What’s the difference between a fixed and floating charge?

A fixed charge, or mortgage is a direct charge over an assert or specific group of assets. The debtor can only deal with the assets or assets with the consent of the creditor. A floating charge is more flexible and allows the debtor to use the assets in the ordinary course of business. However when a “crystallising event” takes place a floating charge becomes a fixed charge.


What’s a crystallising event?

A floating charge crystallises into a fixed charge when the company is wound up, a receiver is appointed or the company ceases trading. The

charge document may allow the creditor to crystallise the floating charge by the issue of a notice. For the crystallisation to be effective the creditor must take control of the assets covered.


What is a debenture?

A debenture has no legal definition but is best described as a written acknowledgement of a debt or debts by the company, usually under seal. A debenture can cover both fixed and floating charges.


Can a floating charge holder appoint an administrative receiver?

For floating charges created on or after 15 September 2003 there is a general prohibition on the appointment of administrative receivers with a limited number of exceptions (see paragraphs 56.2.24 to 56.2.32).


Is it likely the official receiver will be dealing with administrative receivers?

As a result of the legislative changes it is unlikely a winding-up order will be made against a company in which an administrative receiver has been, or may be, appointed. If a winding-up order is made against such a company the official receiver should refer to Part 3 of this chapter.


When is a Law of Property Act (LPA) receiver appointed?

An LPA receiver may be appointed by the mortgagee under a clause in the mortgage or fixed charge or under the Law of Property Act 1925. The mortgagor must be in default with his/her mortgage or there is a breach of a provision of the mortgage deed (see paragraph 56.2.87). An LPA receiver is more accurately described as a fixed charge receiver. However for the rest of these FAQs the term LPA receiver will be used and should be taken to include fixed charge receivers.


Why is the LPA receiver agent of the mortgagor and what does it mean?

The appointment of an LPA receiver is a legal method for the mortgage to be paid without the mortgagee taking possession of the property. The LPA receiver is held, by law, to act on behalf of the mortgagor, ie to become his/her agent, with instructions to meet the mortgage payments. As a consequence the mortgagor remains liable for any income or property taxes due from the property together with the actions of the LPA receiver (see paragraphs 56.2.97 and 56.2.98).


What are the powers of an LPA receiver?

The LPA receiver has the statutory power to recover all income (including rent) from the property. The mortgage deed can give the receiver the following additional powers, to sell the property: to cut and sell timber, to issue leases within certain limits and to obtain fire insurance. Full details are contained in paragraphs 56.2.99 to 56.2.101.


What are the duties of an LPA receiver?

The primary duty of an LPA receiver is to deal with the property under his/her control, which includes collecting rent and other income from the property and may include its sale. All monies collected must be distributed in a strict order which is explained in paragraph 56.2.105. The LPA receiver owes the mortgagor a duty of reasonable care in carrying on his/her business and/or disposing of the property.


Who pays council tax, business rates, income tax and VAT?

The mortgagor retains his/her responsibility to pay any council tax, business rates, income tax or VAT arising from the property. Whether any council tax is due will depend upon who is in occupation of the property or whether it is empty (see paragraph 56.2.113). The LPA receiver has a statutory duty as the mortgagor’s agent to pay any council tax, business rates, income tax or VAT due.


What fees can an LPA charge?

The LPA receiver is entitled to charge commission which includes all costs, charges and expenses incurred by him/her. However the commission must not, without the leave of court, exceed 5% of the gross amount received.


What happens if a winding-up order or bankruptcy order is made?

The agency between the mortgagor and LPA receiver ceases. The LPA receiver remains in office but becomes personally liable for any contract entered into after the date of the winding-up order or bankruptcy order.


Can a mortgagee appoint an LPA receiver post liquidation or bankruptcy?

A mortgagee may appoint an LPA receiver after the making of a winding-up or bankruptcy order (see paragraph 56.2.122 for the only exception).


When can the court appoint a receiver?

The court will consider appointing a receiver where there is a dispute between two or more parties in order to preserve the value of the assets. The court would normally appoint a receiver before other proceedings have commenced but it may appoint one at any time. The court may appoint a receiver after receiving an application for appointment on the appropriate form (see paragraph 56.2.128). Any receiver appointed would be an officer of the court.


Is it likely that an official receiver will have to deal with a court appointed receiver?

It is unlikely that a court appointed receiver would be in office at the time a winding-up order or bankruptcy order was made. In the event of such an order being made the official receiver should follow the guidance in Part 5.


What should the official receiver do when a receiver is in office?

The official receiver should, in the first instance, write to the receiver and ask for a copy of the charge or court order, copies of the documentation appointing him/her, details of the assets covered by the charge or court order and details of his/her receipts and payments. Further detailed guidance on dealing with the information obtained from these initial enquiries is contained in Part 6.