The case of Centenary Homes Limited v Gershinson and Liddell [2020] EWHC 1080 demonstrates the courts clear position that receivers enjoy ‘a degree of latitude’ as to the timing and method of selling properties over which they are appointed. Importantly, the court further refused to conclude that selling too many properties to repay a debt was a breach of the receivers’ duty to act in good faith.
The receivers were appointed over several properties within the borrower’s portfolio. They realised sufficient funds to discharge the debt owed to the bank in full and the receivers’ appointment ended.
Of those properties sold, Warne Court, a residential development, was sold as a single block for £3.25m in 2012. Two further properties were then sold at auction after a substantial, but unsuccessful, private treaty marketing campaign. Those sales reduced the lender’s debt to c£485,000. The receivers then placed two further properties into auction with guide prices of £400,000 – £450,000 each. Both properties sold at the same auction for £589,000 and £595,000. The lender was repaid and a surplus of c£700,000 was returned to the borrower.
In Centenary Homes Ltd v Jon Howard Gershinson and Victoria Liddell [2017] the borrowers unsuccessfully argued the sale of Warne Court in 2012 was at an undervalue as it would have achieved more had the individual flats been sold separately. That claim was dismissed upholding the principles set out in Bell v Long [2008] EWHC 1273.
The borrower returned to court in this case claiming the sale of the final property was unnecessary due to the sale of the first repaying the debt.
This claim was on the basis that the receivers had a duty to act in good faith and for proper purpose, obtain a reasonable price for a property and to take care to avoid preventable loss and that it was ‘a necessary corollary of that analysis of the duties of receivers that a receiver who sells property in circumstances in which no sale is in fact required to discharge the borrowing acts either: (i) outwith his powers (ii) in breach of his duty to act in good faith and for proper purposes and/or (iii) in breach of his duty to exercise care to avoid causing the mortgagor preventable loss.’
Whilst agreeing whole-heartedly with the basis of a receiver’s duty to act in good faith and uphold the equitable duty owed to the borrower, the court held that the primary duty of a receiver is owed to the lender to bring about a situation in which the secured debt is repaid. Only being permitted to sell as much of the charged property as is needed to repay the outstanding debt would conflict with the general principle that when deciding whether and, if so, how to exercise powers vested in him a receiver is entitled (and indeed obliged) to give priority to the interests of the mortgagee in securing payment.
The court helpfully went on to comment that to success on such an argument a borrower would have to show that a decision to sell additional properties either a breach of the primary duty of receivers to act in good faith and for a proper purpose, that they failed to obtain a reasonable price or a secondary duty of good faith to exercise care to avoid preventable loss.