LPA & Fixed Charge Receiverships

For receivership to happen there has to be a secured loan involved.

Creditors who lend to borrower will usually take security over a borrower’s assets in return for making the loan, to increase their chances and getting paid. Assets can include property, machinery or produce.

A receiver is an individual who is appointed when a borrower is not complying with the terms of the loan agreement which means that the debt becomes repayable.

Receivership is not an insolvency procedure, a receiver can be appointed at any time whenever the loan agreement allows it to and a borrower does not need to be insolvent for this to occur.

For a borrower to be insolvent means that their debts outweigh what they own. In reality the company or individual will be insolvent.

We deal with receivership queries on a regular basis. We can advise you regarding the next steps you will need to take if you are being threatened by your bank. We can also advise banks in the appointment of the receiver to ensure that you will be able to get your money back.

To discuss further, please contact Angus Ashman, Partner and Head of Dispute Resolution.

What is an LPA/Fixed Charge receiver?

Where the lender takes security over a borrower’s physical assets or property in the form of a fixed charge or a mortgage, they are able to appoint a receiver and they are referred to as fixed charge or LPA receivers.

The receiver’s powers to act come from the Law of Property Act 1925 “LPA 1925” but are limited to receiving income from the mortgaged property.

The document that creates a charge or a mortgage deed may extend or add to these powers and in practice receivers are given the power of sale so that the debt to the lender can be repaid.

How is an LPA/Fixed Charge receiver appointed?

Before a receiver can be appointed by a lender must have the grounds for making the appointment.

This will mean that a borrower has defaulted on one or more of the repayments or they have committed an act or omission which amounts to an event of default under the loan agreement.

A lender may then make a demand of a borrower and if they fail to satisfy the demand, most security documents will allow for the appointment of a receiver.

There are certain steps which a lender will need to complete to ensure the appointment of a receiver and it is important that a receiver is appointed correctly.

Once appointed what will the receiver do?

The role of a receiver is to take possession of the property over which a lender has the ability to enforce their rights and to deal with it for the benefit of the lender.

The receiver’s primary role is to bring about the situation where the debt due to a lender can be repaid.

This will usually mean selling the property and distributing the proceeds.

The receiver will only report to a lender and not to a borrower in receivership and so a borrower is unable to give the receiver instructions or to dismiss them.

Also, the receiver has a duty to act in good faith throughout the receivership.

Receivership is often results in the liquidation of a company because there are few assets left once the lender has been paid.

In the case of an individual it is likely that their assets will be sold and they are left bankrupt.