What is marshalling and when does it apply?

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Published on LexisPSL on 07/07/2015

The following Banking & Finance Q&A provides comprehensive and up to date legal information covering:

  • What is marshalling and when does it apply?
  • What is marshalling?
  • When does marshalling apply?
  • What is the extended principle of marshalling?
  • When does the extended principle of marshalling apply?
  • Recent case law in relation to marshalling

What is marshalling and when does it apply?

What is marshalling?

Marshalling gives a singly-secured creditor a right in equity to require a doubly-secured creditor to satisfy itself or, be treated as having satisfied itself, as far as possible out of the security to which the singly-secured creditor has no claim. This does not mean that the doubly-secured creditor is forced to realise any particular security in preference to another. The doubly-secured creditor is entitled to realise its security in any order that it sees fit but if it realises its security over the common secured assets and the enforcement proceeds are not sufficient to repay both creditors, the singly-secured creditor can require the doubly-secured creditor to marshal its other security. Marshalling permits the singly-secured creditor to rely on the benefit of the surplus security of the doubly-secured creditor over the property of the common debtor. The singly-secured creditor is in effect (but not as a matter of law) subrogated to the doubly-secured creditor's rights under the surplus security (to the extent of the debtor's secured liabilities to the singly-secured creditor).

When does marshalling apply?

Marshalling applies where:

  1. two or more creditors are owed debts by the same debtor (the common debtor)

  2. one creditor can enforce its claim against more than one security (the doubly-secured creditor), and

  3. the other creditor (the singly-secured creditor) can enforce its claim against

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