Nationwide Building Society v Wright & Anor

A final charging order over land made before a bankruptcy order constitutes completed execution for the purposes of sections 346(1) and 346(5)(b) of the Insolvency Act 1986. The creditor is ordinarily entitled to retain the security against the trustee in bankruptcy. Bankruptcy alone does not justify discharge or variation under section 3(5) of the Charging Orders Act 1979. The discretion remains, but an additional feature or special circumstances is required. Relevant creditor conduct may qualify. Where the court knows of a pending bankruptcy petition when considering whether to make execution absolute, it should ordinarily adjourn the application.

The trustee in bankruptcy of Mr Wright applied under section 3(5) of the Charging Orders Act 1979 to discharge interim and final charging orders over his share in a jointly owned property. The orders secured a judgment debt. The final charging order was made after presentation of the bankruptcy petition but before the bankruptcy order, and the court was unaware of the pending petition.

A Deputy District Judge discharged the orders. His Honour Judge Charles Harris QC dismissed the creditor’s appeal on the basis that the matter involved a discretionary judgment. Nationwide Building Society appealed, arguing that sections 346(1) and 346(5)(b) of the Insolvency Act 1986 protected completed execution. The central issue was whether subsequent bankruptcy alone justified discharging a pre-bankruptcy final charging order.

1. Appeal allowed. The order discharging the charging orders was set aside, as was the County Court costs order. No order for costs was made in the Court of Appeal or below.
2. Under section 346(1) of the Insolvency Act 1986, a creditor cannot retain execution against land unless it was completed before the commencement of bankruptcy. Section 346(5)(b) expressly provides that execution against land is completed by making a charging order under section 1 of the Charging Orders Act 1979. Section 278 fixes the commencement of individual bankruptcy at the date of the bankruptcy order. The final charging order was therefore completed before bankruptcy commenced. (See paras [16]–[19].)
3. The statutory scheme deliberately changed the former relation-back position under the Bankruptcy Act 1914. It also differs from corporate insolvency, where winding-up generally commences on presentation of the petition. The policy of section 346 is that a creditor with completed execution before the bankruptcy order is not deprived of its security by bankruptcy alone. (See paras [12]–[18].)
4. Section 346 does not expressly remove the general discretion under section 3(5) of the 1979 Act to discharge or vary a charging order. However, where execution was completed before bankruptcy, an additional feature or special circumstances is required before that discretion should be exercised against the creditor. The courts below failed to recognise and give proper weight to that legislative policy. (See paras [18]–[20], [29].)
5. The reasoning in Roberts Petroleum Ltd v Bernard Kenny Ltd [1983] AC 192 supported protection for a final order made before commencement, although its decision concerned an order made after winding-up had commenced. Industrial Diseases Compensation Limited v Marrons [2001] BPIR 600 illustrated the different case where the court knew of the pending petition. In the present case the order was properly made when made, and the subsequent bankruptcy supplied no special ground for discharge. (See paras [21]–[29].)

• Court of Appeal (Civil Division): Allowed Nationwide Building Society’s appeal. Set aside the order of 16 May 2008 discharging the charging orders and the costs order of 24 September 2008. No order for costs was made in the Court of Appeal or below.
• Northampton County Court: His Honour Judge Charles Harris QC dismissed the creditor’s appeal from the Deputy District Judge’s order, holding that the exercise of discretion under section 3(5) of the Charging Orders Act 1979 was not outside the range of reasonable decisions.
• Deputy District Judge: Exercising the section 3(5) discretion, discharged the interim and final charging orders in favour of the trustee in bankruptcy.