GK Success: Pari Passu Principle Applied to Justify the Discharge of a Final Charging Order

Image: Severin Stalder/severinstalder/Unsplash
Image: Severin Stalder/severinstalder/Unsplash

Whilst the well-established pari passu principle means that all unsecured creditors in insolvency actions must share any available assets equally, it is not uncommon for creditors to find themselves involved in a race to the finish line before any insolvency takes effect.

GK were recently instructed to act for one of its finance clients to recover sums from a personal guarantor by way of a bankruptcy petition. Following service (but before expiry) of the statutory demand, GK were served with an interim charging order from another creditor. A charging order has the effect of securing a debt against a property, thereby making the creditor a secured one and so at priority in the event of a successful insolvency action.

GK immediately invited the Court to stay the creditor’s action pursuant to section 285 of the Insolvency Act 1986, failing which it was said that the Court should decline to make a final order in circumstances where a statutory scheme was in place to allow pari passu distribution (Mohamed Dewji v Amarjit Singh Banwaitt [2013] EWHC 3746 (QB)) (the Court having been referred to the then pending petition).

Notwithstanding, and before the debtor was adjudged bankrupt, the interim charging order was made final by way of a paper exercise carried out by a Legal Advisor. It was unclear whether GK’s submissions had been considered and dismissed or overlooked.

Not deterred, GK sought reconsideration of the decision pursuant to CPR 73.10ZA, noting that retention of the charge for some £100,000 by one creditor would unfairly prejudice all others.

At the hearing, the Court, acting pursuant to CPR 73.10, discharged the final order, agreeing that:

  • The interim charging order ought not to have been made final absent hearing from GK’s client.
  • The making of the final charging order was inconsistent with the pari passu principle.
  • It was therefore appropriate to discharge the final charging order.

By securing the discharge of the final charging order, a significant sum was put back into the bankruptcy for the benefit of all creditors (except perhaps the creditor who had initially crossed the finish line first!).

Takeaway points:

  • At any time when proceedings on a bankruptcy application are ongoing or proceedings on a bankruptcy petition are pending or an individual has been made bankrupt, section 285 of the Insolvency Act 1986 allows the Court to stay any action, execution or other legal process against the property or person of the debtor or, as the case may be, of the bankrupt.
  • A creditor may retain the benefit of a final charging order made final before the commencement of an insolvency action (ss346 and 183 of the Insolvency Act 1986).
  • Winding up (and, by analogy, bankruptcy) brings into operation a statutory scheme for dealing with assets. If a winding up occurs before the final order, the Court will decline to make a final order.
  • Whether an interim charging order should be made final is one for the discretion of the Court. The Court must take into account all relevant circumstances existing before and after the making of an interim charging order.
  • The Court’s discretion to make a final order should be exercised equitably having regard to the interests of all parties, including other unsecured creditors (Roberts Petroleum Limited v Bernard Kenny Limited [1982] 1 W.L.R. 301, CA).

In terms of enforcement, each case should be taken on its own facts. GK ensures that each matter is considered in depth so that the best recovery options are presented.

Michaela Davies

Do you have a debt to recover? Speak to one of our key contacts today:


Greenhalgh Kerr
Olympic House, Beecham Court,
Smithy Brook Rd,
Wigan WN3 6PR

View on google maps

+44 (0)333 200 5200

We are confident in our work and we know that recoveries is a key part of a lender or creditor’s business

We are confident in our work and we know that recoveries is a key part of a lender or creditor’s business. We have designed our pilot projects to give lenders and creditors the comfort and confidence in our service before formally and fully switching recoveries providers. This time also allows new clients to benchmark our service levers and results against existing providers and others.

How it works


You choose 10 recoveries cases

You choose 10 recoveries cases to get us started. We’ll deliver our usual onboarding protocol where we’ll get to know you and your systems, culture, methods, preferences, and requirements.


We get started

We assess each case by setting a strategy then grading and reporting on the case in terms of prospects and timescales and cost. We make immediate contact with debtors, and pursue a recovery in our tried and tested ways.


We review

We deliver ongoing, structured, tailored reports as per your needs and carry out a full 3-month review on these 20 cases. There we’ll discuss how we have worked together, patterns we have seen in your borrowers, your systems, your documents, your pre-legal conduct, outcomes, highs and lows, legal costs (and costs borne by debtors), and possible improvements in all of these.


No strings

We carry on working in this way until all cases have been concluded. You are then free to carry on your discussions with us or to use the experience and market intelligence gained by working with us in the future.

Lenders and creditors have nothing to lose, and everything to gain, by engaging with us on a pilot project.