Receiverships
If you or your company has a loan secured on property and you subsequently default on payment, that lender may have the right to appoint an LPA Receiver to recover their loan. Through the appointment the receiver takes control of the asset and works solely in the interest of the secured creditor (usually a bank/lender).
LPA receiverships are governed by the Law of Property Act 1925 meaning that a company in receivership must comply with LPA law as well as meeting the terms and condition of the fixed charge debenture.
A main feature of LPA receivership is the speed the appointment can place, for example a company / individual may receive a notice of default on their secured loan, with a timeframe to pay the remaining debt. Once the deadline is passed, the appointment of the receiver can be swift which is beneficial to the lender but can cause serious disruption to the company / individual concerned when the receiver arrives to secure the property.
What is an LPA Receiver?
Typically it is usually a licensed insolvency practitioner or chartered surveyor who is appointed as LPA receiver, also known as fixed charge receiver.
They can be appointed over land or property and may extend to other assets such as planes, machinery or other miscellaneous items. A receiver may also investigate directors’ conduct to establish why the company failed its agreement with the lender.
An LPA receiver has significant power over the future of the company / asset as, if the situation is sympathetic, they may allow trading to remain. Usually the opinions of the company’s directors / property owners are not sought, making a receivership a significant threat.
receiver vs liquidator
Liquidation and receivership are similar processes whereby the purpose is to recover monies for a creditor or creditors. However a Liquidation works on behalf of all creditors, whereas a receiver’s primary responsibility is to the secured creditor on the asset.
The company does not have to be formally insolvent for a receiver to be appointed, unlike a liquidator, as the receiver liquidates the property specifically based on the secured loan default.
Power and authority of the LPA Receiver
The authority of the LPA receiver is usually stated within the fixed charge document, enabling a lender to provide specific powers additional to those within the Law of Property Act. These could include the right to request / receive income from the property such as rent and insure the property from the income generated.
Other powers may also be granted under the security document, including the right to grant a lease over the property or indeed sell the asset.
WHAT DOES GOING INTO LPA RECEIVERSHIP MEAN FOR A COMPANY?
If a company fails to meet the terms of the agreement with the secured charge holder, resulting in the loss of the property, in serious circumstances this can subsequently lead to business closure. The most significant impact for the directors however is likely to be loss of control of the asset itself.
There may be a circumstance in which the sale of the asset does not occur as the receiver may assess the company’s position alongside the agreement terms and arrears and simply put a strategy in place to collect the outstanding amounts without out selling. If the directors are being co-operative this may be in conjunction with a refinancing of the property, if possible.
If you or your business is under risk of LPA receiverships, it’s important to act swiftly to avoid acceleration which could lead to potential closure.
To avoid potential receivership, it may be possible to place the business into administration providing a moratorium period of 8 weeks in which action cannot be taken against the company, enabling time to prepare a plan.