Receivership and COVID-19: Protecting the asset and security

THREE QUESTIONS: Can Receivers still be appointed? What are the benefits and can they sell in this current climate?

The COVID-19 crisis and the government’s emergency legislation has caused much confusion in the property industry and this includes receivership. The mixed messages in the media have not helped and we have received a large number of calls and e-mails from lenders who want to know whether they can still appoint in the current climate. The answer is “Yes” and if you are asking the question then you probably should be.

Nothing in the recent legislation prevents Receivers being appointed or would have the effect of ending a receivership. Appointments can be accepted and processed from anywhere. The property is insured on the Receiver’s block policy immediately and property management, such as security, counts as essential work and therefore a property can be secured straight away. In essence, it means that an appointment over a property during this time of uncertainty protects the lender’s asset and security. This is particularly important if there is a vacant property or a development site.

If the borrower was already under financial pressure prior to COVID-19 then the property may not be adequately insured or secured and the asset may not be protected. This is a real problem for developers and building sites where the contractors are no longer allowed to be working on site, leaving it insecure. Receivers can undertake essential works, monitor the site and make sure that it remains watertight.

The other question that we are being asked and we have been discussing at great length is ‘Can we sell a property in receivership in the current climate?’ Along with protecting the asset, a sale strategy is normally the ultimate goal of receivership to recover the debt for the lender. To date there has been nothing in any government legislation or guidance to prevent a sale from taking place. The Land Registry is maintaining its service so, as Receivers, if we have entered into a sale contract then there is no reason to prevent or delay it from taking place. Something we have done successfully over the past few weeks.

With regards to marketing and agreeing a sale, as Receivers we are dealing with this on a case by case basis. A Receiver is entitled to sell at the time of their choosing and must obtain the best price in the current market: Bell V Long (2008). This means that if it is possible to sell the property and, in particular, if a sale now can recover the debt in full, as Receivers we are of the opinion that we have an obligation to do so. This is particularly so, given the uncertainty in the property market and with the large disparity in opinion as to how long the current situation will continue and what the long term effects on the property market will be.

Therefore, as long as it can be seen that clear thought has been given as to whether this is the correct strategy, a property has been marketed and sold transparently then why take the risk and hold a property incurring additional costs rather than sell now? What is plan B? Would a hold strategy actually put the lender and borrower in a worse position? As can be seen from the recent Allsop auction results, there is a market and although it may be slightly harder to obtain there is also opportunity to obtain funding. We saw this prior to the April auction when 3 receivership lots entered in to the Residential Auction were refinanced two days before.

As stated previously, a sale strategy may only work for certain assets and it requires careful consideration on an individual property basis but should at all times be considered.

In these unprecedented and uncertain times protecting the asset and therefore the lenders’ security is key and receivership is still a way to do this.