Often a charge-holder will appoint a receiver under the contractual terms of the security documents, but the holder of a mortgage or charge created by deed also has a statutory right under the Law of Property Act to appoint a receiver to the charged assets. However, because the power to appoint a receiver under the LPA is generally more restricted, it is common for a charge-holder to appoint a receiver under the contractual terms of the security document and the appointment will grant the receiver all of the powers contained under the LPA as well as the powers under the security itself.
The grounds for making an appointment must exist before a receiver is appointed and any demand for payment will need to comply with the terms of the security document. The appointment of a receiver involves the execution of a document appointing a receiver to the assets secured by the charge, the delivery of the appointment document to the proposed receiver and the acceptance by the receiver of the appointment.
A receiver has a statutory indemnity under the LPA in respect of liabilities arising from asset realisation and it is common for a charge-holder to provide a contractual indemnity in respect of any liabilities as additional protection. A company may also place itself into administration using an out of court route or enter administration following a court application and hearing, which is referred to as the court route.
An Administrator is an agent of the company and an officer of the Court and s he is required to carry out their functions in the interests of the creditors as a whole. A statutory moratorium comes into play when a company goes into Administration which prevents creditors from enforcing their claims against the company.
Whether a lender has the power to sell secured assets will depend on whether it has a power of sale under the security document, under statute or common law. Otherwise, a court order is required to sell the secured assets. A statutory power of sale under section 1 i of the LPA applies to all mortgages made by deed.
There is no requirement to apply to Court and it arises when the secured liabilities become due. However, there are a number of restrictions under section LPA which dictate when the statutory power of sale can be exercised, including a stipulation that a power of sale cannot be exercised unless a formal demand has been made and money is still outstanding after three months. Unless the registration process is completed, the mortgage cannot be enforced, which, however, is not mandatory in certain states, if the mortgage is done in the form of equitable mortgage, effected by the deposit of title deeds.
In the case of pledging of shares, the pledge can only become effective after completion of the filing of a Pledge Creation Form with the depository, if the shares are in dematerialised form. Even though there are no significant costs involved for form filings with the Registrar of Companies with a very small amount being charged as a fee, in the case of mortgages, there is payment of stamp duty payable to the government at the time of execution of any instrument and post-execution registration fees.
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