Marshalling debt
Produced in partnership with Karen Jacobs of Dentons

The following Restructuring & Insolvency practice note produced in partnership with Karen Jacobs of Dentons provides comprehensive and up to date legal information covering:

  • Marshalling debt
  • What is marshalling?
  • The basis of marshalling
  • A guarantor’s liability
  • The meaning of a debt
  • Agricultural charges
  • Practical implications

Marshalling debt

What is marshalling?

Marshalling is where two or more creditors are owed money by the same debtor, and one creditor has more than one security whereas the other has resort to only one. If the creditor with more than one security realises its security in respect of the common property leaving a shortfall to the creditor with only one security, equity empowers the court to marshal the securities so that the creditor with only one security can enforce its outstanding debt against the property over which it has no security rather than falling back on the status of an unsecured creditor (see Practice Note: Waterfall of payments—a comparative guide).

As Rose LJ explained in the case of Re Bank of Credit and Commerce International SA (No 8):

“Thus if a debtor has two estates (Blackacre and Whiteacre) and mortgages both to A and afterwards mortgages Whiteacre only to B, B can have the two mortgages marshalled so that Blackacre can be made available to him if A chooses to enforce his security against Whiteacre.”

This, therefore, gives the creditor with only one security much greater protection and increases the prospect that it will be repaid. As a consequence it can be a very useful doctrine for a creditor to rely upon, although it is not used frequently.

The basis of marshalling

Marshalling is based upon equitable principles, but it

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