Receiver not in breach of duty by including secured property in a portfolio sale

Insolvency Bitesize - March 2019

The High Court has held that receivers are not automatically in breach of their duty to take proper care to obtain the best price reasonably obtainable for secured property where they choose to market and sell that property as part of a portfolio rather than individually.

In McDonagh v Bank of Scotland plc & others [2018] EWHC 3262 (Ch), the High Court confirmed, however, that what a receiver must do is ask themselves whether a portfolio sale is likely to be in the best interests of the chargor. If they do not, there will be a breach of duty. It is not enough to simply want to help the secured lender or owners of other properties where appointed receiver.

Case law establishes that where there is a conflict of interest between a chargor and a chargee as to the timing and method of sale of secured property, a receiver is (broadly) entitled to advance the interests of the chargee at the expense of the chargor. However, counsel for the receivers accepted that such case law could not be extended to situations involving the sale by a receiver of secured property as part of a portfolio. Instead, the receivers had to consider whether a portfolio sale was in the best interests of the chargor.

While selling secured property separately might be conventional, there may be occasions where a portfolio sale is more beneficial to the chargor. For example, the proceeds of a portfolio sale might exceed a sale of each property separately, a portfolio sale may enable all properties in the portfolio to be sold rather than being left with some unsold properties, it may be quicker to conduct a portfolio sale or the costs of selling might be less than conducting individual sales.

Accordingly, the decision whether to include a secured property as part of a portfolio sale involves an exercise in judgment such that an error of judgment, without more, would not be a breach of duty by the receiver (and on the facts there was no such breach).

The decision will be of equal relevance to sales by mortgagees (in possession) and security agents.