What is the purpose of LPA and Fixed Charge Receiverships?
LPA and Fixed Charge Receiverships are a means of enforcing security, allowing a secured creditor (usually a lender) (“Secured Creditor“) to appoint a receiver to take control of, protect and realise its interest in a specific secured asset (or assets) of a debtor (usually a borrower or giver of security) (“Debtor“). Typically the appointments relate to property but receivers can be appointed in respect of charges over other assets, such as shares.
Terminology – what is the distinction?
The Law of Property Act 1925 (“LPA“) implies a right to appoint an “LPA Receiver” into any mortgage or charge executed as a deed; however, usually, a Secured Creditor will enforce its contractual right to appoint a “Fixed Charge Receiver” contained in the security document creating the fixed charge. The charge document usually confers wider powers on the receiver than the statutory powers granted under the LPA, such as the power to manage (e.g. insure or repair) and sell the asset. Often the terms are used interchangeably but in most cases it is a Fixed Charge Receiver that is appointed, with all the powers conferred on them by the charge document and the LPA.
When can a receiver be appointed?
This is fact specific, but a receiver can usually be appointed once the Debtor has defaulted on and/or otherwise breached certain terms of the loan between the Debtor and the Secured Creditor. Wedlake Bell can assist in advising Secured Creditors on the validity of their security and whether the right to appoint a receiver has arisen and is exercisable (or if there are any prior steps which need to be taken), together with the appointment process itself.
Who does a receiver owe duties to?
Unless the charge document states otherwise, a receiver acts as agent of the Debtor (albeit where a winding up or bankruptcy order is made, the receiver will no longer be deemed agent of the Debtor and will likely exercise his/her powers as principal). However, whilst the receiver owes a duty to the Debtor to act in good faith, he/she will primarily owe a duty to act in the best interests of the appointing Secured Creditor in protecting and realising the assets (usually property) over which he/she is appointed in order to repay the debt secured by the charge. This includes a duty to obtain the best price reasonably achievable in all the circumstances, usually necessitating a proper marketing process for
the asset.
Enforcement options – receiver or administrator?
Often a Secured Creditor will hold a security package (often called a Debenture), containing both a qualifying floating charge and a fixed charge over specific assets. This enables the Secured Creditor, upon default, to appoint either an administrator to take control of the whole of the company or a fixed charge receiver to secure and realise specific assets. Which of these options is the most favourable will be determined on a case by case basis and needs careful consideration. Receivership is generally cheaper and quicker (and a receiver’s duty is owed to the Secured Creditor, rather than all creditors); however, in circumstances where a greater degree of control over the company’s assets (rather than single asset enforcement) is required, wider investigatory and other powers are needed and/or where the event of default under the fixed charge is not clear cut, administration may be more appropriate.
If a Debtor goes into administration after the appointment of a receiver, an administrator may require the receiver to vacate office. If the Debtor is already in administration, the Secured Creditor would be prevented (by the moratorium) from appointing a receiver without the administrator’s consent or court approval.
How can Wedlake Bell help?
Wedlake Bell can assist Secured Creditors on all receivership matters, from start (determining an appropriate strategy, carrying out a security review and appointing receivers) to finish (taking possession and disposing of the asset).