LPA Receiverships - Case Law Update

The Insolvency Service has released statistics for the numbers of insolvency procedures being entered into for the fourth quarter of 2012. It is interesting to note that whilst other insolvency procedures continue to fluctuate in their popularity, the number of receiverships has remained fairly static. Indeed in the fourth quarter of 2012, there were 276 receivership appointments, as compared with 333 and 277 in the previous two quarters (including both administrative receivers and other fixed charge receiver appointments, for example under the Law of Property Act 1925).

Under common law and statute, the primary duty of an LPA receiver is to receive income from the property and use the same to discharge the debt owed by the borrower. However, under the express terms of almost every charge this duty is modified and supplemented by a very wide range of powers far beyond the right to simply “receive income”. There are, therefore, significant additional duties which appointment takers should be aware of.

Maloney v Filtons Limited [2012] EWHC 1395 (CH)

The facts

The claimant receivers brought a claim against the defendant property management company, Filtons Limited (“Filtons”), alleging that Filtons had granted leases of part of a property despite the fact they were merely letting agents rather than then having a proprietary interest that would entitle them to grant leases.

The claimant receiver had been appointed when the registered proprietors of the property, who held it on trust for another company, failed to pay sums due under a legal mortgage. The proprietors had taken out the mortgage in order to secure a loan to a construction company, in which they had an interest.

The defendants asserted that they had been granted a lease over the entire property and that they had granted sub leases of residential units within the property. The claimants obtained documentation which set out the amount of rent which the defendant had collected from the sub leases, as well as the commissions they had taken. The defendants had accounted to the proprietors for these collections prior to the appointment of the receivers.

It was held that the lease in favour of the defendants was a sham. In the vast majority of the sub leases that the defendant had purportedly granted, they were not named as the sub-lessor and instead the sub-lessor was often in fact the construction company.

The evidence demonstrated that the defendants acted as agents for the proprietors...