Evans v Finance-U-Limited – Bills of Sale and Bankruptcy

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The recent case of Evans v Finance-U-Limited confirms that the holder of security by way of a bill of sale can enforce its security in respect of lending regulated by the Consumer Credit Act 1974 (CCA) where the customer is declared bankrupt, provided that the requirements of the bill of sale have been complied with.

The facts

Mr and Mrs Evans bought a car with finance provided by Finance-U-Limited (FUL) under a loan agreement regulated by the CCA. They were jointly and severally liable. FUL could demand early repayment upon certain events happening. A bill of sale had also been entered into, giving FUL security over the car.

Mr Evans was made bankrupt.  Mrs Evans continued to make payments.  FUL was entitled to call in the loan and enforce its security.  It did not do this but submitted a proof in Mr Evans bankruptcy.  Mr Evans was discharged from bankruptcy.  Mrs Evans was subsequently declared bankrupt.

FUL served a default notice under section 87 of the CCA.  Mr and Mrs Evans sought a declaration that the car was their property, on the basis that their contractual liability was discharged.  FUL sought to enforce the bill of sale.

Held at first instance

The declaration was granted and FUL’s counterclaim was dismissed.  The judge held that FUL could no longer rely upon the bill of sale as FUL had submitted proof in Mr Evans’s bankruptcy.

Held on Appeal

The assertion that FUL was not entitled to enforce its security because it had proved in Mr Evans bankruptcy was wrong.  The effect of Mr Evans’s bankruptcy for FUL was that its contractual right to enforce repayment was replaced by a right to prove for the debt in the bankruptcy.  FUL did not lose the right to enforce its security it just chose not to while Mrs Evans paid the instalments.  The consequence of the bankruptcy was to release the bankrupt borrowers from any personal claim against them by FUL.

As the term of the loan had expired by the date of the trial, FUL was entitled to recover possession of the car free from any statutory requirements to give notice under the CCA.  FUL had retained the benefit of the security under the bill of sale and was therefore entitled to enforce that security.

WM Comment

This case confirms that a bill of sale survives bankruptcy and provides reassurance to secured lenders that its security can still be enforced following bankruptcy provided there is compliance with the bill of sale, the terms of the security and any statutory requirements.