Receivers

A receiver may be appointed to mortgage a property in order to exercise the powers prescribed by the mortgage. Generally, they include powers to receive and collect the rent and pay it to the mortgagees/charges. Often the receiver will have more extensive powers, including powers to sell.

A receiver may be granted only in relation to property comprising the mortgage. This may be land and buildings only or a wider category of assets. The Bill of Sales Act makes it practically impracticable for an individual to grant a charge on removable goods. Accordingly, most or all asset company charges are granted by companies only.

The Conveyancing Act grants the statutory power to appoint a receiver in the case of all mortgages by deed. The statutory powers are relatively limited.

See the sections on insolvency in relation to the much wider types and categories of receivers that may be appointed under a floating charge debenture. Formerly, an all-assets receiver could be appointed in relation to a floating charge. Administrative receivers. Now, only an administrator may be appointed.

The Conveyancing Act requires certain preconditions for the appointment of a receiver. They are identical to those applicable to the exercise of the power of sale. They require three months’ default after notice of payment, two months’ interest in arrears, or breach of other conditions. These conditions may be varied and altered and almost invariably are.

The appointment of a receiver must be in writing. In the case of a corporate receiver, it must be accepted within one day. Notice of the filing of the appointment must be filed in the company’s office.

Any person may take charge as a receiver other than the company. In contrast, all-asset receivers/administrators must be insolvency practitioners.

The high court may order a lender to indemnify a receiver in respect of liability arising from the invalidity of the appointment.

The receiver is deemed the agent of the mortgagor. The mortgagor is responsible for his actions or defaults for all purposes. This is a special artificial agency which may not be terminated by the mortgagor. The effect is that the receiver’s acts in default are attributable to the mortgagor. This makes the receiver an attractive mechanism for enforcing security.

The receiver has statutory powers to demand and collect rent, to give receipt, and to insure the property. The receiver does not have statutory power to lease or sell. The mortgagee does have such powers which could be exercised by the receiver as his principal agent. Commonly, mortgage deeds grant these powers to the receiver.

The receiver has a duty to collect rents and account to the mortgagee. Duties owed to the mortgagor (borrower) are duties to act in good faith and with due care. However, the time of sale is a matter where the receiver/mortgagee. The extent to which the duties exceed the duty to act in good faith depends on the circumstances.

The primary duty of the mortgagee is to repay the debt. Subject to that, it is obliged to manage the property with due diligence, although this does not necessarily require the business to carry on the same business as the mortgagor. If he does carry on a business, he must take reasonable steps to do so profitably.

A receiver must not purchase the property himself or act as an agent for the purchaser unless he discloses the decision to all parties, including the borrower. The Estate Agency Act 1979 requires that the estate agent must have no personal interest in the land without disclosing it to relevant parties.

The receiver is entitled to remuneration up to 5 percent of the gross monies received, as specified in its appointment. If no rate is specified, a 5 percent commission applies or such a higher rate as the court thinks fit.

The receiver must apply the proceeds of sale in accordance with the statutory order which provides for:

• Payment of rent (superior rent), taxes, rates, and outgoings
• Paying annual sums, including interest, having priority to the mortgage of which he is a receiver
• Paying commission insurance
• Paying interest on the mortgage and paying the balance to the person who is entitled to receive the income

Where a receiver sells land, he does so as the attorney of the borrowers. Therefore, lower-ranking charges must be released, as the statutory power of sale is free from low-ranking encumbrance, which is not present. A purchaser buying from the receiver is not obliged to inquire as to the disposition of the proceeds.