Accepting an instruction on insolvency

Conflicts of interest

A conflict of interest may arise if the practitioner has had previous involvement with the:

  • property
  • property owner or borrower
  • tenant or subtenant, or
  • mortgagee.

Advising a receiver/insolvency practitioner or a mortgagee

When advising a receiver/insolvency practitioner or a mortgagee, consider whether there has been any previous involvement with the property, the borrower (this will include any directors or shareholders of the borrower company) or the tenant. If so, how might this conflict with the instructions to advise the receiver/insolvency practitioner or mortgagee? Generally, a practitioner who has previously advised the tenant or the borrower is unlikely to be able to advise the receiver/insolvency practitioner or mortgagee independently.

A little more difficult to judge is whether a conflict arises if the practitioner has previously valued the property for loan security purposes on behalf of the mortgagee. The risk for the practitioner is that the mortgagee or insolvency practitioner may subsequently consider whether they have grounds for action against the practitioner for a negligent valuation. If, for example, the practitioner has acted on behalf of the insolvency practitioner or mortgagee and sold the property that they previously valued, and this results in a shortfall on the debt owed to the mortgagee, this may close off potential defences on which the practitioner would otherwise seek to rely, should action be brought.

Advising a landlord

When advising a landlord who has solvency difficulties, the practitioner will need to consider their relationship with the mortgagee (this will include, for example, whether the practitioner has valued the property on behalf of the mortgagee) and their relationship with the tenant. If the practitioner is asked to advise the landlord due to the tenant having solvency difficulties, then any previous relationship with the tenant would also need to be considered. In addition, a practitioner who has valued the property on behalf of the mortgagee will then need to consider whether they are under a duty (under the terms of the retainer with the mortgagee) to advise the mortgagee of the tenant's financial difficulty.

Advising a tenant

When advising a tenant, a practitioner will need to consider their relationship with:

  • the mortgagee (including whether the practitioner has provided a valuation of the property for loan security purposes) and
  • the landlord.