Doctrine of Marshalling

This is a little understood equitable principle but in appropriate circumstances it can be of great value to a lower-ranking secured creditor.

The case of Highbury Pension Fund Management Company v Zirfin Investments Limited [2013] EWHC 238 re-confirmed the availability of this doctrine. Marshalling is an equitable principle that applies where two or more creditors are owed money by a common debtor but only one has security over more than one of the debtor’s assets.

The effect of marshalling is to ensure that the creditor which has a choice of security satisfies its claim out of the proceeds of the security over which another creditor has no claim.

In this case the Court had to decide whether the doctrine of marshalling could be extended to a situation where the creditor who has one of the debtor’s properties in charge and another charge over a property owned by an affiliated company in respect of which the debtor had given the guarantee. Norris J held that the doctrine applied. There appears to be no previous judgment in the English Courts on this particular question but it is a welcome restatement of the principle and demonstration that the Court will apply the rule in a flexible manner.

For further information information Nigel Cook either by telephone on 01306 502294 or by email