Understanding the Role of Fixed Charge Receivers: Misconceptions, Powers and Practical Advice

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?

Busting the Myths and Misconceptions

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; and
• 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. 

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.

Upon the sale or disposal of assets, 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.

In conclusion, 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 maximizes value and promotes equitable distribution of proceeds among creditors.  

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.