The Duties and Liabilities of the LPA or Fixed Charge Receiver

What are the Duties of a LPA or Fixed Charge Receiver?

Although appointed by a lender the Receiver acts as the agent of the borrower. Accordingly they owe a duty of care to the borrower and any guarantor of the liabilities secured by the charge.

As you can expect the main criticisms made of LPA or Fixed Charge Receivers are that they did not properly market the property and sold it at an undervalue. When dealing with the sale of properties, Receivers have a duty to achieve the best price that is reasonably obtainable in the circumstances, see Michael v Miller [2001] EWCA Civ 282.

There have been numerous Court cases and challenges of Receiver's conduct over the years and the following cases provide a good insight as to how a LPA or Fixed Charge Receiver should deal with the sale of a property:

1. In Silven Properties Ltd & Anor v Royal Bank of Scotland Plc & Ors [2004] it was determined that a Receiver is not under a duty to pursue applications for planning permission or undertaken renovations to properties to try to increase their value. What this means, is that while Receivers do have the power to improve properties, if they think that that is appropriate, they are under no obligation to do so, i.e. they are entitled to sell the property as is, as long as they try to get the best price for it in its current state.
2. In Bell v Long [2008] and McDonagh v Bank of Scotland Plc [2018] it was determined that a Receiver was free to sell properties individually, or as a part of a portfolio of properties. The issue is of course that greater realisations would be made when selling the properties individually, but there would be greater costs incurred, and it would take significantly longer. The Court made it clear that Receivers should obtain independent advice on the cost benefit analysis of selling a portfolio as opposed to selling the properties individually. However if that advice was to sell the properties as a portfolio they were entitled to do so.
3. In Glatt v Sinclair [2011] EWCA Civ 1317 the Courts held that a Receiver should take advice on the marketing strategy and the property market in general and any factors that may affect the sales price significantly.

Any LPA or Fixed Charge Receiver should carefully document the decisions they make, particularly if the proposed strategy is not what the borrower wants. This is important as it will allow the Receiver to explain to the borrower, and potentially the Courts, as to why they took the decisions that they did, and the evidence they relied upon at the time.

What Liabilities Could the LPA or Fixed Charge Receiver Incur?

A LPA Receiver and Fixed Charge Receiver is the agent of the Borrower who is responsible for his acts and defaults. Any liabilities incurred will be incurred on behalf of the Borrower as their agent. However if the borrower is made bankrupt (if they are a person), or are placed into liquidation (if they are a limited company or limited liability partnership), then that agency will be broken. At that point the Receiver will either become an agent of the Lender or become a principle in their own right.

A LPA Receiver and Fixed Charge Receiver would also become liable for the following:-

1. personally liable on any contract entered into in the performance of their functions

2. and on any contract of employment adopted by them in the performance of those functions.

However, the Receiver may seek to exclude liability in the contract, and they are entitled to an indemnity out of the assets. Also it is customary that the Lender would enter into a Deed of Indemnity with the Receiver, so that any liabilities incurred by him during the appointment are indemnified by the Lender.