Accepting an instruction on insolvency

Due to the technical nature of this area of practice, surveyors should consider carefully the degree of competence they have in relation to insolvency and to the scope of their proposed retainer before deciding whether to accept an instruction in an insolvency situation.

Advising a receiver/insolvency practitioner or a mortgagee

A receiver/insolvency practitioner or mortgagee's objectives may be rather different from that of a property owner with no financial difficulties. Generally, such clients will be looking for a prompt realisation of an asset within an abbreviated marketing period. Businesses or property assets may lose value during any period in which they are subject to an insolvency process, particularly where this is prolonged, so speed and responsiveness is often of the essence. There are certain obligations on the part of the receiver/insolvency practitioner or mortgagee in relation to the price at which they sell the property and therefore the transaction may be subject to additional scrutiny. This may differ from advising a client in a normal agency-type situation, and with an investment/development client.

Practitioners need to consider whether they have the specific expertise to:

• advise a receiver/insolvency practitioner/mortgagee and
• deal with the property asset class that is the subject of the instruction.

The property involved may also include plant and machinery and the goodwill of a business. A practitioner with no experience or insufficient experience of dealing with the property type involved, or the nature of the transaction contemplated, would be well advised to decline the instruction or instruct an agent in respect of that element of the engagement.

Acting as a fixed charge receiver

A practitioner should not take on an appointment as a fixed charge receiver without any previous experience. This is fundamentally different to acting as an agent.

Not only is a wider range of skills required but there are also significant legal responsibilities. A receiver should also ensure insurance is in place to cover this different role.

Note that if there is a defect in the terms of a receiver's appointment, the receiver (and the secured lender appointing it) may be exposed to a claim of trespass and for damages by the debtor or any other interested party. This may include a claim for conversion, which could result in personal liability. It is good practice for a receiver to take independent advice on the terms of their appointment, including a review of the security under which the appointment arises, and to seek an express indemnity from their appointer in relation to any proper actions taken by the receiver during their appointment. The terms of appointment will also set out the basis of the receiver's remuneration. The appointment of the receiver must be made, and accepted, in writing. The appointment is of no effect unless it is accepted by the receiver before the end of the following business day.

The receiver is granted some limited statutory powers under the Law of Property Act 1925, but generally the extent of a receiver's powers is set out in the mortgage document. This will normally be wide, and typically includes a specific right to sell and collect rent. A receiver will need to exercise particular care where it is requested to carry out activities that are unusual in the context of a typical receivership – such as to conduct litigation, seek planning consent or operate a business. A receiver is also only appointed over those assets subject to the lender's fixed charge. This may mean that chattels assets at the property cannot be used by the receiver to continue any trading.

A receiver should also ensure that any contracts entered into by the receiver following appointment should contain exclusions of personal liability and describe the receiver as acting as an agent for the debtor. Generally, a receiver will not be personally liable under pre-existing contracts. A receiver's ability to act as an agent of the debtor will be affected by the debtor entering another insolvency process, such as liquidation.

A receiver assumes a general duty to take reasonable care in the exercise of their powers. In selling assets (such as a property), this entails an obligation to obtain the best price reasonably obtainable at the time the receiver decides to sell, but there is no obligation to take steps to enhance the value or to defer the timing of a sale to await an improvement in the available market.
This section is not intended to be a detailed guide on how to act as a fixed charge receiver. Independent advice should always be sought.

Advising a landlord

Typically, a practitioner becomes involved in advising a landlord where the tenant is in financial difficulties and is therefore unable to meet rental or other contractual obligations.

A practitioner should be alert to any indications that a tenant may be in financial difficulties – such as missed payments, requests to pay in instalments or for rental concessions, and (in a wider context) poor financial results or profit warnings.

In such circumstances, a practitioner should be persistent in collecting all sums owed and assess with their client the extent of the tenant covenant package. Specifically, this should include whether there is additional recourse in the case of tenant default – such as a rent deposit or third-party guarantee (including an authorised guarantee agreement) – or a right to request additional covenant protection. Such an assessment is important since it may enable a landlord to improve their position before the onset of an insolvency process, which may limit their ability and scope to recover sums owed in full, or at all.

When advising a landlord whose tenant has financial problems, the practitioner requires a relatively wide range of skills and understanding, such as:

• an understanding of the legal issues surrounding insolvency, and specifically any statutory restrictions (such as the statutory moratorium while in administration) that may prevent the usual types of enforcement against defaulting tenants
• an understanding of the impact of the actions that the practitioner may advise the client to undertake, and
• an understanding of the impact of the valuation on the client's freehold interest.

Advising a tenant in financial difficulties

Advising a tenant is, in effect, the other side of advising a landlord whose tenant is in financial difficulty. It may cover either personal or corporate insolvency. Such advice is generally best left to a lawyer or an insolvency practitioner, who will typically seek specialist advise from a chartered surveyor on property issues. An insolvency practitioner will generally advise a tenant on the most appropriate way to restructure their affairs – for example, by an agreed rescheduling of their existing debt, or by use of LPA receivership, administration, liquidation/bankruptcy or a company/individual voluntary arrangement.