September 2019
By Daniel Richardson, Insolvency Practitioner and Property Receiver at CG&Co, Professional Partner to FIBA
With more lenders than ever in the specialist lending market, competition is fierce with each having lending targets to achieve. Most deals will be appealing where the structure suits, with the majority of time spent at the front end agreeing headline interest rates and ensuring that the value of the property stacks up.
Equally, sufficient time should be spent on ensuring that the exit proposal has a realistic chance of being achieved, and prepare for the worst if the borrower is unable to complete this.
All enquiries should be addressed; lease position, development costings etc. so the true picture is known prior to drawdown, and avoids issues should the loan fall into default at the expiry of the term.
Default Provisions
Within the legal documentation the lender should ensure that all enforcement options are available in the event of default, whether before or after the expiry of the term, together with the far reaching powers that enforcement should benefit from.
The lender should consider additional security over and above the legal charge against the property. If a limited company borrower, then a fixed and floating charge debenture should also be obtained, and personal guarantees from company directors. Third party legal charges over further properties could also be requested.
Fixed Charge Receiver
A Receiver’s appointment falls under the Law of Property Act 1925, legislation which is approaching 100 years of age, and was drawn up at a time when lender’s interests were very much paramount. The appointment is a quick procedure, completed following a suitable demand on default.
The Receiver has the benefit of the powers set out in the charge document, over and above those detailed in the Act. As the title suggests, the Receiver deals with the fixed charge asset only i.e. the property.
Company Administration
A floating charge within a debenture allows the lender the opportunity to appoint an Insolvency Practitioner as Administrator of the limited company borrower. Following demand on the company, the lender files a Notice of Appointment in court to appoint Administrators. The floating charge gives security over all assets, not just the property, such as cash reserves, plant and machinery.
This would be of more relevance where the borrower is a trading company, or benefits from rental income. The appointed Administrator takes control of the company’s affairs as a whole, the bank account is frozen and any balances made available to the Administration.
An Administrator has greater powers to compel directors to co-operate and assist in achieving the purpose of realising the assets. They are also able to pursue any antecedent transactions with recoveries being available to the lender, and any VAT incurred can be reclaimed under the company’s VAT number where applicable.
Personal Guarantees and Third Party Legal Charge
It may always be worthwhile to seek this additional security where the borrower is a limited company. It provides an additional avenue for recovery where there is an unexpected shortfall. Where the borrower has confidence in the deal, there should be no reason why they would not agree to this.
To discuss default cases please contact Daniel Richardson on 0161 358 0210 or daniel.richardson@cg-recovery.com.