Fixed Charge Receivers: Everything You Need to Know

Given the current economic climate, more and more Lenders (whether it be regulated Lenders or unregulated Lenders (including bridging Lenders) are seeking to recover secured debt by appointing “Receivers”. 

The most common questions which arise are what is the difference between the two types of Receivers, an LPA Receiver and a Fixed Charge Receiver and what are the practical and legal benefits to a Lender of appointing a Receiver?

What Is the Difference Between LPA Receiver & Fixed Charge Receiver

It is often assumed that a “LPA Receiver” and a “Fixed Charge Receiver” are one and the same and the term is often used interchangeably but there is a crucial difference between the two.  

So, what exactly is the difference? 

The powers of an LPA Receiver are derived from the Law of Property Act 1925 (“LPA 1925”). Those powers are extremely limited and whilst the LPA Receiver has the power to collect rent, they have no power of sale.

A Fixed Charge Receiver on the other hand derives their power and appointment from the Legal Charge and this gives them more powers than the statutory minimum. 

It is therefore imperative when acting for Lenders that security documents are drafted in a manner which allow the Receiver to harness the full potential of their power to maximise realisations for the Lender. Typical powers that a Legal Charge would give to a Fixed Charge Receiver would be:

• The power to sell the property
• Take possession of the property 
• Complete any development of the property
• The power to lease and manage the property.

In most well drafted Legal Charges, there is likely to be a “catch all” provision which allows a Receiver to do anything that an owner of the Property may do but this is not always the case.

It is also very important to note the agency relationship of the Fixed Charge Receivership. A Fixed Charge Receiver is the agent of the Borrower not the Lender, the Fixed Charge Receiver is however appointed by the Lender. This can sometimes lead to a tricky situation and the agency can end if the Lender does not respect the Receiver’s independence. 

While LPA Receivers and Fixed Charge Receivers serve similar functions within property insolvency proceedings, there are notable distinctions in their appointment mechanism, scope of authority, and powers. 

Understanding these differences is essential for creditors, debtors, and other stakeholders navigating the complexities of property-related insolvency. Fixed Charge Receivers play a pivotal role in secured lending default and distress scenarios by managing and realising secured assets in a manner that maximises value and promotes equitable distribution of proceeds among creditors.  

Considerations When Appointing a Fixed Charge Receiver

The Fixed Charge Receiver is appointed informally (although a certain process needs to be followed) and there is no involvement of the courts and as a general rule, the Lender is not responsible for what the Fixed Charge Receiver does and their actions. 

When considering appointing a Fixed Charge Receiver a Lender should obtain legal advice to:

• Check the validity of the security documents and Legal Charge (again this highlights the importance of well drafted security documents when acting for Lenders)
• Check they have the right to call in the loan before they call in the loan (some loans are offered as being repayable on demand which certainly makes it easier for a Lender when dealing with a possible default) 
• Ensure that it can be shown that the Borrower has failed to comply with its obligations in the security documents. The Borrower must be given the opportunity to pay the money that is demanded.

Only when the Borrower has failed to pay on a correctly served demand can the Fixed Charge Receiver be appointed.

When advising Fixed Charge Receivers on the sale of assets it is important to note that they have a duty to achieve the best price reasonably obtainable in the circumstances.

There has been case law over the years where the actions of a Receiver have been challenged. A Receiver should always document the decisions they make particularly if the Borrower isn’t in agreement with the approach to marketing or selling the property.

What a Fixed Charge Receiver Does

A Fixed Charge Receiver (FCR) is typically appointed by a secured lender, to recover debts owed by a borrower who has defaulted on a loan secured against property or land. The FCR’s role is to take control of and manage the charged property to protect the lender’s interest and recover as much of the outstanding debt as possible.

The aforementioned powers of the Fixed Charge Receiver allows them to recover said debts, making it as streamline as possible for the lender. Upon the sale or disposal of assets for instance, Receivers must diligently account for the proceeds and allocate them in accordance with the priority established by law or the terms of the security agreement. 

This often involves satisfying the claims of secured creditors first, followed by any remaining amounts being distributed among unsecured creditors in accordance with their respective priorities.

The Secured Lending and Property Litigation teams at BBS Law have a wealth of experience advising both Lenders and Fixed Charge Receivers. If we can help you further, please contact Safiyah Bhaiyat who is a Partner in our Secured Lending Team or Aron Heywood who is a Senior Associate specialising in our Property Litigation team, specialising in recoveries.

Frequently Asked Questions

Can a fixed charge holder appoint a receiver?

Yes, a fixed charge holder (usually a secured lender) can appoint a receiver if the borrower defaults on their loan. This is typically done under the terms of the loan agreement or the Law of Property Act 1925 (LPA). The receiver is appointed to take control of, manage, or sell the charged property to recover the outstanding debt. 

Who are LPA receivers?

LPA receivers are receivers appointed under the Law of Property Act 1925. They are usually appointed by a lender to take control of a property when the borrower has defaulted on a loan secured against it.

LPA receivers have the authority to collect rents, manage, or sell the property on behalf of the lender. Their powers and duties are limited to the property specified in the fixed charge, and they must act in the best interest of the secured lender.

Are receivers personally liable?

Receivers, including Fixed Charge and LPA receivers, generally are not personally liable for debts or obligations related to the property they manage, as long as they act within the scope of their appointment and in accordance with the law. However, they could become personally liable if they act negligently, breach their duties, or exceed their authority. For example, they must ensure that the property is managed in compliance with legal requirements, such as health and safety regulations.

What are the fees for LPA receivers?

The fees for LPA receivers can vary based on the complexity of the property and the work involved.

Typically, the receiver’s fees are agreed upon at the time of appointment and are usually paid out of the income generated from the property (such as rent) or from the proceeds of the sale. The exact fee structure will depend on the agreement between the lender and the receiver, and it may include a combination of fixed fees, hourly rates, or a percentage of the sale proceeds.