The concept of "First past the Post" and orders of priority in which secured creditors are paid from the proceeds of sale are not unfamiliar. It highlights the importance of not delaying in applying for a charging order because should another creditor make an application and obtain an interim charging order first, it is likely that they will be paid from the proceeds of sale first.
The key is the date on which a creditor obtains an interim charging order and registers their interest on the title of the property at H M Land Registry.
However, there are circumstances where it is open to the Court to achieve pari passu ("equal in right of payment") in respect of competing creditors .
In the case of Midtown Acquisitions LP –v- Essar Global Fund Ltd, 2 creditors had obtained final charging orders against the same debtor. The creditors applied for the Court to determine the priority between their 2 respective claims.
The first creditor ("M") had obtained their interim charging order about 6 weeks prior to the second creditor ("IB"). M argued that the "first past the post" principle applied but IB argued that the charging orders should rank equally.
The Court held that "first past the post" is not a rule or principle but simply an observation of what could happen. "First past the post" was a factor to be taken into account and could be the basis of the Court's decision and the correct approach was to seek to achieve an equitable result having regard to all the circumstances of the case.
Whilst it was open to the Court to achieve a pari passu outcome between both M and IB, it took account of the following factors in deciding that IB should not have the equality of priority with M:-
- Both M and IB were significant commercial parties who were able to look after their own interests
- M had obtained their interim charging order first without any interference or assistance from the judgment debtor.
- IB was not seeking an equal right of payment for all creditors but that M and IB have joint priority over other creditors.
- IB had not delayed due to the conduct of the judgment debtor
- The Court had no reason to question the diligence of either M or IB and it was not inequitable to prefer M on the basis of "first past the post".
M therefore held priority because they were the first to obtain their interim charging order.
This highlights the significance of not delaying in making applications for charging orders especially where other creditors are likely to make similar applications.