Receivers can issue possession proceedings against borrowers

The High Court has recently confirmed that receivers appointed over individual borrowers can issue possession proceedings against those borrowers. Until now there has been no conclusive authority on this point upon which receivers, lenders and borrowers could rely.

Menon v Pask [2019] EWHC 2611 (Ch)

The case itself stemmed from familiar facts. Mr and Mrs Menon entered into a mortgage with a lender which was secured against their residence by a registered charge. Mr and Mrs Menon breached the terms of that mortgage and the charge, therefore the lender – under the powers in their charge – appointed receivers over the property.

As Mr and Mrs Menon did not redeem the mortgage or make significant efforts to do so, the receivers sought possession of the property by proceedings brought against the borrowers. Those proceedings were issued in the usual way receivers would issue Court proceedings: in their own names as agents for the borrowers.

The County Court granted possession and Mr and Mrs Menon appealed that decision. The High Court heard the appeal in order to decide two issues: (1) could the receivers issue proceedings against individual borrowers for whom they are agent (i.e. in the borrowers’ own names against themselves)? And (2) does s36 of the Administration of Justice Act 1970 apply?

The Court’s decision

The court found the answer to both questions was yes.

(1) Could the receivers issue proceedings against individual borrowers for whom they are agent?

The Court held that where the charge securing the mortgage against the property and the document under which the receivers were appointed provided for the receivers to take possession of the property and sell it, they could issue possession proceedings against individual borrowers.

The High Court’s judgment made various comments and findings regarding the agency relationship between the receivers and the borrowers over whom they are appointed, confirming that the agency created by the receivership was not a standard agency; therefore the same principles which apply to a normal agency cannot strictly apply to receivers.

The Court also confirmed that receivers should issue possession claims against individual borrowers in their own name, rather than the borrowers’. For receivers, as they are acting in their own names, this does potentially raise the question of indemnification of their actions.

(2) Does s36 of the Administration of Justice Act 1970 apply

s36 of the Administration of Justice Act 1970 affords the Court discretion to adjourn, stay or make a suspended order for possession provided that borrowers pay the arrears on or redeem their mortgage account within a period of time the Court regards as reasonable.

The judgment confirmed that the Court’s discretion under s36 of the Administration of Justice Act 1970 will apply to claims for possession by receivers against borrowers. Consequently the Court can consider the wider receivership.

Borrowers can make proposals for repayment of the debt in order to seek an adjournment, stay or suspension of any possession order. This finding is likely due to the fact that in circumstances where receivers are seeking possession against individual borrowers, the property they are seeking possession of will be the borrowers’ residence or place of business.

What the judgment means

The High Court’s decision clarifies the position on whether possession claims can be brought against individual borrowers by receivers and may give receivers more confidence to take that step. The decision also means that when these types of proceedings are brought by receivers the Court will have discretion to consider the wider context of the receivership at the time of granting a possession order.

Any receivers seeking to take this step will be doing so in their own names and, despite doing so pursuant to the wording of the document under which they are appointed, may also wish to consider whether they require an indemnity from their appointing lender when issuing such proceedings, to protect them against adverse findings against them.