Property jointly owned by bankrupt — Charge in favour of appellant trustee in bankruptcy — Application to enforce charge by possession and sale — Whether application time-barred — Date when right to receive principal sum accruing — Section 313 of Insolvency Act 1986 — Section 20(1) of Limitation Act 1980 — Appeal allowed
The appellant, as the trustee in bankruptcy of the respondent, applied for an order for possession and sale of a property of which the respondent was a joint owner. He was instead granted a charge over the property, pursuant to section 313 of the Insolvency Act 1986. By section 313(2), such a charge was enforceable “for the payment of any amount which is payable otherwise to the bankrupt out of the estate and of interest on that amount”.
Much later, the appellant made a further application to enforce his charge by an order for possession and sale of the property. The respondent contended that, under section 20(1), the application was statute-barred because the 12-year time limit specified for actions to recover “any principal sum of money secured by a mortgage or other charge on property” had expired. The appellant’s application was allowed by the chief registrar, but that decision was subsequently reversed by a judge. The judge held that the right to receive the principal sums secured by the charge had accrued on the making of the charging order under section 313, so that the appellant’s claim was out of time.
On appeal, the appellant submitted that: (i) the right created by a section 313 order was not a charge within the meaning of section 20(1) of the 1980 Act; (ii) the amount secured by that order was not a principal sum for the purposes of section 20(1); and (iii) the right to receive the amount charged did not accrue until an order for sale of the property was made.
Held: The appeal was allowed.
(1) Section 313 stated in terms that an order under that section created a charge that was enforceable for the payment of a fluctuating but ascertainable amount as though it were an equitable charge in writing under the hand of the debtor, and that the benefit of it was comprised in the estate of the bankrupt. Any associated personal liability or source for payment other than the property itself was unnecessary. The respondent’s property was appropriated by the section 313 order to the discharge of the amounts referred to in section 313(2) and was realisable by judicial process, namely an application for possession and sale. Accordingly, the right created by the section 313 order was proprietary and amounted to a charge for the purposes of section 20(1) of the 1980 Act.
(2) The word “principal”, in respect of a sum of money, was used to differentiate the original sum from the interest that it might yield. In that sense, the “amount payable otherwise to the bankrupt out of the estate” was the principal sum and was to be contrasted with “interest on that amount”, which was also secured by the charge. A principal sum could be secured even though its amount might fluctuate.
(3) However, the appellant’s right to receive that principal sum had not arisen when the charging order was made. It was inconsistent with the purpose of section 313 that a right to receive any money should exist at that stage. The only source of payment was the proceeds of sale of the property subject to the charge, and that sale was to be deferred until the circumstances justified a sale. The appellant was not entitled to an order for sale as of right. A charge under section 313 therefore secured a future, not a present, obligation, and the right to receive could not predate an order for sale. Since section 20(1) of the 1980 Act applied only to a present, not a deferred, right to recover, it did not bar the appellant’s claim in the instant case.
Alexander Stewart and Alexander Learmonth (instructed by BTMK Solicitors LLP, of Southend-on-Sea) appeared for the appellant; Dan Stacey and Timothy Akkouh (instructed by Budd Martin Burrett, of Chelmsford) appeared for the respondent.
Sally Dobson, barrister
