What is the difference between an Insolvency Practitioner and an LPA Receiver?

The following article explains in depth the various stages of insolvency and the various processes that are available under insolvency. 

It includes a number of practical suggestions for situations that may occur when company directors find themselves in financial distress.  

However, in all instances and throughout the article, we underpin our guidance with the strong recommendation that any company director experiencing financial difficulties should consult an insolvency professional as soon as possible. We offer a free one-hour consultation where clients may discuss and seek our initial views on their situation. Indeed, it’s entirely possible to recover a business experiencing financial difficulties, and a formal insolvency may not be the best option for the client.

If, following the meeting a client wishes to formally engage Chamberlain & Co to act for them, a fee quotation for future work will be provided and documented in a formal letter of engagement. 

WHAT IS THE DIFFERENCE BETWEEN AN INSOLVENCY PRACTITIONER (IP) AND A LAW OF PROPERTY ACT (LPA) RECEIVER? 

An Insolvency Practitioner (IP) is licensed in the UK to undertake formal insolvency processes such as liquidations, administrations, CVAs, IVAs & bankruptcies 

Only a licensed IP may be appointed to these processes. An IP is highly qualified, experienced & regulated to ensure they will be able to provide advice to clients around financial distress and business restructure.

An LPA receiver is a specific process that an Insolvency Practitioner may undertake as there is an overlap in the knowledge base between an IP and an LPA receivership. However, you do not have to be an IP to become an LPA receiver. 

WHAT IS A LAW OF PROPERTY ACT (LPA)RECEIVER?

An LPA Receiver is the name of a role which is set out within the Law of Property Act. Where a bank has advanced funding to a company or individual, it is common for that funding to be secured, and in particular, secured over property. When the borrower breaches their covenants, most commonly failing to repay the loan, if the lender’s security documents / charge allows it, they can appoint an LPA receiver. 

LPA Receiver act only in respect of property subject to security, and do not deal with other assets.

WHO CAN ACT AS AN LPA RECEIVER ?

There is no specific prerequisite or qualification required to become an LPA Receiver. Commonly, IP’s or MRICS qualified agents, will undertake this kind of work as it synergises with their broader experience. 

As the vast majority of LPA receivers will be appointed by high street lenders or banks, they will wish to work with established and experienced professionals to ensure the work is done swiftly and efficiently. 

WHAT DOES AN LPA RECEIVER DO? 

An LPA receiver, when appointed by the lender, takes control of the property ultimately with a view to selling the property to repay the lender the money owed. They will, prior to the sale, manage the property. They undertake actions such as collecting rents from tenants, and ensuring essential maintenance work to preserve the value of the asset is undertaken. 

The LPA receiver is accountable to the lender who appoints them, and acts on their behalf. Any equity available after the settlement of the secured lending and the costs of the LPA receivership, are returned to the proprietor of the premises. 

WHEN TO APPOINT AN LPA RECEIVER? 

Secured lenders have to balance recovering monies due to them versus adopting a pragmatic, compassionate approach. In the first instance, it is ideal to agree with the creditor repayment by consent and agreement. If you consider you have exhausted these options and/or the creditor is not engaging, it is sensible to appoint an LPA Receiver who will act as your intermediary to take control of the position and recover funds in respect of your lending. 

There may be circumstances where it is prudent to accelerate the appointment of an LPA Receiver, particularly if you believe the asset is a risk. In all circumstances the creditor will need to be in breach of the covenants of the lending agreement. 

WHEN TO APPOINT A FIXED CHARGE RECEIVER ?

A Fixed Charge Receiver (“FCR”) is appointed by a secured creditor in similar circumstances to an LPA Receiver, when defaults have arisen. An FCR is a contractual remedy, usually without the involvement of the Courts. 

Their duty is to the secured creditor, and their powers will be set out in the security document. 

They are similar to Administrative Receivers, who can be appointed by floating charge holders under the Insolvency Act 198 (although this procedure is becoming increasingly uncommon), and  LPA Receivers who are appointed under the Law of Property Act 1925. 

HOW TO APPOINT A RECEIVER? 

The usual process for the appointment of an LPA receiver is when the secured lender identifies there is a breach in the covenants and decides they need to take action to deal with the property. They would then speak to their preferred providers and seek fee quotes and discuss strategy. The lender will then identify which provider is most appropriate. A document will be entered into between the secured lender and the LPA Receiver which will deal with the formalities of the appointment. 

WHAT IS ANOTHER NAME FOR AN LPA RECEIVER? 

The full name of the position is a “Law of Property Act Receiver”. This should not be confused with an Administrative Receiver which is a different corporate insolvency process, or a fixed charge receiver, which, as set out above,is appointed under contractual rights as opposed to the Law of Property Act 1925. 

HOW ARE LPA RECEIVERS PAID? 

This will be agreed between the secured lender and the LPA Receiver. Often fees will be drawn from sale proceeds. A depositor cost may be required to meet certain essential outlays, such as insurance. 

This will be agreed between the secured lender and the LPA receiver. Often fees will be drawn from sale proceeds. A depositor cost may be required to meet certain essential outlays, such as insurance. 

ARE LPA RECEIVERS REGULATED ?

There is no specific regulatory body that oversees LPA Receivers. However, it is likely that the LPA receiver will be part of a profession, such as an Insolvency Practitioner or MRICS agent, and as such, the usual ethical standards would apply to them in discharging their role. 

ARE LPA RECEIVERS AGENTS? 

Yes – they act as agents for the secured lender who appoints them.

WHEN CAN A LENDER APPOINT A RECEIVER ? 

The timing of the appointment of an LPA Receiver will be set out in the loan document. The creditor needs to be in default and the demand for repayments needs to have been issued. Unless the contract says otherwise, it is usual, once the demand is issued, to allow a period of 24 hours. For most lenders, they will have a number of properties over which they have lent funds to various clients. The majority of which will never enter into default, but it is likely each lender will have its own criteria that needs to be met before they enter a LPA Receivership. 

HOW TO STOP RECEIVING LPA RECEIVERS? 

There are three steps to take to ensure the cessation of an LPA Receivership:

1. Ensure that you do not breach the covenants of the agreement. The most obvious covenant is that you pay the secured creditor the amounts due when they are due. But there may be other covenants that you could breach that are not strictly financial. For example, you could take out inadequate insurance, misuse the  the premises or similar circumstances.
2. When the secured lender makes a demand of you, you can repay their liability in full. If their liability is repaid, they cannot enforce as there is no existing liability due.

3. If you are experiencing financial difficulties, you should consider engaging with the secured lender. You may be able to enter into a mutually agreeable revised arrangement to resolve the issue to all parties satisfaction without the need for an LPA Receiver. 

However, our suggestion would be that the longer you leave it to pursue these options, the less agreeable the secured lender will be to negotiate with you. 

ARE LPA RECEIVERS LIABLE FOR COUNCIL TAX?

Where the property is tenanted, the tenant is responsible for settling Council Tax. where the property does not have a tennant, the mortgagor is responsible for Council Tax, although commonly they may request their appointed LPA Receiver to deal with this on their behalf. 

WHAT IS THE DIFFERENCE BETWEEN A LIQUIDATOR AND A LPA RECEIVER? 

A liquidator is the name given to an Insolvency Practitioner when they undertake the role of liquidating a company. An LPA Receiver will only deal with a specific property asset.

IS A RECEIVER AN INSOLVENCY PRACTITIONER?

It’s not uncommon for Insolvency Practitioners (IP) to be appointed as LPA Receivers. In their insolvency processes, IP’s will often have to dispose of properties, and will have expertise in this regard. More generally, they have a broader understanding of the distress and difficulty insolvency and debt recovery processes bring, and understand the nuances required to manage a contentious situation. As such, lenders commonly utilise Insolvency Practitioners, given their broader background. However, as noted above, there are agents who specialise in this field who are not IP’s, but have a wealth of experience and may act for IP’s in property disposals, in insolvency cases. As such, they have a similar, appropriate skill set with just as much regulation as an IP. 

WHAT IS AN INSOLVENCY PRACTITIONER? 

In order to act as a liquidator in the United Kingdom an individual needs to hold an insolvency licence and needs to be an Insolvency Practitioner (IP). 

They also need to be authorised by an appropriate regulatory body. Chamberlain & Co is authorised by the Institute of Chartered Accountants in England & Wales (ICAEW). 

In real terms, there is no difference between a liquidator and an IP. The Insolvency Practitioner is a professional who needs to have sufficient experience working in the field and pass exams that include all forms of insolvency – both professional and personal. 

They also need to be fully conversant with the Insolvency Act, Insolvency Rules, Companies Act and many other relevant Acts in existence and must keep themselves up to date with regarding changes and updates to the law, and conduct their activities accordingly 

Once an IP has qualified, they may request a licence from a regulatory body, such as the ICAEW, which will allow them to refer to themselves as an Insolvency Practitioner (IP). We have covered the full responsibilities of an Insolvency Practitioner in our guide.

In addition to IPs, the Insolvency Service also authorises people to act as Government Insolvency Practitioners – referred to as Official Receivers. By default, the Official Receiver is appointed over all companies which enter into WUC and all bankruptcies in England & Wales.

The Official Receiver may opt to refer these cases to private sector IP’s on their regional rota, although they will retain responsibility for reporting misconduct by bankrupts or company officers.

If your company is in financial distress, consulting a professional such as an Insolvency Practitioner will minimise any problems and their help may realise assets more quickly.  These highly experienced professionals will also liaise with creditors on the client’s behalf and take over the running of the process. 

Understandably, both personal and company financial distress can be very distressing for the individual and/or company director and place them under significant pressure. 

By seeking prompt advice from an insolvency practitioner, you can be supported through this difficult process with experts who understand the pressures you are facing and have experience in working swiftly to deliver a strategy to resolve the issues you face. 

Chamberlain & co offers a free initial one hour consultation which is discrete, and can be held via telephone, face to face meeting, or through a digital medium such as Microsoft Teams. All matters are discussed confidentially, and the team is used to making discrete enquiries on a no name basis when working with you to produce a strategy to resolve your issues. 

As with all insolvency practitioners, Chamberlain & Co are committed to delivering best advice in all scenarios, and the team work has been recognised regularly at the Yorkshire Accountancy Awards and Turnaround, Rescue and Insolvency Awards. 

You can contact us by calling 0113 242 0808; or by emailing us at advice@chamberlain-co.co.uk or by completing our online contact form here*