The Law of Property Act – sometimes known as fixed charge receivership – is a process a lender can use to recover their debt when a borrower falls into arrears. Receivership can only happen when there is a secured loan involved; this is typically a mortgage or other legal fixed charge on a property. The LPA receivership process allows a lender to assume control and ownership of the property once it can be shown that the loan has been defaulted on.
A receiver will be appointed to facilitate the process once it has been determined that this is the preferred course of action. Lenders will typically first make a formal demand on the borrower once a default has been registered, however, if payment is still not forthcoming, receivership may be the only appropriate way forward.
Receivership is not a formal insolvency procedure; therefore, a company does not have to be classed as insolvent before the receivership process can begin against them. Despite this, licensed insolvency practitioners are frequently appointed to act as receivers in these types of situations.
The appointed receiver will act in the best interests of the lender, which means doing all that is possible to recover the money owed in a timely manner. They have the power to force a sale of the property, or in some instances, they can collect rent on the property and forward this to the lender.
Once appointed, the receiver will assume full responsibility for managing the property and will assume the role of owner. They will collect rent (if applicable), liaise with current occupants, as well as dealing with wider issues such as repairs, damages, and insurance requirements. This means the actual owner of the property is not allowed to deal with the property while the receiver is in place.
Once the receivership process has started, it can be extremely difficult for a debtor to challenge. This is because mortgage/debenture documents are compiled in such a way that give provisions for lenders to recover debt which goes unpaid.