LPA receiverships sit under the Law of Property Act, 1925, and grants powers to the creditor to intervene, should the borrower fail to make payment.

Jonathan Munnery, a company liquidation specialist at UK Liquidators, explains what LPA receivership entails for creditors and debtors.

What is LPA receivership?

If a company defaults on a secured loan involving property or another legal fixed charge on a property, the secured creditor, also known as the charge holder, can assume control of the property. An LPA receiver is often appointed following failed attempts to collect payment from the borrower, such as a formal demand.

The creditor will appoint an LPA receiver, and the company will enter LPA receivership, also known as fixed charge receivership. A licensed insolvency practitioner or chartered surveyor will act as an LPA receiver. An LPA receiver’s role differs from a liquidator’s, as while a liquidator acts in the best interests of all creditors, an LPA receiver acts on behalf of one, typically a bank or lender.

When a company enters LPA receivership, it must comply with LPA law and the terms and conditions of the associated fixed charge debenture. The receiver will set out to act in the best interests of the charge holder and secure the property. Once a company enters receivership, the future of the business may be under threat, regardless of whether it is insolvent or not.

What happens when a company enters receivership?

LPA receivership provides a route for the fixed charge holder to gain control over the secured asset and find a way to raise funds so the outstanding debt can be settled. This path may be pursued in the event of a lapsed mortgage. The LPA receiver may explore various routes to raise money, such as:

• Collect the income generated from the property
• Use the income generated to insure the property
• Grant a lease over the property
• Sell the property if no agreement can be reached

An LPA receiver may also investigate the director’s conduct to ascertain why the borrower failed to uphold their contractual obligations. While they will exhaust every avenue before selling the property, this is a real possibility which threatens the future of the business. Seizing control of the asset can disrupt company operations as the company director has no control over the process.

When does receivership come to an end?

Receivership typically ends once the fixed charge has been discharged, terminating the receiver’s control over the asset. A company can avoid receivership through early intervention from a licensed insolvency practitioner. An insolvency practitioner may propose entering administration to provide breathing space, while a long-term plan to get company finances into order is devised.

Our thanks to guest author Jonathan Munnery of UK Liquidators (part of Begbies Traynor Group).