What is LPA Receivership? Law of Property Act Explained

If your company has a loan secured on property and you fail to make payments, the lender might have the authority to appoint an LPA receiver to reclaim their funds. The chosen receiver assumes control of the asset, prioritising the interests of the secured creditor.

LPA receiverships are regulated by the Law of Property Act, of 1925. This implies that a company under receivership must adhere to LPA regulations concerning any property secured with a lender, along with fulfilling the terms and conditions outlined in the related fixed charge debenture.


What is an LPA Receiver?

An LPA receiver is usually a licensed insolvency practitioner (IP) or chartered surveyor. Referred to at times as a fixed charge receiver, they differ from administrative receivers based on the type of charge they possess – fixed as opposed to floating.

They can be appointed concerning land or property and wield the ultimate authority in determining the fate of the secured asset. An LPA receiver may also scrutinise the directors’ conduct to ascertain why the company faltered in its contractual obligations to the lender.

LPA receivers wield substantial influence over a company’s future, and under favourable conditions, they may opt to permit ongoing business operations. The perspectives of company directors are not typically sought, heightening the significance of this process as a considerable threat.


What is the difference between a Receiver and a Liquidator?

Receivership and liquidation share similarities as they aim to recoup funds for a creditor or creditors. Liquidators represent the interests of all creditors collectively, while a receiver primarily serves a specific secured creditor.

In this scenario, the creditor is usually a bank (referred to as the charge holder) with security on a business property through a debenture. The bank has chosen to take action to reclaim its funds by calling in (or ‘receiving’) the secured asset.

The formal insolvency status of the company is irrelevant. Once appointed, according to the Law of Property Act, the receiver can liquidate the property solely based on the default of the secured loan.

So, when might an LPA receiver be appointed, and what implications does it have from the company’s perspective?


How is an LPA Receiver appointed?

A Law of Property Act receiver is designated by the holder of a fixed charge to safeguard and potentially sell the secured asset, enabling the repayment of their outstanding debt. This designation can occur when a mortgage payment becomes overdue.

A distinctive aspect of LPA receivership is the promptness with which the appointment can occur. A company might receive a notice of default on their secured loan, accompanied by a deadline to settle the entire balance.

Upon the expiration of this deadline, however, the appointment of the officeholder can be exceptionally swift. While this benefits the lender, it can lead to significant disruption for the company when the receiver arrives to secure the property.

So, what transpires when a company undergoes LPA receivership?


What does going into LPA Receivership mean?

If a company enters LPA receivership, the office-holder seizes control of the asset upon appointment, displacing the directors. According to the Insolvency Act, they possess the authority to undertake actions necessary for reclaiming funds owed to the secured creditor.

This can be achieved by either selling the property, which is subject to the charge or recovering the outstanding funds directly from the company without resorting to a sale. While the 1925 Law of Property Act does not explicitly provide for the sale of property in such situations, the power of sale is typically outlined in the security document signed by the borrower before the loan is approved.


Which powers does an LPA receiver hold?

The authority and responsibilities vested in an LPA receiver are typically comprehensively outlined in the fixed charge document, enabling a lender to grant specific powers beyond those granted by the Law of Property Act.

These may encompass the right to:

  • Seek and collect income and/or rent from the property.
  • Insure the property utilising a portion of the generated income.

Additional powers may also be conferred through the security document, including the right to:

  • Sell the mortgaged property
  • Grant a lease over the property

If land serves as the security prompting the lender’s intervention, it’s noteworthy that a receiver might possess the authority to fell trees on the land to sell the timber. While this may not be a commonplace situation, the impact can be substantial, especially if the land in question is an orchard. 


What does going into LPA Receivership mean for a limited company?

Not meeting the terms of a contractual agreement with a secured creditor can lead to the forfeiture of property, and in the most severe instances, business closure. Yet, the immediate consequence of entering LPA receivership is the directors losing control of the secured asset.

The sale of the property is not an obligatory outcome. After evaluating the company’s overall situation in conjunction with the mortgage terms and arrears, the receiver might consider implementing a strategy to recover the outstanding amounts without resorting to a sale.

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Professional help if your company is under threat of LPA receivership

If your business faces the threat of LPA receivership, swift action is crucial to prevent further escalation and potential closure. Vanguard Insolvency is a significant component of the Begbies Traynor Group, the UK’s largest professional services consultancy, and we can provide the expert and reliable advice you require.

It might be feasible to avert receivership by opting for administration, a process that grants an eight-week moratorium period for devising a plan. For more details on LPA receivership and its potential implications for your business, please reach out to one of our partner-led teams. With offices across the country, we can offer you a free same-day consultation to promptly assess your needs. 

David Jackson MD
Senior Partner at Vanguard Insolvency Practitioners | Website

I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.