The current economic climate provides much talk of insolvency. The law surrounding it is complex and the liabilities and obligations of the various parties involved vary widely.
However, riding to the rescue is a much simpler mechanism when dealing with property: Fixed Charge Receivership (also known as LPA Receivership).
This is not a new idea. An LPA receiver is appointed by reference to the provisions of the Law of Property Act 1925. It is that Act, the mortgage deed and the detail of the fixed charge that enables a receiver to be appointed by the lender in the event of default.
Focus on maximising asset value
Appointment by virtue of a fixed charge means that the focus is on realising best value from the asset that has been charged; not on the insolvency or liquidation of a company. That asset may be real estate but may also include plant and machinery, a business (and the staff and TUPE implications which run with that business) or any other specific asset.
Advantages of LPA over other forms of insolvency
The LPA mechanism has material advantages over other forms of insolvency:
- Speed and ease of appointment
- No necessity to appoint a licensed insolvency practitioner
- The ability to appoint receivers with specialist knowledge of the asset
- Simplified Companies House procedures
- The ability to focus upon the asset charged and not the company
- Much reduced costs of the receivership
Dependent upon the nature of the mortgage deed, a fixed charged receiver may be empowered not only to sell the property in order to discharge the debt, but to also have authority to work, or trade, the charged property to the best commercial advantage. There is a clear duty to the borrower to maximise value.
Understanding legislation and obligation essential
Any fixed charge receiver therefore needs an expert understanding of the asset upon which the charge is secured, be it land and buildings, plant and machinery or a business. They must have an understanding of the relevant legislation surrounding receivership and be prepared to coordinate and manage the various roles of asset management, property management and accounting, valuation and agency.