Joanna Lampert, Partner
Mishcon de Reya
Welcome to the latest edition of Mishcon de Reya’s Property Litigation Watch podcast. I’m Joanna Lampert, a Partner in the Property Litigation Group at Mishcon de Reya and I’m delighted to be talking to Victoria Liddell of Allsop on the subject of receivership. Victoria is a Partner of Allsop and heads up the Recoveries and Receivership team. She is a qualified Fixed Charge Receiver and has worked with most of the major banks, including RBS and Lloyds Banking Group, NAMA and more recently, various challenger banks. Tor and I have had the pleasure of working on dozens of receiverships and she is truly one of the most experienced receivers operating in the UK market.
Tor, thanks for joining us.
Victoria Liddell
Allsop
Thank you for that kind introduction, Jo.
Joanna Lampert, Partner
Mishcon de Reya
Many of our listeners will have heard of the term LPA receiver or fixed charge receiver but there’s still a lot of mystery surrounding the role. So, can you tell us what does a fixed charge receiver actually do?
Victoria Liddell
Allsop
Good question. So, I think just to sort of take a step back, a fixed charge receiver is effectively a blunt tool for a lender or anybody with a charge over a property to recover their security. So, a fixed charge or LP receiver will be appointed, generally over a property and their main duty is to repay the debt.
Joanna Lampert, Partner
Mishcon de Reya
So, what sort of clients do you find yourself acting for?
Victoria Liddell
Allsop
Goodness, you gave a couple there but really across the board so, I think the examples of RBS, Lloyds, NAMA, that’s really where I kind of started my career in the last recession, you know, now we look at the lending market and there are so many players out there, the alternative lenders, countless bridging houses, and we even find ourselves working for individuals who have taken security over an asset as repayment of a debt for some reason, whether it’s professional services or any debt for another reason. So, you know really across the board and I think daily, we find new lenders and new charge holders to work with.
Joanna Lampert, Partner
Mishcon de Reya
So, it’s not just big banks, it’s anybody that’s got the benefit of a legal charge secured over property?
Victoria Liddell
Allsop
Yes.
Joanna Lampert, Partner
Mishcon de Reya
So, you’re mainly on the lender side. I sometimes see a receivership from the other side. I’ve acted both for lenders and receivers often instructed by you but I’ve also acted for those on the receiving end of receiverships and perhaps we’ll talk in a little bit about how borrowers should respond to the threat of receivership. But for now, let’s talk a bit about how a receiver is appointed. What’s the actual process if a lender wants to appoint a receiver?
Victoria Liddell
Allsop
The process is extremely simple. So, the lender makes formal demand and once formal demand has been made, effectively appoints a receiver under a deed, or using a deed, the timeframe for that to happen varies from case to case but it can be as quick as a couple of days and the period between demand and appointment can be practically instant, just providing the borrowers time to repay that debt and after it has become due. So, it is a very simple process, there’s no, no need for a lender to go to court, only that there is a debt and that it is due and that the lender has the ability to make that appointment.
Joanna Lampert, Partner
Mishcon de Reya
Yes, absolutely and often, often one of the first stages when the lender comes to us is to ask us to check the validity of the charge and their ability to appoint a receiver and often it’s as simple as sort of just checking all the key components are present in the legal charge, including the power to appoint the receiver and then, as you say, it can be as simple as simply making a demand for immediate repayment and then the next day, appointing the receiver and the appointment is often simply by a deed of appointment and then I think you write a letter responding to say you are accepting the appointment.
Victoria Liddell
Allsop
Yes, that’s right. So, we will accept the appointment generally within 24 hours and there are certain stages that we need to go through at that point notifying the different parties, for example Companies House, the Land Registry, any other stakeholders including the borrower, second charge holders, freeholders of the property so, there’s quite a lot for us at those, during those early stages but the key, the key part there is to accept the appointment.
Joanna Lampert, Partner
Mishcon de Reya
And it’s quite an unusual role isn’t it because although you’ve been appointed by a lender to enforce their security, you actually act as the agent of the borrower when you carry out your role as receiver so, when you do that, you’re standing in the shoes of the borrower and you’re taking, or entitled to take, any steps that a borrower would take in terms of how they deal with their property. So, assuming you’ve just been appointed and you’ve notified everybody that needs to be notified and you’ve registered your appointment at Companies House and all the other things that you’re required to do, what are the next steps that you’re actually going to take? What are the practical steps that a receiver will take once they’ve been appointed?
Victoria Liddell
Allsop
So, the practical steps are very much on the ground at this stage. It’s really getting to grips with what the property is. What are the issues? What can we do? Is there rent to collect? Are there health and safety considerations? Is there any ongoing litigation between landlord and tenant? Anything that might go to value, is of interest to us at that stage. Often, we are taking appointments where we have zero information other than the property address so, it’s very much kind of boots on the ground, trying to really take control of the asset. Trying to capture rent, that’s a key point for most lenders, so trying to ensure that we have taken control of the rental collection quickly, ensuring that clearly that will help repay the debt. So, I think for us, that’s very much, that has to happen very quickly because if it doesn’t happen quickly, that’s when, that’s when issues arise so, making sure that the property is fully insured, making sure that we understand what we’re insuring. And then it moves to a kind of more cerebral points of receivership where we’re considering the options. So, how we’re going to sell the property. Is there any asset management that we need to do in order to repay the lender’s debt? Is there anything that we can do to improve the asset? So, those are the sort of key considerations for that next step moving towards the final goal, which will be to realise the asset in order to repay the debt.
Joanna Lampert, Partner
Mishcon de Reya
And you mentioned a few moments ago that you’d look at whether you should take steps to improve the asset prior to sale and the law in fact doesn’t require you to do that, the law allows a receiver to realise security in whatever form it’s presented to them. So, in what circumstances would you asset manage a property and take steps to improve it prior to sale?
Victoria Liddell
Allsop
So, the key for us is can we repay the lender’s debt by realising the asset today? If we can, that is our primary duty. If we can’t, then there are often certain steps that we can take in order to improve security. So, if we can’t repay the lender’s debt, we might look to, for example, let the property if it’s vacant, obtain possession if it is worth more say a residential flat or house, potentially if it’s let it could be worth more vacant, so we might go through the steps to do that, we may complete a development, we may, goodness there’s countless, countless asset management tasks that can be undertaken to improve value but those points are very much in the context of a necessity to do so to repay the lender’s debt.
Joanna Lampert, Partner
Mishcon de Reya
And who would normally fund those asset management activities?
Victoria Liddell
Allsop
So, some of those asset management activities, you know, it may be a waiting game but generally, if funds are needed, it would be the lender’s decision as to whether they want to put further funds into the receivership in order to, I suppose, achieve full repayment of their debt and then it’s very much a kind of cost-benefit analysis and looking at the risks and, especially in the context of the market today, the market risks of doing so.
Joanna Lampert, Partner
Mishcon de Reya
So, once you’ve considered your asset management options and whether you’re going to undertake active asset management or just move to a sale, presumably there’s valuation comes in at that stage because your lender’s going to want to know how much money they’re likely to get back from a sale and then what would you do about marketing and actually selling the property?
Victoria Liddell
Allsop
Just to that point on valuation, I think, we look at each property ourselves, I run a team of chartered surveyors so, whilst we’re not valuers by trade, we will perform those appraisals and for most cases, there’s not a necessity to undertake a valuation unless you are considering, for example, an off-market offer or something that you will need to substantiate and therefore in a lot of cases we wouldn’t be seeking a formal valuation but appraising the property ourselves.
Joanna Lampert, Partner
Mishcon de Reya
And then what kind of methods of sale would you use?
Victoria Liddell
Allsop
I suppose the way I will always look at a property is who is the likely buyer? Is it Mr and Mrs Jones looking for their first house? Is it a seasoned investor looking for long income in the industrial market? Is it a buy to let investor? And we will choose a method of sale that suits that target audience the best so, whether it be by auction, by a national private duty agent or just through a local estate agent, whichever will get the most traction in the target market.
Joanna Lampert, Partner
Mishcon de Reya
Because I think there’s probably, wrongly, the perception that receivers just stick property in auction and sell them at a discount and that rarely, borrowers rarely feel that that’s in their best interest but you actually use a much wider range of methods to sell property in receiverships.
Victoria Liddell
Allsop
I think you are completely right, I think there very much is that perception across the market that receivers will, you know, fire sell all assets but I think, you know, when you look at the diligence that goes into the sales process and understanding the asset, it’s clear that that’s not necessarily the case. I think often the type of properties that might end up in receivership are skewed towards that sort of investor, auction led market, which probably puts a skew therefore on the numbers of properties sold by that sort of methodology. I also think in a changing market, auction can be a very useful technique, whether it’s the root of sale or as a backstop or sort of hybrid methodology to push deals across the line where you might not have too much momentum from a private duty campaign.
Joanna Lampert, Partner
Mishcon de Reya
But I suppose in contrast, we’ve done in the last couple of years, we’ve done several receiverships involving high value property, residential property in central London and as far as I’m aware, it didn’t even cross your mind that you would put those properties into auction and they were sold in the traditional way, using local agents in the high end, residential, central London market.
Victoria Liddell
Allsop
Yes, exactly. So, the ones that we’ve looked at together have generally been the high value, central London and you’re right the, you know, often for those sort of things, the market will be through the private duty agents who will know the, you know, they’ll be linked in with the buying agents abroad, and work a very specific market, you know their market boundaries are tight and they know every single buyer in those markets so, it’s important to choose the right agent and make sure that properties are being properly represented. And I think also, you know, in the commercial market, if you’re selling larger lot sizes or potentially more complex property, you would probably default to a private duty sale rather than an auction sale.
Joanna Lampert, Partner
Mishcon de Reya
You mentioned a few minutes ago, the cost-benefit analysis exercise. How would that work? Can you tell us a bit more about that?
Victoria Liddell
Allsop
Yeah, sure. So, I think this is when, especially in scenarios where you might be looking at undertaking some asset management to improve an asset. You would look to cashflow the scenarios in a receivership so, whether it’s to sell now versus sell at a future date, having undertaken some asset management, clearly with some assumptions along the way and then running a present value calculation to bring that back to today’s money so, really understand whether it is worth undertaking that asset management, whether it’s worth the lender putting further money out on the deal, in order to try and recoup more of the total loan.
Joanna Lampert, Partner
Mishcon de Reya
And presumably, you can only predict the property market at the present time? It’s much harder to predict what might happen in the future.
Victoria Liddell
Allsop
Exactly.
Joanna Lampert, Partner
Mishcon de Reya
So, there’s got to be a decent upside to holding a property as opposed to selling it.
Victoria Liddell
Allsop
There’s got to be. There’s got to be a decent upside to holding and, as I said, for the lender to put more money out and we’ve got to be clear on that and clear what the potential of that market risk can be.
Joanna Lampert, Partner
Mishcon de Reya
So, talking about lenders, do you have any top tips for lenders who are considering appointing you or somebody else as a receiver?
Victoria Liddell
Allsop
I think our top tip is always not to let something go, if something is worrying them, you know, start the conversation early. We are more than happy to have those conversations, you know, that may or may not lead to an appointment further down the line. I think it’s better to have those conversations early on to start working with the receiver prior to an appointment, you know, to make sure that you’ve got all the information before you go in and often, you know, we’ll have those conversations some months, some time will go past and then suddenly there’ll be an urgent call of ‘Right, we need to appoint tomorrow’. But it’s much better that way than to have not had the conversations and to have let a situation continue until that sort of crunch point without kind of setting up and getting hold of as much information as you can.
Joanna Lampert, Partner
Mishcon de Reya
And many, many secured loans can continue in default for quite long periods of time without anything actually needing to be brought to a head but I suppose there are often, or occasionally, situations where a borrower is threatening to do damage to a property and those are the situations that become urgent when a small problem has grown into a bigger problem and that’s, I assume, is when timely action is needed.
Victoria Liddell
Allsop
I think we are probably going into a market now where, especially in the development market, where you know, bill costs have increased, labour shortages and now, capital value is potentially moving in, you know, you can see scenarios where contractors, you know, have not been paid, walking off site, ripping out windows, boilers etc, you know, we saw this last time, making sure that action is taken quick enough so that the receiver can get in there and actually protect the asset and make sure that further damage isn’t done.
Joanna Lampert, Partner
Mishcon de Reya
And occasionally I’m asked to advise a borrower who is facing a receivership. What they can do? How they could protect their position? How they can defend themselves from a fixed charge receiver? So I was just wondering whether you’ve got any advice for borrowers who might be concerned about facing a receivership. Do you have any tips for them?
Victoria Liddell
Allsop
I think the tip is always is, when we start a receivership, I suppose we do it with open arms and we say come and talk to us, let’s have a conversation, let’s work together, the situation is what it is, this isn’t personal and it’s not something we take glee in achieving but that there is a commercial position here and we can work together to create a, a better solution all-round. Great example of this, we did a receivership last year, over £120 million portfolio, and the borrower worked with us the whole way, it was completely different to a lot of what we see and very successful, they were left with a big chunk of the assets, the crown jewels of the portfolio that they wanted to keep and the lender had a swift exit and, you know, I think we all parted on positive terms. That doesn’t happen often but it was a great example of how it really can work.
Joanna Lampert, Partner
Mishcon de Reya
And it actually exemplifies the fact that in fact, a receiver and a borrower are, to all intents and purposes, on the same side of the issue because you are acting as the borrower’s agent and the intention behind your appointment is to realise the asset and to get the best price for the property in the condition that it’s currently in, so the more that a borrower cooperates with you, the more information you have to use in the marketing process or in the asset management process. It seems to me the best result you are likely to achieve.
Victoria Liddell
Allsop
And that’s key, it’s all about information, you know, if we have all the information when we go in on Day 1, we will achieve a better price. If we’re working together so that it is clear to tenants who rent’s being paid to and the borrower’s not frustrating the process in the background, we will collect all of the rent and, you know, there will be a better picture to paint to the market.
Joanna Lampert, Partner
Mishcon de Reya
And just in conclusion, we’ve all seen during our work on receivership, some of the quite extreme behaviour that some borrowers display when faced with a receivership. They think that despite nearly a hundred years of law of fixed charge receiverships, they’re the one person that’s going to find the loophole and the way round the process. Is there anything particularly memorable that springs to mind when dealing with a receivership?
Victoria Liddell
Allsop
Well, over my years of receivership, there are some interesting cases, I think you can I have worked on a couple together where we’ve had some stories to tell. A chap who dropped his pants at a viewing, to try and put buyers off.
Joanna Lampert, Partner
Mishcon de Reya
We ended up in the Crown Court on that one if I remember correctly.
Victoria Liddell
Allsop
But that wasn’t about the pants. Farmers moving cows without passports from field to field, to stop us taking control and selling. We’ve had people barricading doors to stop us coming in. What we’ve discovered over the years, cannabis factories, the works, I think, yeah, I think there’s even been human remains on one property, I think the stories go on and on and, you know, each year we, we create new ones.
Joanna Lampert, Partner
Mishcon de Reya
Yes but one of the things that’s actually quite remarkable is that the courts are generally always in favour of upholding the rights of a lender and a receiver’s powers of appointment and I think that’s one of the things that makes lending in the UK real estate market a relatively safe prospect, is that we’ve got extremely robust laws that protect lenders and preserve security and so, despite all the best efforts of certain parties, it’s very, very rare that security is actually defeated by these sorts of antics.
Victoria Liddell
Allsop
Yes, I find it remarkable how different we are to the rest of Europe, you know, I hear stories of lenders who are lending in Europe and the time and difficulty of achieving a repayment of debt to their security is very different to what we have here but you are right, the robust law allows us to be very clear in what we can and can’t do and, you know, the law surrounding the actions that a receiver can and should take are also clear and really a well-trodden path in terms of how the duty should be enacted.
Joanna Lampert, Partner
Mishcon de Reya
Well, that seems like a good, positive note on which to end our discussion, Victoria. Thank you very much for coming to talk to me today and for shedding some light on the mysteries of receiverships.
Victoria’s contact details can be found on the Allsop website and she would welcome enquiries from lenders who would like to discuss possible receivership work and as always, the team at Mishcon de Reya is here to advise lenders, borrowers and receivers.