In this article Niall O'Brien sets out a useful checklist for banks who are considering appointing a receiver.
- Location of deeds - it might seem like an obvious point but before a bank takes any steps to appoint a receiver, it should ensure that it has confirmed the location of the title and security documents.
- Has the bank’s security been reviewed recently? - if the bank’s security has not been reviewed recently, the bank should obtain an up to date security review either from its in house legal team or from its external solicitors to check if there are any defects which need to be remedied prior to taking enforcement action. It will also help inform the bank as to certain other practical considerations such as any limitations on receiver powers and notice provisions.
- Are there limitations on receiver powers? - Certain older forms of security documents contain very limited receiver powers and may only permit the appointment of a rent receiver. Any limitations on receiver powers will need to be considered as part of the bank’s enforcement strategy.
- What type of receiver do you intend to appoint? - A bank will need to consider if it intends to appoint a fixed charge receiver or a receiver and manager. If there are limitations on a receiver’s powers, it may not be possible to appoint a receiver and manager. The bank will also need to consider whether it can appoint more than one receiver and if the security documents require the receivers to act jointly or whether they can act severally.
- Check notice provisions - as part of contingency planning, a bank should familiarise itself with the notice provisions in the security documents and facility letters. There may be differences between the notice provisions in the security documents and those contained in the facility letters. If the bank intends to serve demands in respect of a contingent liability, then it is advisable to have a step plan prepared in relation to the proposed enforcement action.
- Is there a tenant in place? - This is a very important practical point to consider when appointing a receiver. If the bank has consented to a lease, then a receiver will be appointed over the asset subject to the lease. If the bank has not consented to the lease the position in Irish law is that the lease is void as against the bank and the receiver. The Irish courts have re-iterated that the mere fact that the bank is aware of the existence of a lease does not constitute consent. However, it should be noted that court action may be required to obtain vacant possession if the tenant refuses to vacate the premises.
- Has the security been registered in the name of the appointing entity? - There have been a number of cases before the Irish courts where borrowers have challenged the ability of a party who has acquired the relevant loan to enforce security over registered land where the security has not yet been registered in the Land Registry in the name of that party.
- Will the enforcement action cause any floating charge to crystallise? - If the bank’s security contains a floating charge, any enforcement action will cause the floating charge to crystallise. The bank will need to consider with its legal advisors if it intends to perfect the crystallised fixed charge and what practical steps are required such as Property Registration Authority requirements or filing a s1001 notice with the Revenue Commissioners.
- Meet with your receiver - it is very important that the relevant team from the bank meets with the proposed receiver at an early stage and discusses any limitations with the security such as limitations on receiver powers or if the bank intends to trade an asset but the security contains no charge over the chattels.
- Ensure the bank’s own file is in order - the bank should conduct a file review and ensure that its own file is in order because the borrower may take legal action against the bank after demands have been served or once a receiver is appointed.
- Ensure GDPR obligations have been met - a receiver necessarily receives and processes personal data in the course of a receivership including the data subject's name and the address of the secured party. In September 2020 the Data Protection Commission published specific guidance for receivers in relation to issues that may arise in the course of a receivership and these should be taken into consideration. (See here recent Beauchamps article on this guidance).
For more information on the above please contact Niall O'Brien, Alexandra Stokes or your usual Beauchamps contact.