Duties of receivers on sale: clarity
Insolvency Bitesize - October 2020
A recent decision provides helpful clarity on the duties owed by receivers and their extent.
In Re Centenary Homes Ltd  1080 (QB), the receivers sold two properties together, when the sale of just one would have discharged the secured debt. They also did not take out a form of indemnity insurance (to address a lack of formal planning consent for change of use) which may have been attractive to buyers.
Receivers owe a duty to act in good faith and for proper purposes - namely to preserve, exploit and realise the assets comprised in the security. In addition, they owe two discrete duties (these do not require proof of a breach of good faith):
- to take reasonable care to obtain the best price reasonably obtainable; and
- a secondary duty (subordinate to the receivers' primary duty to manage the security for the benefit of the secured creditor) to exercise care to avoid preventable loss.
Based on these duties, the High Court confirmed that there was no duty on receivers only to sell so much of the charged property as was required to repay the secured debt. Such a freestanding duty would conflict with the general principle that, when deciding whether and how to exercise their powers, a receiver was obliged to give priority to the interests of the mortgagee in securing payment. In particular, upholding earlier decisions on point, the court held that receivers enjoy a degree of latitude as to the timing and method of sales. As such, they are entitled to sell a property in the condition it is in (i.e. without planning consent) without awaiting or effecting any increase in value or improvement in the property.
Similar reasoning would apply to administrators, mortgagees in possession and security trustees (subject to any contractual amendments).