charges Department for the entry of the charging order in the Register of Writs and Orders; this entry lasts for 5 years but it may be renewed for successive periods of 5 years [note 28]. Once registered, the charging order is binding on any purchaser of the property, as registration is "actual" notice of the charging order. The official receiver should write to any mortgagee or charge-holder who has possession of the title deeds asking that the deeds be endorsed with the details of the charging order.

Land Registry Forms can be downloaded from the Land Registry website at: http://www.landregistry.gov.uk/

See also Case Help Manual: Freehold property: solely owned - registration of a bankruptcy restriction - paragraph xii "Dealing with unregistered land that is solely owned"

e) Potential future litigation
Any person interested (i.e. having a proprietary interest) in any property to which the charging order relates is able, at any time, to apply for an order discharging or varying the charging order. It follows that the official receiver as trustee could be involved in litigation relating to the order at some time in the future

f) Circumstances where the bankrupt holds an interest in qualifying property in the form of a charge

Where a bankrupt as a result of a divorce settlement (or similar), is awarded an interest in the form of a charge against a qualifying property (which may represent a percentage interest in the equity), even if restrictions imposed by the divorce settlement mean the equitable interest is not readily realizable, failure to deal with that interest before the expiry of the 3 year time period as detailed at paragraph 3 will cause the interest to re-vest.  Examples of the type of restrictions which may be imposed by the settlement  are where the crystallization of the interest only arises upon the execution of specified events,  such as the co-habitation of a former spouse/civil partner with a new partner, or the death of a former spouse/civil partner. The official receiver should ask for the benefit of the charge to be registered in his/her name as soon as he/she becomes aware of it.

The potential value of the equitable interest can be calculated as if it were realizable at the current date, to assist in deciding the appropriate course of action to follow under the procedure as detailed at paragraph 4.  If it is not possible to deal with the interest as detailed at paragraph 4, at the 2 year 3 month point the matter should be reviewed. 

Where the official receiver (as trustee) is still not able to deal with the interest represented by the charge (having re-calculated the potential value of the equity using property valuations obtained at that time, and the potential value will be £1,000 or more), legal advice received by the Service recommends that the official receiver should apply to court under section 283A(6) for an extension of the three year time period, to enable him/her to deal with the interest represented by the charge, in preference to applying for a charging order over the charge representing the equitable interest  (see also paragraph 21(h) concerning the disadvantage to the trustee where an extension of time is obtained).

The reason for this is that the imposition of a charge under section 313 over an existing family court charge does not place the official receiver in any better position than that which exists already, the family court charge vests in the official receiver as trustee and any restrictions in the family court charge apply equally to the official receiver.  It should be noted that even if the trustee proceeds with a section 313 application for a charging order against an existing legal charge made in the family court, it is not possible for the bankruptcy court to vary, amend or replace the existing family court charge.

The official receiver requires Secretary of State sanction in order to bring an application under section 283A(6) for an extension of the three year time period.  Application for sanction should be made to Technical Section which has delegated authority to act on behalf of the Secretary of State.  The application for the extension of the three year time period should be made expeditiously and prior to the expiry of the three year period.

The Service has obtained legal advice that section 283A IA86 allows an application for an extension of time to be made after the expiry of the three year period. As a matter of policy, generally official receivers should not seek to extend the three year period after it has expired. If an official receiver believes he/she has an exceptional case where such an application is appropriate, he/she should contact Technical Section.

(h) Disadvantage in obtaining an extension of the three year time period

Section 332  prevents an insolvency practitioner trustee from summoning a meeting to obtain his/her release under section 331 unless either :

• An order has been obtained under section 313 imposing a charge on the property for the benefit of the bankrupt’s estate; or
• The court has declined (on an application under section 313) to make such an order; or
• The Secretary of State has issued a certificate stating that that it would be inappropriate for such an application under section 313 to be made.

This means that, in applying for a time extension rather than a charging order, an insolvency practitioner trustee will be unable to summon a final meeting of creditors under section 331 to obtain his/her release as trustee.

The official receiver will normally apply to the secretary of state for his/her release as trustee under section 299(2), once administration of the bankrupt’s estate is complete, but this is also subject to the provisions of Part IX Chapter IV of the Insolvency Act 1986 (including section 332).  This means that, if the official receiver whilst acting as trustee applies to extend the three year time period in which to deal with the qualifying property interest,  rather than apply for a charging order, he/she will be unable to issue notice of his/her intention to apply for release,  in the same way as an insolvency practitioner trustee is prevented from summoning a meeting to obtain his/her release.

(i) Form of charge should the official receiver proceed with a section 313 application against an existing legal charge

Should the official receiver decide to seek to protect the equitable interest by means of a charging order, (notwithstanding any registration of a Form J restriction if the property remains jointly owned - see Chapter 50 Part 7 paragraph 50.69 - 50.74), an application should be made to the court under s.313 for an order that the (family court) legal charge stand charged for the benefit of the bankrupt’s estate in the sum of x plus interest at the prescribed rate (see calculations at paragraph 11). The charging order sought by the official receiver should seek to impose a charge over the original charge granted to the bankrupt, not to replace the existing charge.   As stated at paragraph 21(f)), legal advice received by the Service is that an application for an extension of the time period to deal with the interest would be a more appropriate course of action, primarily because of the difficulty in calculating the amount to be charged, for example if the terms of the family court charge are dependant upon a child attaining a specified age, there will be a disparity between valuing the charged interest at the date the charging order is sought (when the interest is not realizable at that time due to the terms of the charge) and its value if calculated at the date of  the future event upon which the crystallization of the interest rests.

(j) Circumstances where the equitable interest is held in the form of a Family Court charge against NON qualifying property

Legal advice received confirms that where the bankrupt’s interest is represented by a family court charge against property (including any restrictions contained in the existing charge), and that property is not a qualifying property as set out in s283A(1), the interest can still be realised by the trustee as an asset of the estate, the three year time restriction does not apply.

(k) Charging orders obtained (post bankruptcy) against equitable interest, prior to the official receiver obtaining a charging order

Where the official receiver is seeking to deal with an interest in a qualifying property by obtaining a charging order, and discovers that a charging order has been obtained and registered by a post bankruptcy creditor over the official receiver's unprotected beneficial interest in a jointly owned property before the official receiver's charging order has been obtained, the creditor with the benefit of that charging order ranks higher in the order of payment than the official receiver (see final paragraph below where the official receiver ascertains the creditor's debt is provable in the bankruptcy).

The official receiver should proceed without delay to protect his/her interest in the property by obtaining a charging order as detailed at paragraphs 8 -16. When the property comes to be sold, after the registered legal charge/s is/are paid and the proceeds are apportioned to the registered equitable interests, the holder of the other charging order will be paid before the official receiver.

When establishing the value of the vesting beneficial interest to be charged, under section 313(2A) of the Insolvency Act 1986, that value would be the net value of the bankrupt's interest in the property at the date the charging order is sought, which would be net of the amount due under the (earlier) charging order. The official receiver should therefore contact the holder of the charging order as soon as he/she becomes aware of their charge, in order to establish the extent of the debt secured by the prior charging order.

After the official receiver has obtained and registered a charging order, he/she may wish to negotiate with the holder of the prior charging order as to joint action to recover the monies due under the orders.

If the creditor's charging order relates to a provable debt in the bankruptcy, the official receiver may seek to challenge the order obtained under the provisions of section 285(3) of the Insolvency Act 1986.