Updated: 4th January 2021
If your company has a loan secured on property and you default on payment, the lender may have the right to appoint an LPA receiver to recover their money. The appointed receiver takes control of the asset and works solely in the interests of the secured creditor.
LPA receiverships are governed by the Law of Property Act, 1925, which means that a company in receivership must comply with LPA law regarding any property secured with a lender, as well as meeting the terms and conditions of the associated fixed charge debenture.
An LPA receiver is typically a licensed insolvency practitioner (IP) or chartered surveyor. Sometimes known as a fixed charge receiver, they are distinguished from administrative receivers by the type of charge they hold - fixed rather than floating.
They can be appointed in relation to land or property, and make the ultimate decision on what happens to the secured asset. An LPA receiver may also investigate the conduct of directors to establish why the company failed in its contractual arrangements with the lender.
LPA receivers hold considerable power over a company’s future, and if conditions are favourable they may decide to allow trade to continue. The opinions of company directors are not typically sought, which makes this process a significant threat.
Receivership and liquidation are similar processes in that their purpose is to recover monies for a creditor or creditors. Liquidators work on behalf of creditors as a whole, however, whereas a receiver’s principal responsibility is to a specific secured creditor.
The creditor in this scenario is typically a bank (also known as the charge holder) holding security on a business’ property by way of a debenture, that has decided to take action to recover their money by calling in (or ‘receiving’) the secured asset.
It doesn’t matter whether the company is formally insolvent. Once appointed, under the Law of Property Act, the receiver can liquidate the property purely based on the secured loan default.
So when might an LPA receiver be appointed, and what happens from a company’s point-of-view?
A Law of Property Act receiver is appointed by the holder of a fixed charge to protect and potentially sell the secured asset so their outstanding debt can be repaid. This appointment can be made when a mortgage payment is overdue.
One feature of LPA receivership is the speed with which appointment can take place. A company may receive a notice of default on their secured loan, with a deadline to pay the full balance.
Once this deadline is reached, however, appointment of the office-holder can be very swift. This benefits the lender but can cause serious disruption to the company concerned when the receiver arrives to secure the property.
So what happens when a company enters LPA receivership?
If a company goes into LPA receivership, the office-holder takes control of the asset from the directors on appointment. Under the Insolvency Act they have the power to carry out the actions necessary to recoup monies owed to the secured creditor.
This can be accomplished by selling the property over which the charge is held, or by recovering the outstanding monies due from the company without a sale. The 1925 Law of Property Act holds no express provision allowing for the sale of a property in these circumstances, but the power of sale is typically included in the security document signed by the borrower prior to the loan being sanctioned.
The authority and duties held by an LPA receiver is usually laid out in detail within the fixed charge document, allowing a lender to confer specific powers in addition to those available under the Law of Property Act.
These could include the right to:
Other powers may also be granted under the security document, including the right to:
If land is the security under which the lender is taking action, it’s also worth noting that a receiver may have the right to cut down trees on the land with a view to selling the timber. Perhaps not a common scenario, but if the land in question is an orchard, the consequences are significant.
Failing to meet the terms of a contractual agreement with a secured creditor can result in the loss of property, and in the worst-case scenario, business closure. The initial impact of going into LPA receivership, however, is loss of control of the secured asset by the directors.
Sale of the property is not always required - having assessed the company’s overall position alongside the mortgage terms and arrears, the receiver might feel able to put in place a strategy to collect in the outstanding amounts without selling.
Professional help if your company is under threat of LPA receivership
If your business is under threat of LPA receivership, it’s important to act quickly to avoid further escalation and potential closure. RBR Advisory forms a large part of Begbies Traynor Group, the UK’s largest professional services consultancy, and we can offer the expert reliable advice you need.
It may be possible to avoid receivership by placing your business into administration – a process that provides a moratorium period of eight weeks in which to formulate a plan. If you would like more information on LPA receivership and what it might mean for your business, please contact one of our partner-led team. We operate from offices around the country and can offer you a free same-day consultation to quickly establish your needs.
Regional Managing Partner
13th October 2021
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