Assets & Possession
When an order of appointment of a receiver is made, the court assumes control of the assets. The parties retain possession only as custodians for the court.
Monies that would otherwise come into the hands of the receiver may be paid into court. An application may be made to reduce the security proportionately. Similarly, where the scope of the receivership is extended further, an extended surety may be required.
The receiver may compel the delivery of possession provided the court order so authorises and is served on the parties. The order must also be served on other parties affected.
Possession may be enforced by attachment and order for committal. It may issue for possession of the lands.
The appointment of a receiver is, in effect, an injunction restraining the parties from removing any part of the property affected by the order/appointment. Where a tenant has notice of appointment of a receiver, he must pay rents and sums to the receiver.
Relationship with Counterparties
A receiver of rents is entitled to all arrears unpaid at the date of the order of appointment. Where a tenant pays arrears before they have notice of the order, they will not be compelled to pay a second time to the receiver. However, if they have notice of the order, they must pay the receiver.
The appointment of the receiver does not affect a stranger who is not party to the proceedings. Generally, leave of court is required to assert rights against property in which a receiver is in possession. This includes distraint by landlords and execution by judgment creditors. It covers actions for possession.
On an application, the court will consider the rights of the applicant. It may make an order or permit proceedings to be taken outside of the receivership proceedings.
A landlord whose rent is in arrear may be granted an order for payment of monies to him out of monies received or leave to distrain or to proceed with proceedings for possession or re-entry. The application is made in the proceedings in which the receiver was appointed even if made against the receiver.
Duties & Dealing
The duty of a receiver appointed by court is defined by the order. It is generally limited to collecting in the property of which he is appointed receiver and paying money into court or as the Court directs.
An interference with the possession of the receiver appointed by court is contempt of court. The person who so interferes may be attached and subject to committal
A receiver may be authorised to borrow money for the purposes of the receivership. It will be charged on the property in priority to existing encumbrances. An order is only granted if the expenditure can be justified as salvage.
A receiver is a fiduciary, and he may not purchase or take any interest in the asset. He may not bid at sale other than in any exceptional circumstances and then only with the informed consent of all parties with an interest.
A receiver appointed to collect debts may exercise discretion in giving time for payment and in recovery. The receiver is under a duty to take possession of assets and give notice to the relevant party such as tenants and persons in possession etc. A tenant is not liable for contempt until he has been served with notice of appointment.
A receiver may insure and should insure premises in accordance with the respective interests in them. He may pay proper outgoings of the property from the rents. This may include taxes, rates, service charges, head rents etc.
A receiver appointed by court will generally need court consent to pay interest to encumbrancers. Where he is appointed at the application of encumbrancers, he is usually directed to pay the rents and profits in keeping down interest according to priorities. He is not generally allowed to apply them in reduction of principal. Encumbrancers may be obliged to apply to the receiver for interest on their charges from the rent.
A receiver will generally require consent of court for expenditure and significant actions. He may incur small amounts on repairs, but items of considerable expenditure require court sanction.
The approval of court will generally be required for leases. The court may grant a general authority to create leases and tenancies within limit. It may approve an existing lease.
court may direct the lease to be undertaken by the legal owner or the person with the power of leasing. If his title is in dispute, the receiver may be authorised to grant the lease in his own name.
An attornment to the receiver by the person in possession creates a tenancy by estoppel. This gives the receiver the legal powers of a landlord but does not accrue for the benefit of the legal estate.
A receiver may without leave, terminate tenancies by notice to quit in the case of periodic tenancies. The sanction of court should be obtained for any surrender of a lease.
A receiver may take action to recover and get in assets. He may prove in bankruptcy. He may be ordered to carry on existing proceedings in the name of mortgagor on the basis that his costs are a first charge.
A receiver may not generally sue in his own name. He may sue as occupier of a business premises, bailee of chattels, assignee of a debt or as landlord if letting is made in his name. He may sue for payment of rent though he is not party to the lease. He may sue in respect of business transactions for the price of goods or to recover goods improperly detained.
Accounting for Receipts
A receiver appointed by court is presumptively liable to account for all monies that come into his hands. He may be liable for monies that would have come into his hands but for negligence and default.
He is a trustee for the persons entitled to the money. Accordingly, the Statute of Limitations would not run in his favour as against persons entitled in respect of any fraud or breach of trust.
The receiver will not be liable if he shows he acted with regularity and the degree of prudence expected of an individual in his private affairs. The modern test is likely to be that of negligence in respect of a person in providing an equivalent service.
Liability for Default
A receiver is liable for loss caused by parting with control of property, wilful neglect in carrying out court orders or by placing monies in improper hands. He is liable for any loss to which his own fraud or collusion has contributed.
A receiver may be liable for acts exceeding his authority. He may be liable in tort to third parties for breach of duty. If payments are made improperly an enquiry may be directed in relation to proper payment.
Limits to Liability
A receiver is not liable for trading losses provided he carries on business in the usual and proper manner in accordance with court directions. He is allowed expenses properly incurred.
Where the receiver is appointed by court on application of the mortgagee, he is not liable for the head lessor for rent or covenants. Where the receiver has been appointed of rents and profits, he is bound to pay in the first instance, superior rents, even if the order is silent on the subject. If he fails to keep down head rents, he may be personally liable although he is entitled to an indemnity out of the assets.
The appointment of a receiver over a leasehold interest does not of itself make him liable for the rent or performance of the covenants. He does not become tenant by estoppel merely by paying the rents or performing the covenants.
A receiver appointed by court is presumptively liable on all contracts entered by him. He may stipulate by the contract terms that he is not to be personally liable. The receiver is entitled to be indemnified out of the assets against liabilities properly incurred and expenses incurred. However, expenses incurred in disregard of the court’s order are not allowable.
The circumstances may imply that he has not undertaken person liability. However, the mere addition of the words “as receiver and manager” does not displace the presumption of personal liability.
The cost of proceedings is at the discretion of court. A receiver may be penalised in relation to unnecessary proceedings and applications. However, he is generally entitled to costs properly incurred.