Part 5 – Court Appointed Receiver
October 2013
The court may appoint a receiver in a variety of circumstances. An appointment may be made to, for example, preserve assets where there is a dispute within a partnership or a company pending a decision on the matters of dispute. This appointment is intended to maintain the value of the assets so that they may be realised for the benefits of all parties to the dispute. The court may appoint a receiver where assets subject to a charge have been transferred without the consent of the charge-holder or to in regard to a proceeds of crime order. The court may appoint a receiver on behalf of a debenture holder or judgment creditor to enforce payment.
56.2.126 The court’s power to appoint a receiver
The High Court may appoint a receiver in all cases where it appears just and equitable to do so [Note 1]. The county court may appoint a receiver under two powers. First, it may make any order that could be made if the proceedings where in the High Court [Note 2]. Second, the county court has the power to appoint a receiver by way of equitable execution [Note 3].
56.2.127 When may the court appoint a receiver ?
The court may appoint a receiver before proceedings have started, during existing proceedings or on or after judgment [Note 4]. The court will normally only consider the appointment of a receiver before the proceedings have started.
56.2.128 Application for the appointment of a receiver
An application for the appointment of a receiver may be made without notice and must be supported by written evidence [Note 5]. The written evidence, according to the Civil Procedure Rules Practice Direction 69 must include:
56.2.129 Application for the appointment of a receiver – equitable execution
Where the application to appoint a receiver is by way of equitable execution the Civil Procedure Rules Practice Direction 69, the written application, in addition to the information contained in paragraph 56.2.128, must include details of:
56.2.130 The court considers the application
Where the application is disputed the court will make a decision based on the “balance of convenience” test. This involves assessing the damage to each of the interested parties if a receiver was appointed. In practice the court will examine the strength of the applicant’s case and appoint a receiver where the property is thought to be in jeopardy. The appointment should preserve the assets pending a decision by the court on the matters under dispute, the validity of the asset transfer or the repayment of the judgment debt.
56.2.131 The court considers an application by a judgment creditor
Where a judgment creditor applies to the court for the appointment of a receiver the court will consider the following:
It is unlikely that a receiver will be appointed where there are other legal remedies available to the judgment creditor.
56.2.132 The appointment of a receiver
The court decides who will be appointed receiver after taking into account the views of all interested parties. The receiver is usually independent of the interested parties although it is possible to appoint a person with an interest in the subject matter of the claim [Note 6]. Where an interested party is appointed receiver he/she usually agrees to act without salary. In at least one partnership case the court did allow a salary to be paid [Note 7].
56.2.133 Appointment of a receiver where the company is in compulsory liquidation
The court may appoint the official receiver to be receiver on behalf of a debenture holder or other creditor where the company is already in compulsory liquidation [Note 8].
56.2.134 Who may be appointed receiver
The court may generally appoint such person as it thinks fit to act as receiver. Where the property belongs to a limited company the court cannot appoint a body corporate as a receiver [Note 9]. There is no requirement for a person appointed as a receiver to be a licensed insolvency practitioner. The court may appoint an undischarged bankrupt or a discharged bankrupt subject to a bankruptcy restrictions order/undertaking although this is considered to be unlikely [Note 10]. A director subject to a disqualification order/undertaking may be appointed by the court to act as receiver but only if he/she obtains the leave of the court with jurisdiction for the winding-up [Note 11].
56.2.135 Notification of appointment
A copy of the court order appointing the receiver must be served by the person who applied for it on the person appointed receiver, every other party with an interest in the proceedings (unless the court directs otherwise) and such other persons as the court thinks fit [Note 12].
56.2.136 Notification of appointment – companies
When a court appointed receiver is appointed as receiver of the property of a company notification of the appointment must be provided. Every invoice, order for goods and business letter issued by or on behalf of the company, and all the company’s websites must contain a statement that he/she has been appointed [Note 13].
56.2.137 Personal liability of the receiver and adequate security
A court appointed receiver is personally liable for his/her acts and omissions and, as a result, may be required by the court to provide adequate security [Note 14]. Where the receiver is an insolvency practitioner security may be provided by way of his/her bond. In all other cases it should be provided by way of a guarantee [Note 15]. The order appointing the receiver will usually include the date by which the receiver must give security or satisfy the court that security is already in force [Note 16]. An insolvency practitioner receiver should file written evidence of the bond and the adequacy of its cover in court. Security in the form of a guarantee should be prepared in a form, and entered into with a clearing bank or insurance company, approved by the court [Note 17].
56.2.138 Failure to provide adequate security
Where the receiver fails to provide security or to satisfy the court as to the security he/she has in force by within the time allowed the court may end the receivership (see paragraph 56.2.137) [Note 18].
56.2.139 The receiver is an officer of the court
The receiver is an officer of the court in all cases [Note 19]. The receiver must act fairly and impartially. The appointment of a receiver operates as an injunction [Note 20]. Any interference with the receiver’s duties amounts to a contempt of court.
56.2.140 The duties and powers of the receiver
The duty of a receiver appointed by the court is limited to collecting the property of which he/she is appointed receiver and paying all money received into court, or as the court may direct. The order appointing the receiver will detail his/her powers. Where the receiver is to continue trading he/she will be appointed receiver and manager. Where the receiver believes the powers are insufficient he/she will be expected to apply to court for an extension of his/her powers. The court may give additional directions to the receiver at any time after his/her appointment.
56.2.141 What does a receiver do?
It is not possible to give a detailed description of what a court appointed receiver does because of the many different circumstances for which they may be appointed. A receiver may be instructed by the court to manage a business, to collect rents, to sell assets or just ensure that property is preserved pending resolution of a dispute. The Bank of Credit and Commerce International SA v BRS Kumar Brothers Limited is an example of the appointment of a receiver to deal with the deliberate misapplication of charged assets by the directors of an insolvent company.
56.2.142 Receiver’s application for directions
The receiver may apply to the court for directions at any time for his/her duties [Note 21]. Where the directions sought by the receiver are unlikely to be contentious or important to the parties he/she may make his/her application to court for directions by letter. The court may reply by letter or, if it believes a letter is inappropriate, direct the receiver to file and serve an application notice [Note 22].
56.2.143 A receiver’s entitlement to remuneration and expenses
A receiver may charge remuneration where the court so directs and specifies the basis by which the receiver is to be remunerated. The court may say who will be responsible for paying the receiver and the fund or property from which the remuneration may be recovered. Unless the court directs otherwise the receiver will only be able to recover his/her remuneration after its amount has been determined [Note 23]. Paragraph 52.6.146 provides examples of where a receiver may not be entitled to any remuneration. The receiver is entitled to his/her costs, charges and expenses, including the expenses of carrying on the business [Note 24].
56.2.144 How the receiver’s remuneration is determined
The court will generally grant remuneration to the receiver that is reasonable and proportionate after taking into account:
56.2.145 Evidence required by the court to support a claim for remuneration
The court requires written evidence to be submitted by a receiver when applying for his/her remuneration to be agreed. The evidence must show on what basis the remuneration is claimed, confirm that it is claimed in accordance to the rules and be accompanied by a certificate, signed by the receiver, stating that the remuneration is reasonable and proportionate [Note 26]. The court may request additional information from the receiver and/or appoint an assessor to help determine the level of remuneration [Note 27].
56.2.146 Examples where the receiver has not received remuneration
A trustee who is appointed receiver over trust property is not generally entitled to remuneration [Note 28]. A legal mortgagee in possession who is appointed receiver is not allowed remuneration [Note 29]. Where the court appoints an interested party remuneration may, or may not be paid, see paragraph 56.2.132. The court has sometimes refused to allow remuneration where the receivership is uncomplicated and covers property of relatively little value [Note 30].
56.2.147 Priority of payment of the receiver’s remuneration and expenses
Where agreed, the receiver has the right to be paid his/her remuneration and costs after the payment of the costs of realisation and any overriding charges outside the action but before all other claims [Note 31].
56.2.148 The receiver’s accounts
The court may order the receiver to prepare and serve accounts [Note 32]. In this instance the court will direct the receiver to prepare accounts by a given date or in specified intervals and state on whom they must be served [Note 33].
56.2.149 Discharge of the receiver
A court appointed receiver can only be discharged by order of the court upon the application of the receiver or any other party [Note 34]. This rule has been held to be permissive and a court may discharge the receiver before the completion of his/her duties [Note 35] for example where the appointment has become unnecessary [Note 36]. Where the receiver has completed his/her duties the receiver, or any other party, must apply for an order discharging the receiver and cancelling the security, see paragraph 56.2.137.
56.2.150 Discharge of the receiver – company liquidation
Where a company goes into voluntary or compulsory liquidation a receiver appointed by the court is not automatically discharged [Note 37]. In some instances the receiver may be discharged and replaced by the liquidator [Note 38]. A liquidator in a voluntary liquidation who is also a court appointed receiver may be removed from the office of liquidator by the unsecured creditors [Note 39].
56.2.151 Discharge of the receiver – bankruptcy of the debtor
The bankruptcy of the debtor does not result in a court appointed receiver being automatically discharged [Note 40]. The official receiver should consider the circumstances of the bankruptcy and the guidance of Technical Section before making an application to the court for the discharge of the receiver, see paragraph 56.2.193.
56.2.152 The official receiver and court appointed receivers
Where the official receiver has to deal with a court appointed receiver as a result of a winding-up order or bankruptcy order being made see the guidance in Part 6. Court appointed receivers are rare because less expensive and/or more productive alternatives are available.
[Back to Part 4 Law of Property Act receiver] [On to Part 6 Receivers: post insolvency order issues]