March 2001
69.1 Introduction
This chapter deals with receivers appointed under the Law of Property Act 1925 (hereinafter referred to as LPA). All other types of receivers are dealt with in Chapter 56 - Alternative Corporate Procedures, Part 3, and Chapter 9 - Action against the property of the insolvent, Part 1.
69.2 General
An LPA receiver is appointed under the Law of Property Act 1925 and has the powers and duties specified in and limited by that Act. Where an appointment is solely under the LPA, the receiver appointed by the lender will only have the powers set out in section 109(3) and (7) (see paragraph 69.13).
Section 101 (3) of the LPA provides that the provisions of the LPA regulating the powers of a receiver and their exercise may be varied and extended by the mortgage deed.
Receivers generally referred to as Law of Property Act (LPA) Receivers fall into the following two categories:
In the case of receivers appointed under an express power in a mortgage deed, the term LPA receiver is strictly speaking a misnomer (the correct term being fixed charge receiver) but it is the term that is frequently used. Most modern mortgage deeds contain an express power to appoint a receiver and it is now rare for a lender to rely on the power implied by the LPA.
LPA receivers can be appointed in respect of the property of companies, partnerships or individuals.
Notes: [LPA s109 (3) & (7)] [LPA s101 (3)]69.3 Law of Property Act 1925
The LPA is an Act to consolidate the enactments relating to conveyancing and the law of property in England and Wales and, although more than 75 years old, has direct relevance to our work today. The sections of the Act relating to receivers are 99 to 110.
69.4 "Property"
The LPA defines property as "any thing in action, and any interest in real or personal property". This is a wide definition.
Notes: [LPA s205(xx)]69.5 "Receiver"
Any reference in the Insolvency Act 1986 or Companies Acts to a "receiver" or "manager of the property of a company", includes a receiver or manager of the property of a company, or (as the case may be) a receiver of part only of that property and a receiver only of the income arising from the property or from part of it.
This encompasses an LPA receiver, in respect of company property, who must comply with the requirements of the Insolvency Act (see paragraphs 69.28 and 69.29).
The definition of a receiver in section 29 of the Insolvency Act does not apply to appointments in relation to individuals.
Notes: [s29]69.6 When an LPA receiver can be appointed
A lender who has a fixed legal charge on a property has a power under the LPA, when the mortgage money has become due, to appoint a receiver:
(i) of the income of the mortgaged property, or any part thereof; or,
(ii) if the mortgaged property consists of an interest in income, or of a rent charge or an annual or other periodical sum, a receiver of that property or any part thereof.
A mortgagee owes no duty of care in effecting the appointment of a receiver. The mortgagee is contractually entitled to exercise its right to appoint a receiver and, in deciding whether to do so, it owes no duty of care to the mortgagor or guarantors. It has a right to appoint a receiver to protect its interests and its decision to do so cannot be challenged except perhaps on the grounds of bad faith (Shamji v Johnson Matthey Bankers Ltd [1991] BCLC 36).
Notes: [LPA s101(1)(iii)]The power of the lender to appoint a receiver under the LPA will only arise when the lender is able to exercise its power of sale under the mortgage. The power of sale arises when the mortgage money has become due but cannot be exercised unless and until one of the following has occurred:-
(i) Notice requiring payment of the mortgage money has been served on the mortgagor, or one of two or more mortgagors, and default has been made in payment of the mortgage money, or of part thereof, for three months after such service; or
(ii) Some interest under the mortgage is in arrears and unpaid for two months after becoming due; or
(iii) There has been a breach of some provision contained in the mortgage deed or in the LPA, or in an enactment replaced by the LPA, and on the part of the mortgagor, or of some person concurring in making the mortgage, to be observed or performed, other than and besides a covenant for payment of the mortgage money or interest thereon.
The official receiver should note that most modern mortgage deeds;
1) contain an express power to appoint a receiver whenever the security created by the deed is enforceable; and
2) exclude the operation of section 103 of the LPA and extend the power of sale.
Notes: [LPA s109(1)]