The recent case of British Arab Commercial Bank and others v Ahmad Hamad Algosaibi and Brothers Company and others investigates whether the “first past the post” system applies to the enforcement of judgment debts where the defendant is insolvent but the English statutory insolvency regime has no application.

In this case 8 claimant banks, including HSBC Bank Plc, obtained judgment against the defendants for outstanding loans totalling over $300 million.  The judgment debts were not paid and on 27 July 2011 HSBC made an application for interim charging orders over alleged assets of the defendants comprising 5 UK properties and a share in an English limited company which owned the freehold of one of those properties.  The interim charging orders were made and served upon the other claimant banks who then applied for their own interim charging orders; which were also granted.

Although the defendants are insolvent, they are domiciled and registered in Saudi Arabia.  The English statutory insolvency regime therefore has no application and the equivalent regime within Saudi Arabia would give priority to national creditors.

HSBC argued that as they obtained the first interim charging order they had priority over the assets.  The other claimants disagreed and argued that the assets should be divided pari passu.

Flaux J decided in favour of HSBC.  He commented that “in non-statutory insolvency regime cases, the general rule is that the principle of “first past the post” applies. However, it is only a general rule, to which there may be exceptions when it is appropriate in the exercise of the court’s discretion not to make a charging order final. It seems to me that…there may be exceptional cases where even though no statutory insolvency regime applies, it is appropriate to conclude that someone in the position of HSBC should not have the benefit of a final charging order.” He decided however that this was not an exceptional case and therefore priority was given to HSBC’s charging orders.

This judgment provides a reminder to all banks and other creditors that where there may be such competing claims, timely due diligence to find available assets and obtain charging orders over them should be the first priority.

If you require any further information on the points raised in this blog or wish to discuss any issues within it, please contact James McNeil at james.mcneil@parissmith.co.uk