M6.1 Receivership Flashcards
What are the different types of receiver?
Law of Property Act Receiver (LPA Receiver)
Fixed Charge Receiver
Administrative Receiver (Charges created prior to 15 September 2003)
Court-appointed receiver - “where just and convenient to do so”
Others:
Proceeds of Crime Act receiver
Drug Trafficking Act receiver
Agricultural Credits Act receiver
Who can appoint an IP in an administrative receivership
A floating charge holder
Charge must be over substantially the whole of the company’s property
Or would be so were it not for the appointment of another person as receiver of part of the company’s property
What is the latest date that a charge could be created to appoint an admin receiver?
Ability to appoint limited to charges created pre - 15 September 2003
From where does an admin receiver obtain his powers?
IA 86 Usually extended by the debenture document
What are the directors powers when a co is in admin receivership?
Directors powers cease upon appointment of AR
Subject to limited continuing statutory responsibilities
What are the tax advantages of admin receivership vs administration?
Preservation of in year losses as against chargeable gains
What is the position of preferential creditors in receivership?
Payments to preferential creditors from floating charge assets may be recouped from assets available to the unsecured creditors
(Administrator would treat shortfall to secured creditors as an unsecured claim)
When can a creditor appoint an LPA receiver?
A mortgagee [lender] shall not exercise the power of sale or the power to appoint a receiver unless:
Notice requiring payment has been served on the mortgagor [borrower]and default has been made in payment for three months; or
Interest is in arrears and unpaid for two months; or
There has been a breach of some provision contained in the mortgage deed
(BUT: This provision isgenerally varied or excluded under the wording of the mortgage deed
When and how can a creditor appoint a fixed charge receiver? (inc LPA)
Notice of default/ formal demand for payment made in accordance with the terms of the document/deed
Sufficient time to remedy breach/ pay the demand
Typically 24 hours notice
Once sufficient time has elapsed, the lender may appoint a receiver
Appointment is made by deed [“appointing instrument”]
The appointing instrument will also set out the Receiver’s powers and duties
When and how can a creditor appoint an admin. receiver?
1) Appointor must hold a floating charge
over all or a substantial part of the assets of the company created pre - 15 September 2003
2) Default in relation to the charge must have occurred
Notice of default / formal demand duly given
Time to remedy –24 hours advisable/ 1 hour may be sufficient
3) Appointor MUST appoint an insolvency practitioner
4) No statutory form for appointment
Clearly set out who is appointed
(if joint) whether they may act solely or jointly
Reminder - some exceptions to this eg Capital market investment debt £>50m, social landlords, etc
When is the appointment of a receiver effective?
Appointment time = receipt of instrument
(provided that the appointment is then accepted by the end of the next business day)
What happens if appointment of a receiver is invalid?
Appointor is liable
the court may order the person by whom or on whose behalf the appointment was made to indemnify the person appointed against any liability which arises solely by reason of the invalidity of the appointment.
How long does a receiver have to notify the Registrar of Companies of the appointment?
Within 7 days of appointment
Other than notify CH, what else must the receiver do?
All documents to contain a statement that a receiver or manager has been appointed
If appointment is over land: Notify HM Land Registry
Notify:
Any other mortgagee
Any insolvency office holder
[N.B. If in administration – permission of administrator is required]
Where an admin receiver is appointed, what additional duties?
Notify the company forthwith and
Publish notice in the prescribed manner
R4.5: Must advertise appoint ment in the London Gazette/ may advertise in
such other manner as thinks fit
Notify all creditors within 28 days
S47 IA86
Forthwith require some or all of the company’s officers to make out
a statement as to the affairs of the company
What is the status of an LPA or fixed charge receiver?
Deemedto be agent of the mortgagor (borrower)
Any tenant of the borrower will have a new landlord
The borrower loses ability to deal with the charged property
The receiver’s agency terminates on the appointment of a trustee in bankruptcy or liquidator
What is the impact of an LPA/ fixed charge receiver if a trustee/ liquidator appointed?
The receiver’s agency terminates on the appointment of a trustee in bankruptcy or liquidator
What, when and to whom must a fixed charge/ LPA receiver submit accounts?
Must deliver receipts and payments accounts to the Registrar of Companies
Must be delivered within one month after the expiration of 12 months from the date of his appointment; and
Every subsequent period of 6 months, and
Within one month after ceasing to act
Final R & P must show:
Amounts for the final period; and
Cumulative amounts for the whole period of the appointment
Receiver liable to a daily default fine
What are the duties of an LPA or fixed charge receiver?
Duty of care to:
Mortgagee (thelender/appointor)
Mortgagor the borrower, for whom they act as agent)
Any guarantor of the mortgage
Should sell property for “Best price reasonably obtainable”
Liable in negligence if in breach of duty Non-excludable
Can limit potential claims by excluding personal liability in contracts (other than contract of employment)
e.g. sale agreements
What powers does an LPA retriever have?
Limited - usually extended by mortgage document:
Power to demand and recover rents
Acts as agent of the mortgagor (borrower)
Powers delegated by mortgagee (lender)
.e. it is permissible to delegate the Mortgagee’s power of sale (but not automatic)
What powers do a fixed charge or LPA receiver usually have?
Contained in the appointing document: Power to:
Sell
Run a business
Complete developments
Borrow
What are fixed & LPA receiver’s liability in relation to contracts?
Receiver is personally liable on contracts entered into, unless the contract provides otherwise
Subject to an indemnity out of the assets
Receiver has 14 days to decide whether to adopt contracts of employment
If adopted, the receiver becomes the employer and is liable under the contracts
Not limited to qualifying liabilities
If dismissed within 14 days, the mortgagor (borrower) is liable
What are an admin receiver’s general duties?
Principal duty: Repay the appointing creditor
Agent of the company, unless and until it enters liquidation
In whose interest does an admin receiver act?
The interests of their appointor
May give their appointor’s interest priority
Subject to duties to:
Manage the business of the company with due diligence
Obtain true market value at the time of sale
What are an administrative receiver’s additional duties?
Initial notifications
Require a statement of affairs
Report to Registrar of Companies and creditors
Invite creditors to form a committee
Deliver receipts and payment accounts
Pay preferential creditors from floating charge assets
Make available the prescribed part for unsecured creditors
How long does somebody have to comply with a request for a SA in admin receivership?
21 days
How long does somebody receiving an SA have to comply with a request for a statement of concurrence?
5 days from receipt of SofA to concur or qualify that they do not agree or that they are without direct knowledge
s48: How long does an admin receiver have to send a report (and the SA) to CH and others?
3 months
To whom must an admin receiver send, or provide access to, the s48 report
Within 3 months to:
Registrar of Companies (with SA)
All secured creditors (other than opted out creditors);
All unsecured creditors of the company (other than opted-out
creditors), or
publish a notice stating an address to which unsecured creditors of the company should write for copies of the report to be sent to them free of charge
PLUS: Send a copy to any liquidator appointed within 7 days of the above, or if appointed later, 7 days of the liquidator’s appointment
What is contained in an admin receiver’s report?
S48 IA86
The report must contain:
The events leading up to the appointment
Details of any disposal or proposed disposal of property
Details of the carrying on or proposed carrying on of the business
Amounts payable to the debenture holder by whom they were appointed Amounts payable to PREFERENTIAL CREDITORS
The amount (if any) likely to be available for other creditors
R4.13
The report must also contain estimates of the prescribed part and of the value of the company’s net property, (unless seriously prejudicial to the commercial interests of the company)
What is the role of the Committee of creditors in an admin receivership?
Very limited:
No involvement in sanctioning actions or fixing basis of remuneration
Can require AR to attend before it - not less than 7 days’ notice & furnish information as may reasonably require.
What is the admin receiver’s duty to submit accounts?
AR must deliver a summary of receipts and payments to:
Registrar of companies,
Company
Their appointor
Each member of the creditors’ committee
Within two months after
Every 12 months from the date of appointed
Upon ceasing to act as administrative receiver
What are an admin receiver’s powers?
all the powers conferred on them by the instrument under which they were appointed and (provided they are not inconsistent with that instrument) those specific powers set out in Schedule 1 of the Insolvency Act 1986:
Include powers to carry on the business, bring and defend legal proceedings and to do all things necessary to realise the property of the company
BUT DOES NOT INCLUDE a power to pay the unsecured creditors of the company (other than the prescribed part)
What are the management powers afforded to office holders generally (inc admin rec)
> Require continued supply of utilities
Get in the company’s books, records and property
Enforce co-operation from past/present directors, officers, employees or promoters
Make inquiry by way of private examination
These powers CANNOT be given to other types of receiver
When can an admin receiver dispose of property subject to a prior charge?
The AR can apply to court for permission to dispose of property subject to prior security
Must be likely to promote a more advantageous realisation than would otherwise be achieved
Net proceeds paid to prior charge holder
May have to make up shortfall if sold at an undervalue
What is the admin receiver’s status?
AR is agent of the company unless or until it goes into liquidation
AR is personally liable on contracts entered into, unless the contract provides otherwise;
And to for qualifying liabilities on any contracts of employment adopted
Subject to an indemnified out of the assets of the company [Will also obtain an indemnity from floating charge holder]
Existing contracts will not be affected–NO POWER TO DISCLAIM
AR not to be taken to have adopted a contract of employment by reason of
anything done or omitted to be done within 14 days after his appointment
What is the waterfall of payments in an LPA receivership?
All rents, taxes, rates and out goings in relation to the property
Annual sums or other payments, with interest, that have priority over the mortgage under which they were appointed i.e. Payments due to a prior mortgage
The receiver’s commission (fees) and the cost insurance premiums
Interest on the mortgage
Principal sum borrowed under the mortgage
Balance to the person entitled to the income, if they had not been appointed (i.e. usually the borrower or an insolvency office holder)
What is an LPA receiver’s remuneration and expenses?
S109(6) LPA 1925
Receiver entitled to retain out of any money received their remuneration together with payment of all costs, charges and expenses incurred
as long as these do not exceed 5% of all moneys received
or at such rate as the court may allow
Unusual to rely on statutory position
Fee arrangements with all types of receiver usually agreed by appointor pre-appointment
Court has inherent jurisdiction to review
What is waterfall of payments in an admin receivership?
Waterfall is largely a matter of case law
Different waterfalls apply to fixed and floating charge realisations
No equivalent concept of a “receivership expense”
Dealt with via receiver ’s indemnity out of the assets
No rule setting out basis of remuneration
S35IA86:
The receiver or their appointor can apply to court for directions
S36IA86:
The receiver’s remuneration may be challenged by a subsequent liquidator
What is the waterfall of payments for fixed charge assets in an admin receivership?
Higher ranking security
Costs of preserving assets
AR’s remuneration and expenses
Sums due to appointing chargeholder
Junior lenders (or their receivers) Company (or its liquidator)
NB: Preferential creditors:
Other than when the company is in liquidation, all receivers appointed under floating charge (where or not over substantially the whole of the company’s property) must pay preferential creditors out of the proceeds of floating charge assets (see separate waterfall)
What is the waterfall for floating charge assets?
Higher ranking security
Costs of preserving assets
AR’s remuneration and expenses
Sums due to preferential creditors
Prescribed part for unsecured creditors
Balance due to appointing chargeholder
Junior lenders (or their receivers) Company (or its liquidator)
What is the effect of liquidation or bankruptcy on a receiver?
On a company being wound-up or an individual being adjudged bankrupt, the receiver will cease to be the agent of the company or individual
If the receiver continues to act, he will do so as principal
In this situation the receiver will incur personal liability on contracts, subject to their indemnity out of the assets they hold
The receiver will want to mitigate this risk by obtaining an indemnity from the appointing party
The termination of agency does not affect the receiver’s powers
Prevents them from putting new liabilities on to the borrower
Receiver will become liable for business rates and may incur liabilities to employees. Therefore, it is likely that trading will cease if another insolvency process intervenes
What is the impact of a receiver’s loss of agency?
The receiver’s agency is useful in 2 respects:
It protects the mortgagee (lender) against personal liability during
enforcement
Enables receivers to put liabilities on to the mortgagor (borrower)
The termination of agency does not affect the receiver’s powers
Prevents them from putting new liabilities on to the borrower
Receiver will become liable for business rates and may incur liabilities to employees. Therefore, it is likely that trading will cease if another insolvency process intervenes
