Restraint Orders: Payments To Third Party Creditors

Introduction

A problem frequently encountered in the context of restraint orders arises where a defendant subject to a restraint order owes a debt to a third party. The third party may seek advice whether the restraint order can be varied to allow the defendant to repay him. The correct advice will depend on a number of factors, including: (i) under which statutory regime the restraint order was obtained; (ii) whether the third party is a 'secured' or 'unsecured' creditor; (iii) whether the third party is a victim of the defendant's criminal conduct.

Identifying the Appropriate Statute

For offences committed before 24 March 2003, the applicable regime for restraint and confiscation is the Criminal Justice Act 1988 or (for drug trafficking offences) the Drug Trafficking Act 1994. Offences committed on or after that date are governed by the Proceeds of Crime Act 2002. Each of these legislative schemes contains a section providing guidance about how the court should exercise its power to make and vary restraint orders (section 82 of the 1988 Act, section 31 of the 1994 Act and section 69 of the 2002 Act). Contained within each of these sections is a provision giving the court a 'legislative steer' (as it has come to be known). Thus, under the earlier legislation the legislative steer states that the power to make and vary restraint orders should be exercised 'with a view to making available for the purpose of satisfying... any confiscation order that may be made... the value... of realisable property held by any person'. A similar, albeit differently drafted, provision is found in section 69(2) of the 2002 Act.

The statutory provisions governing the making and varying of restraint orders have been interpreted differently by the courts depending on the statutory regime under consideration. Before looking at these differing interpretations we will first consider another important matter, namely the distinction between secured and unsecured creditors.

Unsecured vs. Secured Creditors

It is, generally speaking, much easier to get a restraint order varied to permit the payment of a secured creditor as opposed to an unsecured creditor. But what is a secured creditor?

A 'secured' creditor (in the context of restraint orders) means a creditor who has an 'interest' in the restrained assets. 'Interest' is widely defined under the legislation and includes both legal and equitable interests. The following examples illustrate persons treated as 'secured' creditors.

A person who has an interest (legal or equitable) in property held by the defendant. An example would be the interest held by the spouse of the defendant in the marital home.

A victim of the defendant's conduct who can show that he has an interest in the restrained assets. The simplest example is where a defendant steals property which is subsequently...