The making of a bankruptcy order alone will not deprive a judgment creditor of a final charging order where it is obtained before the bankruptcy order is made.

In Nationwide Building Society v Wright & Anor, Nationwide obtained an interim charging order to secure a judgment against the defendant in relation to a credit card debt. The interim order was obtained before the presentation of a bankruptcy petition against the defendant. The final order was made after the presentation of the petition but before the making of the bankruptcy order itself. Neither Nationwide nor the court who granted the order were aware of the petition. The trustee in bankruptcy successfully set the charging order aside. The court held that as there had been no knowledge of the pending petition, the charging order was properly made but that it should exercise its discretion to discharge it. Nationwide appealed on the basis it was entitled to the benefit of the charging order as it pre-dated the commencement of the bankruptcy.

The Court of Appeal agreed. Under the Insolvency Act 1986, a bankruptcy commences when the order for bankruptcy is made, not, as had been the case prior to 1986, when the act of bankruptcy is committed. Persons who receive property from a bankrupt, or obtain a final charging order, before the commencement of the bankruptcy in good faith, for value and without notice that the petition has been presented are not affected by the subsequent bankruptcy. A charging order obtained in such circumstances can, in the absence of facts justifying a departure from this principle, be upheld as against the trustee. The charging order should not be discharged in this case.

Things to consider  

The position in bankruptcy is different to the position in relation to corporate insolvency where the winding-up order is backdated to the date of the petition and any transactions undertaken since that date can be set aside by the liquidator. In a bankruptcy situation, timing and knowledge is everything. Notice of the petition would defeat the charging order in such circumstances, as would failure to act in good faith.