Marshalling — an opportunity for junior creditors

Marshalling is an equitable remedy for achieving fairness between two or more secured creditors of the same debtor. Where the first creditor enforces its security against assets over which both hold security but not against assets over which it alone holds security, the second creditor may be entitled to use the assets over which the former has security. Alternatively, the doctrine may require the former creditor to satisfy itself out of the asset over which the latter has no security.

In the first case, the Serious Organised Crime Agency (SOCA) brought proceedings to seize properties owned by Mr and Mrs Szepietowski on the basis that they were the proceeds of crime (the ‘SOCA proceedings’). Some of the properties, including the family home, were registered in the name of Mrs Szepietowski and the Royal Bank of Scotland had a charge against them (and other properties) for a debt of £3.225m (the ‘RBS charge’). The SOCA proceedings settled on terms that included a deeming provision that the Szepietowskis’ home was not a ‘recoverable property’ and pursuant to which Mrs Szepietowski granted a charge to SOCA over other properties (the ‘SOCA charge’). The SOCA charge contained various provisions, including a statement that Mrs Szepietowski did not personally owe any money to SOCA, and it was registered as a second charge over properties (excluding the marital home) that were already subject to the RBS charge. The intention behind the settlement arrangement was that there would be sufficient proceeds of sale of the other properties to satisfy both the RBS charge and the SOCA charge. However, proceeds were ultimately less than expected, leaving SOCA with only a nominal sum once the RBS charge had been satisfied.

SOCA therefore brought an action to invoke the remedy of marshalling in respect of the Szepietowskis’ home. Mrs Szepietowski argued, in defence to that claim, that SOCA could not rely on marshalling because there was no underlying debt owed by her to SOC…

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