Sale of properties by a receiver

Published: 19th November 2008

Bell v Long & others [2008] 1273 (Ch)

The High Court has confirmed that a receiver may exercise its discretion and sell properties as a portfolio rather than having to sell off the properties individually, even if individual sales may achieve a higher price in total.

A receiver appointed by a lender to realise the assets of the debtor in order to repay the debt owed to the lender can be appointed under section 101 of the Law of Property Act 1925.

A received appointed pursuant to the 1925 Act is the agent of the debtor but its primary duty is to the lender. However, the receiver must act in good faith and must deal fairly and equitably with the debtor.

The receiver owes a duty to the debtor to obtain a "proper price" on the sale of assets to satisfy the debt.

In the Bell case, four properties were charged by a company to HSBC. The company was subsequently unable to repay the debt and HSBC appointed administrative receivers of the properties.

The receivers obtained valuations for each of the properties totalling £955,000, on the assumption of a reasonable period of marketing. Without having this period of marketing, the total valuation was £660,000.

Before sales particulars were issued, the agents received various offers for the properties, some of which were for all four properties as a portfolio and some of which were for individual properties.

The receivers took the view that selling the properties as a portfolio was more attractive because it would reduce the risk of individual sales falling through and would reduce management costs.

The best offer for the portfolio was £730,000. Other offers were received for three of the properties ( separately ) at a total of £630,000. One of the properties received no individual offers.

The receivers eventually accepted a bid of £775,000 for the portfolio. The director and majority shareholder in the company claimed that the receivers were negligent for selling the properties in this way and that this was a breach of the duty to the company obtain a "proper price".

The High Court said that receivers and lenders ought to have some latitude as to the method of sale to be used. Once an offer for the portfolio had been received, it would only have been prudent to revert to individual sales of each of the properties if there were serious offers for each of the properties totalling more than the highest bid for the portfolio.

The receivers were not negligent for preferring the certainty of a sale of the portfolio over the uncertainties of a longer period of marketing against the background of changing market conditions. The receivers were not required to take such risks.

This decision will be welcomed by receivers who need to balance the aspirations of the debtor for the highest sale price possible again the need for the lender to realise the assets in order to discharge the debt owed.