21 July 2010
Fixed Charge Receiverships - July 2010
In the summer of 2009 WKRR were appointed on seven Fixed Charge Receiverships and one Administration all involving distressed property portfolios.
These appointments related to eighteen properties in respect of which we were tasked with the job of insuring, securing and ultimately selling for the best price
Confusingly Fixed charge receivers are referred to by a number of different names such as “Non administrative receivers”, “ordinary receivers” , “LPA” or “Law of Property Act receivers”, all of which are interchangeable except for LPA/Law of Property Act receivers which when the term is used correctly is a different procedure based on the 1925 Law of Property Act “LPA 1925”.
If the loan facility is payable on demand, the process can be started by serving a letter of demand on the borrower. This will require immediate repayment, if the debt is not paid in a reasonable time following demand, a receiver can be appointed by a simple appointment document.
The appointment is effective from the time of signature of acceptance by or on behalf of the receiver.
There are various potential complications to the process such as the timing of the appointment, the presence of any floating charges, and the existence of more than one fixed charge. In addition it is common to have joint appointees to prevent problems if one is absent for any reason.
Notice of the appointment should be filed at Companies House within 7 days where the borrower is a company.
These will generally be set out in the security under which the receiver is appointed, although there are limited powers set out in LPA 1925, they will generally include the power to sell and to collect rent.
Again there are potential complications should the receiver need to trade or commit the borrower to any new obligations.
Duties and Liabilities
The receiver’s principal duty is to the lender who appointed him. He will however also owe duties to the borrower, any guarantor of the debt, any other unsecured lenders and other interested parties.
The exact scope varies from case to case but the in general the receiver must act in good faith, take reasonable precautions and exercise due diligence in the sale process.
The receiver will be personally liable for contracts of employment adopted. He is not taken to have adopted the contract by reason of any acts or omissions in the first 14 days of his appointment.
If the business is sold as a going concern, these liabilities will be transferred to the buyer.
Selling the Assets
When sale terms are agreed, the receiver, or sometimes the lender will act to complete the sale. The receiver will not generally be in a position to answer replies to enquiries formally although will often provide information to assist the process.
The receiver, although he has a duty to obtain the best price for the asset, it is the best price on that day, he does not have a duty for example to retain a property until such time as the property market recovers in ‘x’ number of years!
End of the Receivership
A fixed charge receiver may be removed or replaced by his appointor at any time, and may resign. Once the appointor has been paid in full, his authority to act as receiver ceases.
Cessation of appointment should be registered at Companies House.
Fixed Charge Receiverships are relatively inexpensive and generally simple processes although not without potential difficulties in some cases.
They look set to remain a popular procedure for realising secured debts on real property.