Equitable Execution is a process whereby a judgement creditor can apply to the court to have a receiver appointed over an asset (or income from the asset) that is not capable of being caught by another form of enforcement. The remedy has not been explored too much but can provide an economic route for recovery where a creditor believes that a debtor has some valuable asset or income that can be enforced over. The general view up to recently has been as follows: –
- The asset has to be an equitable interest; as opposed to a legal interest.
- A receiver could only be appointed over an equitable interest such as a stream of income that may not be due at the time.
There have been some recent decisions which have improved the options for the procedure and have also extended its scope to include legal interests.
The relevant case law in this country has been conservative but one case in recent years has given indications that equitable execution could be a route to consider for creditors with a judgement.
The case involved is known as “ACC Loan Management V Rickard” and was initially heard in 2011 when ACC obtained an order for equitable execution over a single farm payment entitlement payable to the Rickards. In early 2015, the single farm payment structure was changed and the new entitlement, known as the Basic Farm Payment, was announced. Because of the change in the entitlement, ACC applied to court for confirmation that the basic farm payment could continue to be the subject of equitable execution and in mid-2015, the High Court confirmed that the equitable execution could continue. The Rickards appealed to the Court of Appeal and the Court of Appeal found in favour of ACC Loan Management in its attempts to maintain the appoint of a receiver over basic farm payments.
A key finding was that the Court of Appeal found that although the Basic Farm Payment was a legal interest, it was an entitlement over which a receiver could be appointed. The interest did not have to be equitable only. The decision very much followed a line identified in a UK case (Munib Masri/Consolidated Contractors International Company Sal and Consolidated Contractors (Oil & Gas) SAL  EWCA Civ 3030) where the decision to appoint a receiver by equitable execution over a share of income stream from an oil field in Yemen was upheld by the UK Court of Appeal.
One of the judges involved in hearing the case referred to the Masri judgement extensively and Finlay Geoghegan J agreed “both with the analysis and conclusion, and similarly am of the view that in 2015 or 2017 there is no reason why the Court should not exercise a power to appoint a receiver by way of equitable execution over future receipts from a defined asset.”.
The Masri case looked at the appointment of a receiver by equitable execution – over an asset or income derived from that asset based overseas. The respondents/defendants had tried to claim that the UK Court could not appoint a receiver by equitable execution to an overseas asset. The UK Court of Appeal decided that it could do so and that if it was permissible in the foreign jurisdiction for the judgement debtor to comply with the Receiver’s requests then the debtor should.
Following on that interpretation, it seems that a UK Court would likely be supportive of an equitable execution over income from legal interests in the UK.
Historically, equitable execution has not been allowed where an asset could be recovered under some other debt collection process. In a Supreme Court decision from 1994 (Irish National Bank V Gallagher), Irish National Bank applied to appoint a receiver by equitable execution over a herd of cattle, but the Court refused because the bank had the ability to enforce its judgement by getting the sheriff to execute over the herd. The bank had not taken that step.
Another leading case is Honnibal V Cunningham (High Court) where some key points were made: –
- There is a duty on the part of the plaintiff creditors to give full information where the application is made on an ex parte basis
- The judgement creditor can pursue more than one route of recovery
- The equitable remedy is only available where the judgment debtor has only an [equitable] interest in property against which the judgment creditor seeks recourse
Prior to the Court of Appeal decision in the Rickard case, attempts to appoint a receiver by equitable execution over:
- A pension
- Rental income from apartments
- Emoluments for a statutory position
had not succeeded although there had been successful appointments over single farm payments as well as contractual amounts due to a debtor from a local authority. Some of these routes may be more likely now than in the past.
In the Rickard case, some practical guidance points were helpfully set out in the second judgement given by Hedigan J: –
- The court has jurisdiction to appoint a receiver to receive future debts as well as debts due or accruing.
- A receiver may not be appointed over future wages or salary.
- The court must consider whether it is just and convenient to do so. In this respect, the court should have regard to the amount of the debt, the amount that may probably be obtained by the receiver and the costs of the appointment of a receiver.
- Are there special circumstances in the particular case that make the usual process of execution or attachment unavailable?
- Is there some hindrance arising from the nature of the property which prevents the judgment creditor from obtaining execution at law which the appointment of a receiver can overcome?
- There should be no way of getting at the fund other than by the appointment of a receiver.
- It is not execution that is granted but equitable relief where there is no remedy by execution at law.
- The remedy is discretionary.
On the basis of the above it seems likely that any form of asset (or the income derived from it) not capable of being attached in some way is amenable to equitable execution.
The Rickard case has not gone away. An appeal was successfully listed before the Supreme Court and that judgement is expected before Christmas although possibly after the second Basic Farm Payment has been issued. This judgement could change in a material way the ability of creditors to recover from debtors where they have a judgement. Equally, the Supreme Court may rein in the room for enforcement created by the High Court and Court of Appeal.
A key point is the ability of equitable receivership to bite on assets and businesses that might not always be reflected on a balance sheet, particularly where a business generates significant cash flow which funds lifestyles.
Director of Insolvency and Corporate Restructuring