In light of a recent decision in which the court assessed the decisions taken by receivers when selling property, we revisit the powers and duties of receivers and the importance of obtaining independent valuation evidence and keeping records of decisions.
There are typically two types of receivers:
Receivers’ specific powers are set out in the instrument or order appointing them, in addition to any statutory powers applicable (such as the powers under s 109 of LPA for LPA receivers or set out in schedule 1 of the Insolvency Act 1986 for administrative receivers).
Although appointed by the chargee (usually a lender), receivers owe a duty of care to the chargor (usually the company borrower), obligor and any guarantor of the liabilities secured by the charge. When dealing with the sale of properties, receivers have a duty to achieve ‘true market value’ or the ‘best price reasonably obtainable‘ (Michael v Miller [2001] EWCA Civ 282). Receivers regularly face allegations of breaching this duty but the courts will generally take a pragmatic approach when assessing how receivers have exercised their powers. The Courts have previously found that receivers:
Ensuring that these duties are complied with (and documented) and mitigating the risk of criticism is key for receivers. For our top hints and tips, see our article here.
Serene Construction Ltd (the
There were a number of hurdles in preparing the report, as Salata struggled to obtain information from the directors of the Company and there were mixed messages from the local planning department as to whether the planning permission had lapsed (as work is required to commence within 5 years of the date of the application to prevent the permission lapsing). Salata considered that the houses included in the original planning permission were too large and upmarket for the area and would be difficult to sell and therefore advised the Bank that a smaller development might be more ‘saleable’ and suggested an architect be engaged to draw up new plans. The expected revenue would then be in the region of £350,000 - £400,000.
Mr Salata and Mr Jorden of Salata were appointed as fixed charge receivers over the development site by the Bank in January 2012 (the
The Company issued a claim against the Receivers for breaching their duties to take reasonable steps to achieve the best price possible[1] alleging that the Receivers had:
As a result the Company claimed £400,000 plus costs.
The matter was heard by HHJ David Cooke in the High Court in August 2021.
Both parties had obtained expert evidence, but the Judge preferred the Receivers’ evidence (not least because the Company’s expert report was not CPR compliant, did not provide any basis or calculations for the valuation provided and did not provide any estimates for fees or costs of development) which provided a valuation of £200,000 without planning permission. There was also a contemporaneous and independent valuation from 2012 from a third party who provided finance for the successful purchaser, which placed the value at £175,000 without planning permission – which was the basis for the offer that was ultimately accepted.
The Judge found that the Receivers had not breached their duties in instructing the estate agent they did; they had acted reasonably in identifying a suitable person to provide advice on the value and the duty is not prescriptive about who that person should be. The agent was highly experienced and reputable and had worked with the Receivers previously in similar situations. There was no evidence before the court that using a different agent would have produced a different outcome.
The Receivers had taken specific advice from the agent regarding how best to market the property. The decision to market to a select group of developers without a guide price was a deliberate decision based on the agent’s advice, an approach which the Judge found was not unreasonable in the circumstances. There was no evidence that the Receivers had done so by way of a shortcut or without attention to the objective to achieve the best price.
Based on the expert evidence valuation of £200,000, the sale price of £175,000 was not at a significant undervalue and balanced the risk of remarketing the property causing potential costs and delay without any certainty of achieving an increased offer.
The Company’s claim was dismissed.
This case highlights the importance of obtaining independent valuation evidence at the time of marketing a property, as well as following any advice on how to go about the marketing of the property. It emphasises the vital importance of recording all decisions, discussions and correspondence as to how a price was reached or why a specific offer might have been accepted over another, which may be crucial upon any challenge or allegation of a breach of duty.
For further information on this article, please contact Cathryn Butler or another member of our Restructuring & Insolvency team.
[1] The Company also issued a claim against the valuer firm Salata itself, although as receiver appointments are personal, this was later dropped.