Nationwide BS v Wright

The Court of Appeal held that where a final charging order over land has been obtained before the making of a bankruptcy order, the legislative scheme in section 346(1) and (5)(b) of the Insolvency Act 1986 shows a clear policy that the creditor should not be deprived of the benefit of that security by the bankruptcy order alone. The court construed section 3(5) of the Charging Orders Act 1979 as conferring a general discretion to discharge or vary a charging order, but held that that discretion should not be exercised lightly so as to defeat the specific protection afforded by section 346(1) to completed executions (including final charging orders). The Court of Appeal allowed the appellant's appeal because the lower courts had failed to give appropriate weight to the policy and effect of section 346 when discharging the charging orders made before the bankruptcy order.

Background and procedural posture.

• The trustee in bankruptcy applied under section 3(5) of the Charging Orders Act 1979 to discharge an interim charging order of 5 May 2006 and a final charging order of 26 June 2006 that secured a judgment for Nationwide Building Society. The bankrupt was adjudged bankrupt on 12 July 2006; the petition had been presented on 17 May 2006. The deputy district judge discharged the charging orders on 16 May 2008. The County Court Judge dismissed the Building Society's appeal on 24 September 2008. Permission to appeal to the Court of Appeal was granted on 14 January 2009.

The nature of the application and issues.

• (i) Nature of the application: an application by the trustee to discharge or vary charging orders under section 3(5) of the Charging Orders Act 1979.
• (ii) Central issue: whether section 346(1) and (5)(b) of the Insolvency Act 1986 manifest a legislative policy that, absent special circumstances, a judgment creditor who obtained a final charging order before the making of the bankruptcy order should retain the benefit of that security against the trustee, thereby limiting the court's exercise of its section 3(5) discretion.

Court's reasoning.

• The Court examined the legislative history, comparing the old Bankruptcy Act 1914 (which related the commencement of bankruptcy back to an earlier act of bankruptcy) with the 1986 Act (under which bankruptcy commences on the date of the bankruptcy order). It noted that section 346(5)(b) expressly treats a charging order as completing execution against land for the purposes of section 346(1).
• The court concluded that the 1986 Act changed the prior law and that Parliament intended that a creditor who had completed execution by obtaining a final charging order before the bankruptcy order should not be deprived of that security by reason of the bankruptcy order alone; additional features beyond the mere fact of the bankruptcy would be required to justify discharge under section 3(5).
• The Court reviewed authorities (including Roberts Petroleum, Banque Nationale, Industrial Diseases Compensation v Marrons, and C&W Berry) and explained their application or distinction, concluding that none required a different result on the facts.

Disposition. The Court allowed the appeal, set aside the deputy district judge's order of 16 May 2008 discharging the charging orders, set aside the costs order dated 24 September 2008, and made no order for costs in the Court of Appeal or below.

Appeal allowed. The Court of Appeal held that section 346(1) and (5)(b) of the Insolvency Act 1986 manifest a legislative policy that a creditor who obtained a final charging order before the making of the bankruptcy order is not to be deprived of the benefit of that security by the bankruptcy order alone; consequently the lower courts erred in discharging the charging orders without giving sufficient weight to that policy. The Court therefore set aside the order discharging the charging orders.

Appeal from Northampton County Court (order of His Honour Judge Charles Harris QC, 24 September 2008) which had upheld Deputy District Judge Jolly's order of 16 May 2008 discharging the charging orders. Permission to appeal to the Court of Appeal was granted on 14 January 2009. The Court of Appeal (Sir John Chadwick, Lord Justice Lloyd, Lord Justice Maurice Kay) allowed the appeal on 29 July 2009 ([2009] EWCA Civ 811).