Fixed charge receivers: Everything you need to know

In the current economic climate, lenders are increasingly appointing receivers to recover secured debt.

A common question is the difference between an LPA Receiver and a Fixed Charge Receiver, and what practical and legal benefits each offers to a lender.

What Does a Fixed Charge Receiver Do?

A Fixed Charge Receiver is usually appointed by a lender when a borrower defaults on a loan secured against property. Their role is to take control of the property, protect the lender’s interest, and recover as much of the debt as possible.

The receiver’s powers help recover debts efficiently for the lender. When assets are sold, receivers must account for the proceeds and distribute them according to the law or the security agreement.

Secured creditors are usually paid first, with any remaining funds distributed to unsecured creditors according to their priority.

Our Secured Lending and Property Litigation teams have extensive experience advising lenders and Fixed Charge Receivers.

For further help, please get in touch with our team at Orwins today.

What Is the Difference Between LPA Receiver & Fixed Charge Receiver

LPA Receiver and Fixed Charge Receiver are often used interchangeably, but there is an important difference between them.

Understanding the distinction is very important.

The powers of an LPA Receiver are derived from the Law of Property Act 1925 (“LPA 1925”).

Such powers are extremely limited, and whilst the LPA Receiver has the power to collect rent, they have no power of sale.

A Fixed Charge Receiver is appointed under the terms of the legal charge, which usually gives them wider powers than those set out in statute.

When acting for lenders, it is important to ensure security documents are drafted to give the receiver the powers needed to maximise recoveries. Typical powers include:

● The power to sell the property

● Take possession of the property.

● Complete any development of the property.

● The power to lease and manage the property.

Many legal charges include a general provision allowing the receiver to do anything the property owner could do, but this is not guaranteed.

A Fixed Charge Receiver acts as the agent of the borrower, not the lender, even though the lender appoints them. The receiver’s independence must be respected, or the agency relationship may end.

LPA Receivers and Fixed Charge Receivers have similar roles, but differ in how they are appointed and the powers they hold.

All parties need to understand these differences, Fixed Charge Receivers help manage and realise secured assets to maximise value and ensure fair distribution among creditors.

Considerations When Appointing a Fixed Charge Receiver

A Fixed Charge Receiver is appointed without court involvement, following a set process. Generally, the lender is not responsible for the receiver’s actions.

Before appointing a Fixed Charge Receiver, a lender should seek legal advice to:

● Check the security documents and legal charges are valid.

● Confirm the right to call in the loan. Some loans are repayable on demand, which can make the process more straightforward.

● Make sure the borrower has failed to meet their obligations under the security documents, and that they have been given the chance to pay what is owed.

A Fixed Charge Receiver can only be appointed if the borrower does not pay after a valid demand.

Fixed Charge Receivers must aim to achieve the best price possible when selling assets.

Receivers should keep clear records of their decisions, especially if the borrower disagrees with how the property is marketed or sold.

Frequently Asked Questions

Can a fixed charge holder appoint a receiver?

Yes, a fixed charge holder (usually a secured lender) can appoint a receiver if the borrower defaults on their loan. This is often done under the terms of the loan agreement or the Law of Property Act 1925 (LPA) allowing the receiver to take control of, manage, or sell the charged property to recover the outstanding debt.

Who are LPA receivers?

LPA receivers are receivers appointed under the Law of Property Act 1925 wherein a lender usually appoints them to take control of a property when the borrower has defaulted on a loan secured against it.

LPA receivers have the authority to collect rents, manage the property, or sell it on behalf of the lender. Their powers and duties are limited to the property specified in the fixed charge, and they must act in the best interest of the secured lender.

Are receivers personally liable?

Receivers, including Fixed Charge and LPA receivers, generally are not personally liable for debts or obligations related to the property they manage, as long as they act within the scope of their appointment and in accordance with the law.

However, they could become personally liable if they act negligently, breach their duties, or exceed their authority. For example, they must ensure that the property is managed in compliance with legal requirements, such as health and safety regulations.

What are the fees for LPA receivers?

The fees for LPA receivers can vary depending on the property's complexity and the work involved.

Typically, the receiver’s fees are agreed upon at the time of appointment and are usually paid from income generated by the property (like rent) or from the proceeds of the sale. The exact fee structure will depend on the agreement between the lender and the receiver, and it may include a combination of fixed fees, hourly rates, or a percentage of the sale proceeds.