Monograph : Encumbrances Contents
  3. Interest of creditor

Building management

The terms of a deed of mutual covenant usually empower the manager and/or incorporated owners to register a charge on an owner's property by way of a memorandum of charge when an owner defaults in payment of management fees and other charges payable under the deed of mutual covenant. After registration of such a memorandum of charge at the Land Registry, a subsequent purchaser is put on notice that the vendor is required to pay such outstanding charges together with any legal fees incurred in connection with the registration and discharge of the memorandum of charge.

In a typical deed of mutual covenant, a chargee/mortgagee is usually not within the definition of owner and is thus not liable for payment of the management fees and other charges as an owner unless and until he takes possession of the property. In the sale of property by a chargee/mortgagee, special attention should be paid to whether the chargee/mortgagee agrees to settle all arrears of management fees and other payments under the deed of mutual covenant on completion or whether they will be borne by the purchaser.

The potential liability of an individual owner of a property to contribute towards the costs of satisfying a judgment against the owners incorporation was held in the case of Chi Kit Co Ltd v Lucky Health International Enterprise [2000] CPR 554 to be an encumbrance as the owners incorporation would ultimately seek to recover such costs from the owners of the building.

Purchasers should enquire before completion from the building manager or the incorporated owners if there are any matters which may give rise to liability on the part of the owner of the property such as outstanding management fees, pending litigation and unsatisfied judgments against the incorporated owners .


Bankruptcy order

When an individual ("the debtor") is unable to satisfy his debts, he or his creditor may petition the court for his bankruptcy. Once the bankruptcy order is made, the debtor's property will be vested in the Official Receiver who will usually act as trustee of the estate of the bankrupt debtor. It should further be noted that any disposition of property by the bankrupt debtor on or after the day of presentation of the bankruptcy petition (that is, before the bankruptcy order is made) is void unless made with the consent of the court or subsequently ratified by the court.


Winding-up order

Winding-up is a process whereby the business of a company is wound up and assets distributed to creditors and shareholders according to the law and the company's articles of association.

The winding-up of a company commences at the time of the presentation of the petition for winding-up or the company's resolution for winding-up.

Any disposition of the property by the company made after commencement of the winding-up will be void, unless the court otherwise orders.

Once the winding-up order is made, the directors are divested of the power of disposal of the property on behalf of the company which is now run by the liquidators for the purposes of winding up the business of the company.


Charging order

When a creditor has obtained a judgment against a debtor, he can enforce payment of the judgment debt by obtaining a charging order on the debtor's property from the court.

A charging order is granted in two stages: (1) charging order: notice to show cause, that is, the order is not to take effect unless the debtor fails to show why it should not take effect on a return/hearing date; and (2) charging order absolute, that is, the charging order comes into full effect on the debtor's failure to show cause. Both orders are registrable and have priority from the commencement of the day following the date of its registration.


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