I have heard that receivers can be appointed over property...
What is property receivership and how does it work?
We get asked questions related to property or LPA receivership by a number of enquirers.
So who is a property receiver? How can a property go into receivership?
A Fixed Charge Receiver or an LPA receiver (acting under the Law of Property Act 1925) are the more precise terms.
A fixed charge receiver is normally appointed by a lender who has a mortgage or charge or other security over a tangible asset most normally a property or property portfolio. They have the power to sell property and collect rent. They will have financial control over the day to day running of the property to ensure that the debt is paid. The receiver need not be an insolvency practitioner and is more normally a specialist surveyor.
How is the receiver appointed?
They can be appointed very quickly and inexpensively. The lender can simply use an appointment document (reflecting the conditions of the loan) after the borrower has failed to pay on demand, or at the end of a fixed term, the monies due.
In the event that the lender's security contains a floating charge over the asset or a substantial part then the floating charge element needs to be excluded from the appointment. In the case of a floating charge an appointment of an administrative receiver or an administrator is the requisite option and they must be a licensed insolvency practitioner. A fixed-charge receiver, unlike an administrator does not have the statutory powers to summons, investigate and demand information from directors and other relevant parties.
What does the receiver do?
Under the Law of Property Act 1925 they have the power to sell the property and collect rent on behalf of the lender. For more technical details of the powers of an LPA receiver please refer to the relevant page on the insolvency services website
Duties and Liabilities of the LPA Receiver
The receiver has a primary duty to the lender but they need to take into account the interests of debt guarantors and other third parties. The appointment notice needs to be filed at companies house.
What if the company is already insolvent?
Once a business is in a formal insolvency situation, such as administration or the grant of a moratorium pending the preparation of a CVA or IVA, this will restrict the appointment of a fixed charge receiver. This is because consent will be required of the insolvency practitioner or the court.
Categories: What is receivership?
Worried about poor cashflow? Covid-19?, How to pay wages on pay day? For expert advice on a range of issues download our free Ultimate Guide For Worried Directors today. Or just call us on 0800 9700539
Please note that the guide was mostly written pre Covid-19 and there have been some changes to insolvency legislation that limits creditors actions and relaxes rules regarding wrongful trading. A new 20 day moratorium for distressed businesses has also been introduced.