What is marshalling?

In Re Bank of Credit and Commerce International SA (No 8) (at [231]–[232]), Lord Hoffman explained the doctrine of marshalling as:

‘A principle for doing Equity between two or more creditors, each of whom are owed debts by the same debtor, but one of whom can enforce his claim against more than one security or fund and the other can resort to only one. It gives the latter an equity to require that the first creditor satisfy himself (or be treated as having satisfied himself) so far as possible out of the security or fund to which the latter has no claim.’

By way of example, suppose that two creditors (C1 and C2) are each owed £1m by a common debtor (D). As security for the £1m owed to C1, D has granted to C1 a charge over two assets (Blackacre and Whiteacre) which are each worth £1m. However, C2’s security for their debt consists of a charge over Whiteacre alone. If C1 recovers their debt from Blackacre, C2 will have the benefit of their