Cambridge LLP’s clients had advanced funds to a family member and, as security, registered a second mortgage against the family member’s property. The mortgage was executed and supported by consideration.
The first mortgagee subsequently initiated enforcement proceedings and sold the property. After satisfaction of what was owed to the first lender, some proceeds remained. As a second ranking secured creditor, Cambridge LLP’s client took the position that it was entitled to the surplus funds.
However, two execution creditors challenged distribution of the proceeds, alleging that the second mortgage constituted a preference intended to defeat creditors. The two competing writ holders were (i) a law firm that formerly represented the family member, which obtained a default judgment and registered a writ and, (ii) the family member’s former spouse, who obtained substantial costs award in an unrelated family proceeding and had registered writs.
Cambridge LLP’s clients commenced an Application and both the creditors actively contested the Application and asserted that the surplus funds should be paid to them rather than our clients.
Cambrige LLP maintained the position that the mortgage was validly registered, consideration had been advanced, the mortgage predated writ registrations, and that there was no intention to defeat creditors. The dispute raised complex issues of priority, intent, and alleged creditor preference.
Following negotiations, the dispute settled with Cambridge LLP paying a nuisance amount to the creditors in exchange for the remaining surplus funds from the power of sale being released to Cambridge LLP’s clients.