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Fixed charge receivers in UK entitled to take possession from mortgagors (despite being their 'Agents')

In a decision of importance to insolvency practitioners both in the UK and the Caribbean, the English High Court has upheld the power of a fixed-charge receiver to take possession of a residential property occupied by the mortgagors themselves. In doing so, the High Court in Menon v Pask and Goode (Joint fixed charge receivers) also dealt with the complex legal concept of a receiver acting as agent for the mortgagor despite his appointment by, and his implicit loyalty to, the mortgagee.

The case concerned the appointment of joint receivers over a residential property in London following the default by the borrowers in their repayment obligations. The borrowers did not dispute their default but rather challenged the power of the joint receivers to obtain an order for possession of the property which they were occupying as their principal private residence.

Remarkably, despite the plethora of mortgage disputes before the Courts each year, there was no direct authority to assist Mr Justice Mann in his decision.

The Judge examined the charge document carefully noting that it contained the robust provision that a receiver appointed under it was deemed to be the agent of the mortgagors, and had power to take possession of the property.

The combination of the agency and the receivers seeking possession in their own right led to the proceedings initially being constituted in the unusual form of the claimant mortgagors themselves, by their agents the receivers, claiming possession against themselves - an obvious nonsense as one cannot sue oneself.

This was rectified by the claimants seeking an order that the receivers had no power to take possession in their own right, and alternatively that the court should postpone any possession order under the statutory provisions relating to residential property.

Mann J gave a detailed background to the rather curious position of receivers as agents of the mortgagors. In ruling mainly in favour of the receivers, he stated that the status of the receivers as agents was “not a normal agency” and it would be odd and commercially illogical for receivers not to be able to claim possession against mortgagors in occupation of the secured property.

In his analysis, Mann J, noting that the receivers were not parties to the mortgage, relied upon The (Contracts) Rights of Third Parties Act 1999 which provides that a person who is not a party to a contract may in his own right enforce a term of the contract.

The case is an important one for receivers appointed over residential properties but is also likely to impact fixed-charge appointments over commercial premises given the overlapping principles.

Fixed charge receivers in UK entitled to take possession from mortgagors (despite being their 'Agents')

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