Doodes v Gotham & Anor

A charge imposed under section 313 of the Insolvency Act 1986 takes effect as a charging order and, through the Charging Orders Act 1979, as an equitable charge. For limitation purposes, the right to receive money secured by the charge accrues when the charge comes into existence, even where the chargor owes no present personal debt and the chargee must apply to court for sale or other enforcement. The bankruptcy exception to limitation applies to claims in the bankruptcy or against property subject to the statutory trust. It does not protect a trustee’s separate rights against property removed from the bankrupt’s estate and vested in the bankrupt. A claim to enforce such a charge may therefore be barred under section 20 of the Limitation Act 1980.

A bankruptcy order was made against Kevin Leonard Doodes in 1988. In 1992, under section 313 of the Insolvency Act 1986, a charge was imposed over his interest in the former family home in favour of the trustee in bankruptcy. The property was then removed from the bankrupt’s estate and vested in him subject to the charge.

In 2004 the trustee applied for sale of the property and payment of the proceeds. The bankrupt argued that enforcement was barred by the 12-year limitation period in section 20 of the Limitation Act 1980. Mr Registrar Baister rejected that argument. The appeal concerned whether the right to receive the money secured by the charge accrued when the charge was made, and whether the claim fell within a bankruptcy exception to limitation.

The appeal was allowed. The trustee’s proposed amendment was refused and the 2004 application for sale was dismissed.

1. Nature of the charge. A section 313 charge has the effect of a charging order under the Charging Orders Act 1979. It is enforceable in the same manner as an equitable charge created by writing under the debtor’s hand. The trustee’s remedies were an application for sale or for appointment of a receiver; there was no present personal obligation on the bankrupt to pay.
2. Accrual of the right to receive. The court followed Hornsey Local Board v Monarch Investment Building Society (1889) 24 QBD 1 CA. The phrase in section 20(1) of the Limitation Act 1980 refers to a present right to receive, not a present right to enforce payment. That right arose concurrently with the charge in 1992. It was immaterial that the sum secured required quantification or that enforcement required a court order. Hornsey Local Board could not be distinguished on the basis that the charge secured no antecedent debt.
3. Bankruptcy exception. Claims against the bankrupt’s estate may escape ordinary limitation where the court’s duty and trust require administration of liabilities existing at the bankruptcy. The trustee’s rights under this charge were different. They survived the bankruptcy, were directed against property vested in the bankrupt, and were exercised as rights of a chargee rather than under the statutory trust. They were therefore outside the bankruptcy and subject to limitation.
4. The court acknowledged that the result appeared harsh, but held that it was required by the applicable limitation principles.

Mr Registrar Baister held on 19 May 2005 that the 1992 charge was not statute barred. The High Court allowed the bankrupt’s appeal and dismissed the trustee’s application.