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Recovering Business Debts -The Use Of Charging Orders

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Paul Trincas

Paul Trincas

In a previous article in the Newbury Business News, Paul Trincas, a corporate lawyer with Charles Lucas & Marshall wrote about how businesses could secure payment of debts and the types of enforcement mechanisms available. Here, he turns his attention to what is probably the most effective and secure method of ensuring debts are paid – charging orders.

What is a ‘Charging Order’?

A Charging Order is an Order of the Court charging a person’s interest in a property or properties, for the amount of the debt owed. It is therefore a type of security, like a mortgage, for the sum owed.

Voluntary Charge

If a debtor ‘agrees’ to a charge over their interest in any property or properties they own, in respect of debts owed, then this can be achieved by lodging the relevant form with the Land Registry. However, this procedure is dependent upon the debtor agreeing to this being undertaken and in almost 99 per cent of cases, such agreement will not be forthcoming. In which event, a Charging Order will need to be applied for through the courts.

Who can apply for a Charging Order?

Anyone owed money can apply to the court for a Charging Order. However, a Charging Order cannot be applied for unless a judgment for the sum owed is first obtained against the debtor. Further the debt owed must be £1,000 or more.

Therefore, the person owed money must first go through the court system and obtain a judgment, and then, on the back of the judgment being obtained, a Charging Order can be applied for.

What is charged?

Only the debtor’s ‘interest’ in the property or properties can be charged. So, for example, if a husband and wife jointly own property in equal shares, then it is only the debtor’s 50 per cent interest in the property that can be charged.

When is payment made under a Charging Order?

Although a Charging Order on a property secures the amount owed, this does not mean that the monies owed will be paid immediately.

Generally, there are three trigger points when the sum secured by way of Charging Order, will be paid. They are:

  • If the debtor dies, provided he/she is the sole owner.
  • When the property is sold.
  • If the person who has the benefit of a Charging Order applies to the court for an Order for Sale of the property.

Under the first two, it may be years before these trigger points are reached. However, the person owed money will be entitled to interest on the initial sum charged, currently, at 8 per cent per annum, from the date the Charging Order is made.

Under the final trigger point, the courts will generally only order a sale of the property if the amount of the debt is large.

For more information please contact Paul Trincas on 01635 521212 or

Written by Paul Trincas

February 17th, 2016 at 12:12 pm

When Is A Company Insolvent

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In the current economic climate, directors must be careful to check the solvency position of their company, says Rupert Wright, a corporate services lawyer with Charles Lucas & Marshall. 

In the event that a company later goes into liquidation, a liquidator can argue that a dividend payment made to a shareholder of the company could constitute an unlawful dividend which they could recover.

Rupert Wright

Rupert Wright

Also, if a director’s loan is repaid at the time the company was insolvent, this could constitute an unlawful preference and the liquidator might be entitled to recover this, depending upon the solvency position of the company.

Under the Insolvency Act, a company is deemed to be unable to pay its debts if the company is unable to pay its debts as and when they fall due –  and also if the value of the company’s assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities.

The first factor is the so called cashflow test and the second consideration is the balance sheet test.  A recent Supreme Court decision which related to Eurosail-UK concerned the interpretation of what constitutes balance sheet insolvency and in this context, the treatment of contingent and prospective liabilities.

Eurosail was set up in 2007 by Lehman Brothers which purchased a portfolio involving sub-prime mortgage loans secured on UK residential property.

As a result of the collapse of the swap agreements with Lehmans and the accounting standards to which Eurosail’s accounts were prepared, there was a deficit shown on its balance sheet.  Therefore, the question was whether this balance sheet in fact reflected the commercial outcome for creditors.

The liquidators applied to the Court for a ruling as to whether Eurosail could be considered to be unable to pay its debts and therefore whether it could be placed into liquidation, notwithstanding that the principal amounts under the loan were not yet due and payable.

The Supreme Court upheld the Court of Appeal’s Decision that the values on the balance sheet must involve consideration of the relevant facts of the case including when the prospective liability fell due.  Therefore, they did not consider that Eurosail could be considered to be insolvent.

This case shows the importance of the commercial context and reality of a company’s financial position in making an assessment as to whether a company is balance sheet insolvent.

Contingent and future liabilities should be considered in all the commercial circumstances of the case.  The larger, closer and more likely the contingency is, the more likely it is that the company will be deemed insolvent.  However, such assessment will always be dependent on all the circumstances of the case and legal advice should always be sought.

For further information contact Rupert Wright on 01635 521212 or


Written by Rupert Wright

August 19th, 2013 at 1:33 pm

Posted in Business Debts,Insolvency

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Business debts: “To Sue Or Not To Sue – That Is The Question”

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Paul Trincas, a litigation specialist at law firm, Charles Lucas & Marshall weighs up how far a business should go to recover money it is owed.

Paul Trincas

Paul Trincas

Very often, the first, and perhaps most natural reaction for a business owner faced with a customer or client who has failed to pay without good reason, is to sue for the monies owed.

However, to implement that initial reaction is not as easy or straightforward as you think it might be. Several business and economic factors need to be weighed in the balance before making the decision to sue.

Is there an on-going commercial relationship to maintain ?

It may well be that the monies owed are small compared to the overall gain to be

achieved by not pursuing it through the courts and securing future business worth significantly more, in financial terms, than the current sum owed.

Is the amount worth suing for ?

If the amount is of any significance, and all other measures to secure payment have failed, then it may well be worth suing through the courts. If you succeed in your claim, you would also be entitled to seek payment of your legal costs.

However, where the sum involved is £5,000 or less, then this will constitute a ‘small claim’, where normal costs rules do not apply. Instead, in such cases, the costs rule, subject to very limited exceptions, is that each party, win or lose, will have to pay its own costs. All the successful creditor will be able to recover are the court fee and limited fixed costs. This means that for lesser value claims, the whole exercise is not economically viable.

Will you actually get paid ?

Having succeeded in the action, you will get a Judgment, effectively ordering the customer or client to pay the money. But what if the client or customer does not pay? In this scenario, there is no magical formula for securing payment of your money. The client or customer will not go to prison for defaulting on payment on the Judgment as this is a civil debt and not a criminal matter.

You as the business owner, will then have to go back to court in order to enforce the Judgment debt in the most appropriate method, given the financial circumstances of your customer or client. However, further costs will be incurred in the enforcement process, and, you will only be able to recover limited fixed costs – normally a fraction of the total costs incurred in the enforcement process.

You can contact Paul Trincas on 01635 521212 or

Written by Paul Trincas

August 16th, 2013 at 4:09 pm