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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 companys property a receivers 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.

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