Appointment Of Receiver Formalities – Update

Case: McCarthy v Langan and Gilroy1

A recent High Court decision has considered once again the requirements for compliance with the terms of the underlying security documents when drafting deeds of appointment of receivers or of receivers and managers.

Background

In February 2016 ACC Loan Management Limited (ACC) appointed the plaintiff as receiver over two properties belonging to the first and second named defendants.

The plaintiff subsequently brought injunctive proceedings seeking interlocutory relief against the defendants to prohibit them interfering with the sale of the properties.

The loans were subsequently transferred from ACC to Rabobank and the plaintiff's appointments were novated. Both properties had been sold by Rabobank, selling as mortgagee in possession, prior to the hearing of the action.

Issue

The issue to be determined was whether or not the plaintiff had been validly appointed over the two properties. Although the properties had been sold, the Court (Allen J) found that the issue of the validity of the plaintiff's appointment as receiver was not moot because, if the plaintiff had not been validly appointed, an issue might arise as to whether the defendants had suffered loss arising from the sales in those circumstances.

The underlying security documents on foot of which the plaintiff was appointed allowed for the appointment of "...any person to be receiver and manager or receivers and managers". The deeds of appointment however referred only to the appointment of the plaintiff as:

"..(the "Receiver") to be receiver of all assets of the Chargor referred to and comprised in and charged by the Security Document..".

The defendants' argument, simply put, was that the failure to use the words "and manager" in the deeds of appointment was fatal to the validity of the appointment.

Both sides relied on the case of Merrow Ltd v. Bank of Scotland2 in which it was held that a failure to observe the formalities of appointment, as prescribed in the underlying security on foot of which a receiver is relying on to ground his/her appointment, would be fatal. The case of McCleary –v- McPhillips3 was also relied upon by both sides given its similar facts to that of the Merrow case.

The defendants relied heavily on the decision of McDonald J in the case of McCarthy –v- Moroney4 in which the court, at interlocutory stage, held that a plaintiff, in very similar circumstances to this case, would have an "uphill battle" at trial to persuade a...