Liability for invalid appointment of LPA or fixed charge receiver
Produced in partnership with John Hughes of Shakespeare Martineau LLP
Liability for invalid appointment of LPA or fixed charge receiver

The following Restructuring & Insolvency guidance note Produced in partnership with John Hughes of Shakespeare Martineau LLP provides comprehensive and up to date legal information covering:

  • Liability for invalid appointment of LPA or fixed charge receiver
  • Why an LPA/fixed charge receiver could be invalidly appointed
  • Consequences of invalid appointment
  • What constitutes invalidity of appointment?
  • Consequences of invalid appointment for the receiver
  • Indemnity by the mortgagee

Why an LPA/fixed charge receiver could be invalidly appointed

An LPA/fixed charge receiver can be invalidly appointed for two main reasons:

  1. first, if there is some invalidity in the security documentation which prevents the mortgagee from exercising its remedies

  2. second, where the security is valid but the mortgagee fails to follow the correct procedures to trigger the power to appoint or there is some invalidity in the actual appointment of the LPA/fixed charge receiver

Consequences of invalid appointment

The consequences of an invalid appointment are potentially significant. The LPA/fixed charge receiver will have no status or authority if the appointment is defective for either of the reasons mentioned above. If they hold themselves out to be a receiver and receive rent or sell property, they do so without authority and the mortgagor would have a claim against the LPA/fixed charge receiver and the mortgagee. See John Smith & Co (Edinburgh) v Hill.

The possible claims a mortgagor may have against an invalidly-appointed LPA/fixed charge receiver are:

  1. trespass

  2. conversion

  3. restitutionary claims for unjust enrichment

  4. constructive trusteeship

What constitutes invalidity of appointment?

In respect of the mortgage:

  1. has it been correctly executed by the mortgagor and/or does the mortgagor have capacity to enter into the mortgage? See Practice Note: Executing documents—deeds and simple contracts

  2. is the mortgage susceptible to challenge any