Wright and another v Nationwide Building Society

Bankruptcy – Charging order – Discharge – Respondent trustee in bankruptcy obtaining discharge of charging order under section 3(5) of Charging Orders Act 1979 – Whether insufficient weight given to policy of section 341(1) of Insolvency Act 1986 – Whether court entitled to discharge charging order where completed prior to bankruptcy order – Appeal allowedThe appellant obtained an interim charging order against a property, of which the first respondent and his wife were the registered proprietors, to secure a judgment of £10,000 in its favour in respect of a credit card debt. The following month, the charging order was made final. By then, a petition for bankruptcy had been presented against the first respondent, but this was unknown both to the appellant and the judge who had made the final order. The first respondent was subsequently adjudged bankrupt and his estate vested in the second respondent as his trustee in bankruptcy. The second respondent applied to the court, under section 3(5) of the Charging Orders Act 1979, to discharge the appellant’s charging order. Allowing that application, the district judge found that: (i) the final charging order had been properly made, albeit that the judge would not have made it had he been aware of the pending bankruptcy petition; (ii) the existence of the petition, and the subsequent making of the bankruptcy order, did not establish a right to set aside the charging order; but (iii) the court should exercise its discretion to set it aside, given the balance of interest and the nature of the assets that were available for distribution to creditors, of which the appellant was only one of several.Appealing that decision, the appellant contended that the district judge had given insufficient weight to section 346(1) of the Insolvency Act 1986, which provided that a creditor was entitled to retain the benefit of an execution against land, such as a charging order, that was completed before the commencement of the bankruptcy. The appellant submitted that even if that provision did not completely exclude the operation of section 3(5) of the 1979 Act, the court should not exercise its discretion so as to circumvent the clear policy of the 1986 Act. The county court judge held that section 346 of the 1986 Act did not so limit section 3(5) of the 1979 Act, and upheld the decision of the district judge. The appellant appealed.Held: The appeal was allowed. Under the 1986 Act, the bankruptcy of an insolvent individual commenced on the day on which the bankruptcy order was made. The 1986 Act departed in that respect from the previous position under the Bankruptcy Act 1914, in which bankruptcy had been backdated to some earlier date when an “act of bankruptcy” took place. The 1986 Act established the principle that a person who dealt with the bankrupt before the making of a bankruptcy order, in good faith and without notice of the presentation of a bankruptcy petition, was entitled to retain property so acquired. The legislature had thereby altered the position in bankruptcy, in respect of charging orders, from that which applied before the 1986 Act and from that applying in corporate insolvency. Although section 346 of the 1986 Act was not to be taken as imposing a restriction on the general power to discharge or vary a charging order conferred by section 3(5) of the 1979 Act, in the absence of an express limitation to that effect, a creditor that had completed execution before the bankruptcy order was made should not be deprived of its security solely by reason of that order. Some additional feature was required before it was appropriate to exercise the general power under section 3(5) of the 1979 Act. The courts below had erred in failing to recognise and give weight to the legislative policy underlying section 346(1) of the 1986 Act. Consequently, the appeal court was entitled to substitute its own view regarding the order that should be made on the second respondent’s application.The final charging order had been properly made. Since the court that had made that order had been unaware of the existence of the pending bankruptcy petition, it could not be said that the final order should not have been made at the time it was made: Roberts Petroleum Ltd v Bernard Kenny Ltd (in liquidation) [1983] 2 AC 192 (HL); [1982] 1 WLR 301 (CA) and Industrial Diseases Compensation Ltd v Marrons [2001] BPIR 600 distinguished. Since it was not appropriate to set aside the order by reason solely of the subsequent bankruptcy, and there was nothing else in the facts of the instant case to justify a departure from the principle behind section 346(1) of the 1986 Act, the appellant’s charging order should be reinstated: C&W Berry Ltd v Armstrong-Moakes [2007] EWHC 2101 (QB); [2007] BPIR 1199 applied.Marcus Flavin (instructed by the legal department of Nationwide Building Society) appeared for the appellant; the respondents did not appear and were not represented.Sally Dobson, barrister