Banks and lenders have often eschewed LPA Receivership as a route of safeguarding their investment but their popularity as a procedure to realise secured debts is on the rise.
Figures recently published for the second quarter of this year by the insolvency trade body R3 showed that the number of LPA Receiverships rose by almost 16% compared to the previous quarter. During the same period the number of administrations fell by almost 10% which only serves to highlight the importance and the popularity of the LPA Receiver as a tool to enforce security. Whilst the LPA Receivership is a tried and tested method of recovery one major change in recent times has been an increase in LPA Receivers working with the secured lenders prior to a formal appointment being made to maximise any recovery on distressed loans.
LPA Receivership is now often the default position in cases involving properties but are there any downsides and how might LPA Receivership be used to your advantage? Advantages of LPA Receivership are:
Time – unlike mortgage repossession proceedings there need be no time lost between the decision to appoint an LPA Receiver and the actual appointment.
Limited Documentation (and therefore cost) – generally the only documents required to appoint an LPA Receiver are the written appointment documentation and the acceptance by the LPA Receiver. However, most secured lenders and LPA Receivers would expect advice on the validity of the charge and on the appointment.
The LPA Receiver is immediately in a position to receive rent or market the property.
Downsides to LPA Receivership:
If the property is occupied by a non-paying tenant then the LPA Receiver will have to issue proceedings for possession as would the secured lender. In such a situation there is a duplication of fees.
If the property is a commercial property and goodwill is attached to an insolvent tenant rather than the property then the goodwill will still be at risk.
No moratorium over other creditors’ methods of enforcement.
Predictions for the remainder of 2011 continue to suggest a testing time and any increase in interest rates will put more pressure on both secured lenders and borrowers. In fact a rise in interest rates may leave some with little choice but to appoint Receivers. All the signs suggest that the number of receivership may well increase as the year progresses.
Whilst being relatively inexpensive and straightforward LPA Receiverships are not without their difficulties. Advice is required to ensure the security documents contain the power to appoint, that the appointment has been done validly and that the receivers are acting within the scope of their powers.
Joe Speakman, Solicitor, Insolvency Team, Manchester
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