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Receivers’ duties when selling properties - receivers don't
have to wait for a better offer to come along
27 August 2008
When selling a company's property a receiver's first and
foremost duty is to the appointing bank so, provided he gets the
best available price at the time, the receiver can choose when to
sell. But what about the method of sale? How much discretion does
the receiver have? The High Court looked at this question in a
recent case and concluded that it was up to the receiver to decide
how to market the property.
Bell v Long concerned the sale of four commercial freehold
properties let as offices. HSBC had a fixed and floating charge
over the assets of Dimple Property Limited (Dimple), which owned
the freeholds. Pannell Kerr Forster (PKF) were appointed receivers
and engaged the services of a firm of selling agents. The four
properties were sold in one lot for £775,000.
Mr Bell, the director and majority shareholder in Dimple claimed
that PKF had failed to comply with their duty to the company to
obtain the best price reasonably obtainable. He argued that in fact
the properties were worth more than £1.2 million and that at that
price only three of the four properties needed to be sold to pay
off the debt to HSBC. PKF had, he claimed, acted in breach of their
duty in deciding to cease efforts to market the properties on an
individual basis and accepting a global offer only one week after
the issue of sales particulars.
The High Court rejected this argument. The judge took the
opportunity to summarise the duties of a receiver when selling
property on behalf of a creditor. Obviously there was a conflict
between the interest of the bank wanting a quick sale and the
interest of the property owner who might prefer to market the
property for longer in the hope of a larger return, but case law
shows that this difference must be resolved in favour of creditors.
A receiver is effectively in the same position as a mortgagee and
the mortgagee is entitled to sell whenever he likes in order to
secure repayment of the debt owed. Quoting the Court of Appeal,
there is nothing "to prevent a mortgagee from accepting the best
bid he can get at auction, even though the auction is badly
attended and the bidding exceptionally low".
The High Court said that it was consistent with the above
principle that mortgagees and receivers alike should have a degree
of latitude, not just as to the timing of the sale but also as to
the method of sale. The judge observed that inevitably decisions on
how and when to sell were complex and multi-faceted and the duty to
obtain the best price had to be seen in that context.
In this case the receivers had not breached their duty in
selling the properties in one lot as a portfolio. Although there
were offers on the table for three of the properties totalling
£630,000, there was no individual offer for the fourth and the
receivers were entitled to give preference to the portfolio bid. It
was no good to produce evidence with the benefit of hindsight that
an alternative strategy would or might have produced a higher
return. Inevitably, such valuations were influenced by comparable
valuations which would not have been available at the relevant
time.
The receivers were not bound to wait for an indefinite period in
the hope of a higher price when they had a competitive bid for all
of the properties in excess of individual offers. They were not,
said the court, required to take that kind of risk.
For more information or advise, please contact Dominic
Offord or Vicki Dunstall.
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