On the receiving end LPA receivers will be busy if the boom falters, deals unravel and more frauds are perpetrated. And given the hostility they can encounter, they will need to have their wits about them. By Andrew Rodger
Interesting days, these, for the LPA receiver, that odd breed of chartered surveyor who fits into no particular RICS division. No, they just have an understanding of what is required to recover debt secured against property.
I remember reading somewhere that the art of LPA receivership is all about property management. What nonsense! Sure, security and insurance are of paramount importance and the number one priority in any “new job”, and maintaining a flow of income if one exists is vital, but LPA receivership is all about a keen understanding of people and strategy.
What a lending institution really wants is a receiver who slides into a difficult case, maintains a relationship with the lender’s customer, recovers as much cash as possible without tension, takes his fee and departs by the back door with no fuss. Vacuous agents need not apply. Some peeved customers choose not to believe these are the objectives because they have a predetermined view of the “R” word. But, believe me, these are the objectives.
Of course, many cases do not turn out like this. Receivers can encounter downright hostile customers, and coping with them is an essential prerequisite of a successful career as an LPA. I went to college in Sheffield in the 1980s when student bashing was at its height, which makes me feel I am well qualified. You have to be hard and cool, rather than the owner of a qualification in property management. Think Samuel L Jackson in Pulp Fiction: “It might disappoint you to know that this is not the first time I have had a gun pointed in my face.”
Yet the characters in the property world never cease to amaze me. I’ve seen the lot: fraudsters, gangsters, shysters, nutters and lawyers, and even the maddest of them still has a vision of how things should be, no matter how misplaced. Many have said to me as we were leaving the courtroom with some sort of psycho-pride: “I bet you’ve never met anyone like me!” Yes, I’m afraid I have, every day of my life.
So, why more interesting days, then? First, there’s been so much cash in this soaring market that the services of LPA receivers have not been in huge demand. But it is now inconceivable that yields can reduce any further, and I am looking forward to a busy 2006.
Many debtors act too late
As anyone in the trade will tell you, re-banking has been a piece of cake recently, as long as the borrower had the guts and commercial nous to accept that the bank no longer wanted his business, and quickly found someone else prepared to provide a loan. (I never understand why so many debtors simply ignore a letter of final demand. Many leave it too late and end up being asked to pay receivers’ costs.) But re-banking is set to get tougher.
Second, the boom means there will be many situations where there is actually a surplus to be handed back to the customer. These cases have their own problems. A receiver is seldom invited to any property party, and if he has the audacity to gatecrash then leave the customer-host with a bottle of whisky, they can find this hard to swallow. Some say “thanks, never expected it”. Others take it as a blow to their pride, and careful negotiations are required to extract oneself from the situation. In such cases, selling the property is the easy bit.
Third, the impact of the Enterprise Act is yet to be fully felt. The Enterprise Act abolished, inter many alia, the ability for lenders to appoint administrative receivers under a debenture, ie a fixed and float charge. The main commission of the administrative receiver used to lie in protecting the bank’s interest and recovering its loan money. While debentures created before the act permitted a bank to make such an appointment, the overwhelming number of corporate insolvencies over the past two years have involved an adminstrator acting on behalf of creditors in general, rather than just a bank.
An administrator has wide-ranging powers, including the right to ask an LPA receiver to stand aside. Such a power can be misplaced, and I have experienced over the past two years many situations where an administrator is appointed, and then acts as a liquidator, when an LPA receiver would have been better placed to recover a fixed charge security against property, and also a small number of situations where an LPA receiver has been appointed, but then later stood down, because the company has entered into an administrative process which de facto has let the directors call the shots again. In these latter instances, this can undo all the good work the LPA has done on behalf of his fixed-charge appointor.
The bottom line is that the Enterprise Act provides the ability to frustrate an LPA receiver’s efforts to protect his client’s interest. In practice, the banks are using the services of an LPA receiver earlier and sometimes insist the administrator appoints their proposed agents.
Fourth, many lending institutions can better identify those situations where a surveyor acting as an LPA receiver can recover more money than an insolvency practioner, who is invariably an accountant. Using an LPA receiver cuts costs and benefits everyone. Is this a suggestion that IPs and RICS insolvency specialists should lock horns? Absolutely not, it’s a case of horses for courses and every situation involves banker, surveyor, solicitor and accountant so things haven’t changed.
The necessary steps have to be taken as early as possible – the watchwords again being people and strategy – and the key approach is “turnaround”, since getting a failing business or situation back on its feet is the intended objective of the Enterprise Act. The implementation of the act has indeed resulted in the LPA receiver’s services being employed in a different and challenging way. Bring it on.
Achieving turnaround remains the top priority, and many LPA appointments occur not because of a collapse in the market, but because of a collapse in the relationship between bank and customer, or because of fraud, money laundering or general skulduggery.
A recipe for disaster
After all, this is a greedy old society, with massive levels of personal debt, huge sums of dirty cash floating around, all sorts of lending institutions with masses of cash to lend and everyone looking for the “get rich” quick fix. A recipe for disaster. Right up my street!
No wonder I expect to be busy. There will be loads of property recovery work. Much of it will be messy. But to be good at this business you have to think dirty. What would you do if you were a crook and running a scam? Identify what might be happening, then cover the exits and sort out your strategy.
We don’t have to worrry about the good guys – and the majority in property remain honest, making the LPA receiver’s job straightforward. But there are plenty of bad guys, and that’s where the future of LPA receivership work lies.
Andrew Rodger is a partner in GVA Grimley’s banking and corporate consultancy team
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The work of an LPA receiver |
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An LPA receiver is one appointed under the Law of Property Act 1925 by a lender which has money secured against a property and wants it back, but – for whatever reason – cannot get it back. The lender appoints the receiver to recover the money for him. Of great importance, and perhaps a quirk of 1920s legislation, is that the receiver is agent for the mortgagee and not the mortgagor. Also of great importance is the fact that the act only confers the right to collect rent. Most other powers and rights are contained in the lender’s mortgage documentation which will typically contain a power of sale, insurance, repair, build, demolish, lease, etc. Legal advice on each appointment therefore remains essential. |
