Charging orders under section 313 of the Insolvency Act 1986

(April 2007)

Introduction 

1. What is a charging order?

Creditors who obtain a judgment against a debtor can apply to court for a charging order if the debtor fails to pay the judgment. The charging order creates a charge over the debtor's interest in property and can be enforced at a later date to satisfy the creditor's judgment debt. It is only when the charge is enforced that the creditor receives the benefit of the charged asset to satisfy their debt.

Depending on whether the debtor's property is registered or unregistered, charging orders are registered at the Land Registry or recorded as a notice on the charges register. This puts people on notice and alerts any potential purchaser to the fact that the creditor's claim will need to be dealt with if the property is sold.

 

2. Why does the official receiver need to obtain a charging order?

The bankrupt's interest in a property vests automatically in the trustee, without any transfer or conveyance having been executed, so a charging order does not provide greater protection of the asset in the first three years following bankruptcy.    However, provisions introduced by section 283A of the Insolvency Act 1986 mean that if the trustee fails to deal with his/her interest in a qualifying property within three years of the bankruptcy order date,  it will re-vest in the (former) bankrupt at the three-year anniversary following the bankruptcy order. The exception to this is where the official receiver/trustee became aware of the bankrupt's interest later than three months after the bankruptcy order date, in which case the three years begins from the time the official receiver or trustee became aware of the bankrupt's interest.

Where the official receiver as trustee, cannot immediately realize the bankrupt's interest in a qualifying property the official receiver may apply to court for a charging order over that interest.  The charging order is obtained by the official receiver under section 313 of the Insolvency Act 1986 and will be over the bankrupt's interest in a qualifying property. The definition of a qualifying property is an interest in a dwelling house comprised within the bankrupt's estate at the date of the bankruptcy order,  which is either the sole or principal residence of the bankrupt, or his/her spouse or civil partner, or former spouse or former civil partner.  This means 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, e.g. following a divorce/dissolution of a civil partnership, where the bankrupt has an interest in the property they currently live in, but also still has an interest (equitable or legal) in a property where his/her ex-spouse/ex-civil partner currently resides.

Once the official receiver has obtained the charging order he/she can apply for his/her release.

 

3. How does the official receiver deal with the bankrupt's interest in a qualifying property?

Where it has not been possible to deal with the bankrupt's property interest initially (e.g. by sale of the interest or the appointment of an insolvency practitioner as trustee to deal with the interest) Insolvency Service policy is that the bankrupt's interest in the qualifying property (vested in the official receiver as trustee) will be reviewed at 2 years 3 months after the making of the bankruptcy order.

RTLUs should not seek to re-vest properties with negative equity prior to this 2 year 3 month date but if the bankrupt makes a reasoned request for the property to be re-vested in advance of 2 years 3 months, this can be considered.

 

4. What happens at two years three months after the bankruptcy order date?

If it has not been possible to deal with the bankrupt's property interest earlier at the 2 year 3 month date the case should be reviewed and an indicative value of the property should be obtained using one of the internet valuation facilities such as http://www.upmystreet.com or http://www.nationwide.co.uk/hpi/  

 

5. What if the indicative internet valuation shows the property interest is in significant negative equity?

(February 2008)

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.  Any predicted reasonable sale costs,  other charges, and third party interests must be taken into consideration when determining whether the bankrupt's interest in the property will be in negative equity. The calculation below can be used to assist in determining the bankrupt's interest.

 

Value of property (£X)

Minus

Costs of sale (currently estimated at 3% of £X - see Note 1)

Minus

Loans or other charges secured against the property

Minus

Value of third party interest e.g. spouse

Equals

Value of bankrupt's interest at the date of the charging order

  

 

6. What if the internet valuation shows the property interest is not in significant negative equity?

In all cases where the interest is not in significant negative equity, a drive-by valuation should be obtained, along with an updated statement of outstanding balances obtained from mortgagees/chargees. If the drive-by valuation result confirms that the interest will be in negative equity, or the bankrupt's interest in the equity is less than £1, 000(using the calculation at paragraph (v)), the re-vesting procedure should be commenced immediately, there is no need to wait until the three-year time limit. Below an interest value of £1, 000, the trustee is precluded from taking action to apply for an order to sell, possess or obtain a charge.

 

7. What happens if the drive-by valuation confirms equity of £1, 000 or more?

If the drive-by valuation confirms equity of £1, 000 or more, in the first instance the official receiver should attempt to sell that interest back to the (former) bankrupt. Form MP7 should be sent to the bankrupt.  If the bankrupt responds with a realistic expression of interest the low cost transfer scheme should be pursued.  The transfer must be kept under close review, if it becomes apparent that transfer is unlikely to be completed within the three year limit, or not at all, the RTLU should immediately proceed with the charging order procedure or insolvency practitioner appointment, whichever is more appropriate. 

 

8. What happens if the valuation confirms equity of £5,000 or more?

(Amended November 2012)

If the bankrupt's interest is £10,000 (as a guide figure but this may vary depending on local and general circumstances) or more and the bankrupt has not responded to form MP7 or cannot 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. 

RTLUs will need to consider the level at which insolvency practitioners within their region would seek an order for possession and sale.  The RTLU should contact a minimum of 2, maximum of 3 insolvency practitioners, but if it is not possible to obtain an insolvency practitioner's agreement to accept nomination the RTLU should proceed to obtain a charging order. 

 

9. When does the official receiver need to obtain a charging order?

Charging orders should be sought only where it has not been possible to deal with the property interest by means of sale to the bankrupt or appointment of an insolvency practitioner. An application for a charging order in respect of jointly owned property should only be pursued as a last resort, the official receiver should always seek to dispose of the bankrupt's interest in the first instance by either selling the interest to the bankrupt/the joint owner or seeking the appointment of an insolvency practitioner. 

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 might be prejudicial to the situation of others with an interest in the property (e.g. co-ownership with the bankrupt's spouse/partner/civil partner).  It may be that in these circumstances the cost of litigation may prevent a sale and/or the outcome may be unpredictable.

 

10. What needs to be checked before the official receiver applies for a charging order?

A charging order under section 313 over the bankrupt's legal and/or equitable interest (see Note 2) in a property (called a beneficial interest) can only be obtained where:

  • a) the official receiver is the trustee, or a trustee other than the official receiver has been appointed;
  • b) the bankrupt has an interest in property described as an "interest in a dwelling house" (which can include any building/ part building occupied as a dwelling, and any yard, garden, garage or outhouse belonging to the dwelling house and occupied with it);
  • c) that interest is comprised in the bankrupt's estate;
  • d) 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.

 

11. How do I calculate the bankrupt's interest or "charged value" in the property?

(Amended November 2011)

The amount of the bankrupt's interest, the 'charged value', should be calculated to comply with Rule 6. 237D(10), which requires the value of the relevant interest to be determined by reference to the property and not to the unsecured liabilities. Legal advice received by the Service has confirmed that the following calculation should be used to establish the bankrupt's interest: 

 

Value of property (£X)

Minus

Costs of sale (currently estimated at 3% of £X - see Note 1)

Minus

Loans or other charges secured against the property

Minus

Value of third party interest e.g. spouse

Equals

Value of bankrupt's interest at the date of the charging order

The charged value is then this value. 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 costs of the application are also added. This would include the cost of the Land Registry search fee, court fee, Land Registry restriction fee and travel costs of attending the hearing.

 

12. How do I make the charging order application?

(Amended November 2011)

The RTLU should issue form COLB to the bankrupt enclosing details of the calculation of the property interest.

7 days later the RTLU should proceed to draft the report and charging order application using form COAO which includes the information required by the court under rule 6. 237D(3) of the Insolvency Rules 1986. 

The interest is only calculated when the charge is realized.  The official receiver's application for a charging order should state that the property shall stand charged with: 

 

£X being the amount of the bankrupt's interest in the property at the date of this order

Plus 

Simple Interest on that amount at the rate of (currently) 8% per annum from the date of this order

Plus

The costs of the application. (This would include the cost of the Land Registry search fee, court fee, Land Registry restriction fee and travel costs of attending the hearing.)

 

13. How is the bankrupt's property interest calculated where its value exceeds the total unsecured liabilities, fees, expenses and interest? (amended February 2014)

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, the charge is only enforceable up to the amount which is payable otherwise than to the bankrupt out of the estate (i.e. total unsecured liabilities, fees, expenses, statutory interest, plus interest on that amount from the date of the charging order).  If the value of the bankrupt's interest in the property exceeds the amount payable out of the estate, then the official receiver should calculate the bankrupt's interest as follows and make application for a charging order, amending forms COAO, COLB and CONA to reflect the alternative means of calculating the bankrupt's interest.  

 

£X being the amount owing to unsecured creditors at the date of the application;

Plus    

All other amounts which are payable otherwise than to the bankrupt out of the estate (the bankruptcy expenses and the statutory interest) and;

Plus   

Interest on the said sum and said other amounts at the rate of (currently) 8% per annum, from the date of this order. 

Plus

The costs of the application. (This would include the cost of the Land Registry search fee, court fee, Land Registry restriction fee and travel costs of attending the hearing.)

 

14. Who needs to receive notice of the charging order application?

The bankrupt and mortgagee, and the bankrupt's spouse/former spouse or civil partner/former civil partner having or claiming to have an interest in the property should be notified, as should any other person appearing to have an interest in the property, and/or such other persons as the court may direct. They should be notified of the charging order application using form CONA accompanied by a copy of form COAO.

Notice of the official receiver's application must be served before the expiry of the three year period under section 283A(2) or section 283A(5) and a minimum of 14 days notice of the hearing date must be given.  It is not necessary for the hearing to take place prior to the expiry of the three year period. 

 

15. Who attends the court hearing?

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

 

16. How is the charging order registered?

(Amended November 2012)

The attainment of a charging order on its own is insufficient to protect the creditors' interest in the property, some form of registration of the charge is necessary to give actual notice of the order to any purchaser of that property.  The charge must be entered at the Land Registry using the Land Registry Form RX1 for jointly owned properties and Land Registry Form AN1 for solely owned properties.  The fee for each registration is currently £40.  Where there is an existing caution against a jointly owned properties this will have to be withdrawn using Land Registry Form WCT. A charge or notice against registered property remains on the Register indefinitely

 

17. Is it possible to vary the "charged value" after obtaining the charging order?

Once the charging order has been obtained, legal advice received by The Service has confirmed that the official receiver is prevented from making an application to vary the "charged value" which is fixed at the date of the order imposing the charge (see paragraph xi for details of how the "charged value" is calculated) due to the provisions of section 313(5) of the Insolvency Act 1986. It is also considered unlikely that an application to vary the charged amount under section 375(1) of the Insolvency Act 1986 could be used to circumvent this restriction.

 

18. How long does a charging order last?

Section 20 of the Limitation Act 1980 prevents the commencement of any action to recover money secured by a mortgage or other charge on a property after 12 years have elapsed following the date on which the right to receive the money accrued.

Following the decision in the Court of Appeal case of Doodes v Gotham (see Note 3 below) , the official receiver should be aware that the 12 year limitation period does not commence from the date the order is obtained, but from the date that an order for sale is obtained.  It is reasonable to assume that this also applies where property is disposed of voluntarily.  

 

19. When does the charging order need to be reviewed?

The position with regard to the charging order should be reviewed at least every 3 years. The official receiver must check whether any circumstances have changed, making sure he/she is aware of any potential order for sale as the enforcement of this will initiate the limitation period.  The mortgagee(s)/other charge-holder(s) should also be contacted to discover whether steps are being taken to realize the property. If circumstances have changed whereby the interest protected by the charging order is now more likely to be realizable, then the RTLU should re-consider whether it is again appropriate to offer the sale of the interest back to the (former) bankrupt or seek the appointment of an insolvency practitioner, to enforce the charging order.

 

20. What other events can cause the charging order to be reviewed?

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 immediately 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 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. What happens if the bankrupt's interest is in unregistered property?

a) If the unregistered property is jointly owned

If it has not been possible to deal with the bankrupt's interest by sale or appointment of an insolvency practitioner as trustee, the official receiver, as trustee, should seek 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 cannot obtain a caution against first registration over the unregistered land and cannot apply for first registration of it.  As the charging order cannot be protected by registration a copy of the charging order should be sent to all interested parties to ensure the official receiver's interest in unregistered land is noted and acknowledged, especially the mortgagee if they hold the title deeds and also other charge-holders where they exist. 

b) If the unregistered property is solely owned

Where the bankrupt's interest is in solely owned unregistered land 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, or by registering the PA (B) and the WO (B) entries at the Land Charges Department (since October 2005 it has not been possible to seek a caution against first registration for unregistered solely owned land).

Once the charging order has been obtained against the bankrupt's interest in solely owned unregistered property, the official receiver, as trustee, should lodge an application under section 6 of the Land Charges Act 1972 applying to the Land Charges Department for the entry of the charging order in the Register of Writs and Orders; this entry expires after5 years but it may be renewed for successive periods of 5 years.

The registration provides "actual" notice of the charging order which means it is binding against any future purchaser of the property.  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.

 

22. What happens where the bankrupt holds an interest in qualifying property in the form of a charge?

(November  2007)

If the official receiver as trustee fails to deal with a bankrupt's interest which is held in the form of a charge against a qualifying property (which may represent a percentage interest in the equity) before the expiry of the 3 year time period, the interest will re-vest.

The bankrupt may have received an interest in the form of a charge as a result of a divorce settlement (or similar), which can include restrictions which prevent the equitable interest from being immediately realizable, i.e. 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 decide upon the necessary course of action depending on its potential value.  If it has not been possible to deal with the interest before, at the 2 year 3 month point the matter should be reviewed.

 

23. What happens where the trustee’s interest in a legal charge cannot be realized within the 3 year period ?

(November  2007)

Where the official receiver (as trustee) is still not able to deal with the interest represented by the charge within three years (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 .This is because 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.  Even where an application is made under section 313 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.

 

24. What are the disadvantages in extending the 3 year time period ?

November 2007

(a) Where the official receiver is trustee :

As a result of the provisions applicable under Part IX, Chapter IV of the Insolvency Act 1986 (including section 332),  if the official receiver whilst acting as trustee applies to extend the 3 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.

(b) Where an insolvency practitioner is trustee :

An insolvency practitioner trustee is prevented from summoning a meeting to obtain his/her release (section 332 Insolvency Act 1986) unless

  • 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


 

25. What form should the charge take if the official receiver proceeds with a section 313 application against an existing legal charge?

November  2007

If it is still not possible to deal with the trustee's interest in any other way (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, the official receiver may 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 Chapter 31.3, paraghraph 31.3.257).

The charging order sought by the official receiver should seek to impose a charge over the original charge granted to the bankrupt (usually by the matrimonial court) not to replace the existing charge.

Legal advice received by the Service is that an application for an extension of the time period to deal with the interest is a more appropriate course of action (see paragraph xxiii),  primarily because of the difficulty in calculating the amount to be charged where crystallization of its value is dependant on future events.

 

26.  What if the equitable interest is held in the form of a Family Court charge against NON qualifying property ?

November  2007

Legal advice received confirms that where the bankrupt’s interest is represented by a family court charge against property 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 3 year time restriction does not apply.

 

27. What happens if a creditor has obtained a charging order after bankruptcy but before the official receiver?

The official receiver may discover when he/she seeks to obtain a charging order, that prior to the official receiver's charging order application, a charging order has been obtained and registered by a creditor post bankruptcy.  That charge is therefore over the official receiver's unprotected beneficial interest in a jointly owned property, as it is before the official receiver has obtained and registered a charging order to protect his/her interest.  

Where the official receiver ascertains that 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.

Where the official receiver discovers that the creditor's charging order relates to a non provable (post bankruptcy order) debt, the creditor with the benefit of that charging order ranks higher in the order of payment than the official receiver. 

The official receiver should proceed without delay to protect his/her interest in the property by obtaining a charging order.  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 liaise with the holder of the prior charging order as to joint action to recover the monies due under the orders.

 

Charging Order flowchart 

 

Procedure 

 

Review at 2 years 3 months

1. Where it has not been possible to dispose of the bankrupt's interest in a qualifying property earlier, at (or close to) 2 years 3 months following the bankruptcy order, the RTLU should review the case and property interest.  Any reasoned request by the bankrupt (where the interest is in negative equity) for his/her interest in the property to be re-vested prior to 2 years 3 months, should be considered.

2. At 2 years 3 months an indicative value of the property should be obtained by reference to an internet valuation (Halifax/Up My Street).

3. Using the internet valuation, if the calculation to work out the vested interest (as set out in CHM part at paragraph (5)  indicates that the (former) bankrupt's interest is in significant negative equity,  the  RTLU should begin the re-vesting procedure immediately. 

4. In all other cases, a drive-by valuation should be undertaken and an updated statement of outstanding balances obtained from mortgagees/chargees.

5.Where the calculation using the drive-by valuation and the outstanding mortgage/charge figures confirms the interest is in negative equity or the bankrupt's interest in the equity is less than £1000, the  RTLU should begin the re-vesting procedure immediately. 

 

Interest of £1,000 or greater confirmed

6. If the calculation using the drive-by valuation and the outstanding mortgage figures confirms the (former) bankrupt's interest in the equity is £1000 or greater, the RTLU should send form MP7 to the (former) bankrupt offering to sell the interest back to him/her (or interested third party such as spouse, partner, relative or friend).

7. If the (former) bankrupt responds within 28 days of the date of issue of the MP7 with a realistic expression of interest or proposal to buy out the trustee's interest , the low cost transfer scheme should be pursued. 

8. Tight control of the transfer must be maintained.  As soon as it appears that the transfer will not be completed, either at all or within the three year time limit, the RTLU should immediately seek to appoint an insolvency practitioner as trustee or obtain a charging order (whichever is more appropriate)  to protect the trustee's vested interest.



Interest of £5,000 or more confirmed

9. Where the interest is more than £5000 and the bankrupt has not responded within 28 days of the date of issue of the MP7 or has not responded with any reasonable offer to buy out the interest,  the RTLU should attempt to contact the (former) bankrupt by telephone to inform him/her that an 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.

10. Following this, if it is still not possible for the (former) bankrupt to make a reasonable offer to buy back the interest,  the RTLU should immediately seek the appointment of an insolvency practitioner  (using the local Secretary of State rota), to allow the insolvency practitioner trustee to consider an application for possession and sale once appointed.

11. The RTLU should offer the case to a minimum of 2, maximum of 3 insolvency practitioners.  Following this, if it has not been possible to obtain any insolvency practitioner's agreement  to appointment as trustee in place of the official receiver,  the RTLU should proceed to obtain a charging order.



Application for a charging order

(Amended October 2012)

12. Only when all other avenues have been exhausted should the official receiver make an application for a charging order to protect his/her interest in a qualifying property.  Before making an application for a charging order, the RTLU should check that :

(a) the official receiver is trustee 
(b) the vested interest was comprised in the bankrupt's estate at the date of bankruptcy 
(c) the vested interest is in a dwelling house 
(d) at the date of bankruptcy, the relevant dwelling house was the sole or primary residence of the bankrupt, and/or the sole or primary residence of the bankrupt's spouse/civil partner or former spouse/civil partner.

13. Where the interest is £1000 or more and the bankrupt has not responded to form MP7 (within 28 days) or cannot make a reasonable offer to buy out the interest,  and the case is not suitable for an insolvency practitioner appointment, the RTLU should issue form COLB (Charging order letter to bankrupt and accompanying consent form) to the bankrupt, enclosing details of how the property interest has been calculated (see CHM part paragraph (11)  How do I calculate the bankrupt's interest or "charged value" in the property?)

14. 7 days  after the COLB has been sent,  proceed to draft the charging order application using form COAO (Charging order application and order).

15. Under Rule 6.237D the bankrupt, any person known or said to have a legal or beneficial interest in the property (which is often a spouse or partner) and any mortgagees are respondents to the application,  and must be given notice of it  using form CONA (Notice of application for a charging order) accompanied by a copy of form COAO.

16. Notice of the official receiver's application must be served (by sending by first class post a copy of form CONA accompanied by form COAO to the respondents as detailed in step15) giving at least 14 days notice of the hearing date. A Certificate of Service (court form N215) should be completed for every party who has been served, a pre-filled version of this document is available as form COACERT for use with charging order applications.  Once the Certificate of Service has been completed a copy should be filed at court.

17. Once forms COAO and CONA have been served the papers should be passed to the local official receiver who will attend the hearing. 



After the charging order has been obtained

(Point 20 Amended February 2014)

18. Once the charging order has been obtained it needs to be registered to give actual notice of the order.  Once the case papers have been  returned to the RTLU  the charge should be entered by the RTLU at the Land Registry using form RX1(jointly owned properties) or AN1(solely owned properties) both available from the land registry website www.landreg.gov.uk/.../publications.  The fee for each is £50.  In relation to jointly owned properties the existing caution against dealings which will have been entered previously will need to be withdrawn using form WCT.

19. If notice is received of any attempts to sell/possess the property etc. all parties concerned must be reminded of the amount required to satisfy the official receiver's charging order.

20. After obtaining the charging order the official receiver should ensure that any insurance (including public liability insurance) over the bankrupt’s interest in the property is cancelled.

21. Every 3 years the charging order should be reviewed and the mortgagee/other charge-holder contacted to find out whether steps are being taken to realize the property and if so whether the amount secured by the official receiver's charging order can be satisfied.  If circumstances have changed the RTLU should re-assess whether it is now appropriate to offer the sale of the interest back to the (former) bankrupt or seek the appointment of an insolvency practitioner, to enforce the charging order.

 

Notes :

Note 1 - Allowance for sale costs

In matrimonial and similar proceeding courts usually allow 3% of the property value for the costs of sale.  That figure should be used in making the application to comply with the requirements of rule 6. 237D(3)(c).  of the Insolvency Rules 1986.  It will be open to the court to apply a different figure if it deems it appropriate.

Note 2 - Equitable Interests

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

Note 3 - Effect of the Court of Appeal decision in Doodes v Gotham

Following the hearing where the bankrupt's trustee appealed, on 25 July 2006 the Court of Appeal held that section 313 does not confer a "right to receive" (anything) for the purpose of section 20 of the Limitation Act 1980 until an order for sale of the property is made by the court.  To hold otherwise would not be consistent with the purpose of the section. 

Where can I find out more?

Insolvency Act 1986 :
Section 283A - Bankrupt's home ceasing to form part of estate
Section 283A(1) - Application of section
Section 283A(2) - Interest to vest in bankrupt at end of three years
Section 283A(5) - Effect of late notification of interest

Section 313 - Charge on bankrupt's home
Section 313(1) - Application to court by trustee

Section 313A - Low value home: application for sale, possession or charge
Section 313A(2) - Court's duty to dismiss application if value too low

Section 385(1) - Miscellaneous definitions "dwelling house"

Insolvency Rules 1986 :
Rule 6. 237 - Bankrupt's Home Notification of property falling within section 283A
Rule 6. 237(1) - Form of notice
Rule 6. 237(2) - Contents of notice
Rule 6. 237(3) - Time limit for notice

Rule 6. 237C - Court has discretion to extend the three year time limit

Rule 6. 237D - Charging Order
Rule 6. 237D(2) - Respondents to the application
Rule 6. 237D(3) - Trustee's report to court    

Insolvency Proceedings (Monetary Limits) (Amendment) Order 2004
SI 2004/547

Enterprise Act 2002 Chapter 40 Part 10 Insolvency Individuals :
Section 261 - Bankrupt's home

Land Charges Act 1972 Chapter 61 Registration in registers of pending actions, writs and orders and deeds of arrangement :
Section 6 - The register of writs and orders affecting land

Case Help Manual parts:
Freehold property: Jointly owned - Registering a Form J restriction 
Freehold property: solely owned - Registration of a bankruptcy restriction 

Technical Manual chapters :
Chapter 31.3, Annex C
Chapter 31.3, Part 8
Chapter 31.3, paragraph 31.3.73 

Chapter 50 Part 7 - Protecting property/land - in particular the following paragraphs:
50.69 - General - Form J restrictions
50.70 - Instances where a form J restriction should be registered - bankruptcy
50.75 - Protection of unregistered land
50.78 - Protection of jointly owned unregistered land
50.79 - Procedure for registration of Form J Restriction against dealing (registered land)

Technical Notices :
T28-06 - Charging Orders - New Process
T40-06 - Doodes v Gotham Court of Appeal Decision [2006]All ER (D) 348
T44-06 - Charging Orders Applications Amendment of Forms MP7, COLB,  CONA & COAO

OROS Bulletins
Issue 4 of 2004 (Dec 2004) paragraph 18  - Notification of interest in property R6. 237/Form 683
Issue 2 of 2006 (June 2006) paragraph 14  - Land Registry Charges

Forms :

COAO - Principal residence of the bankrupt solely owned

COAO - Principal residence of the bankrupt jointly owned

COAOPrincipal residence of the bankrupt’s spouse etc. solely owned

COAOPrincipal residence of the bankrupt’s spouse etc. jointly owned

CONAequity value

CONAdebt value


Available on Document Production:

Forms
MP7 Mortgaged property, final letter re purchase by bankrupt (notice to bankrupt regarding estimated interest in qualifying property) 
COLB Charging order letter to bankrupt and accompanying consent form
COACERT  Charging order application certificate of service
   

Available on Land Registry website: Land Registry Forms can be downloaded from the Land Registry website at http://www.landreg.gov.uk/publications

Forms
RX1 Application to enter a restriction
AN1 Application to enter an agreed notice
WCT Application to withdraw a restriction
K001 Application for registration of a land charge
K004 Application for registration of a writ or order