By Diana Featherstonhaugh and Ben Kilshaw, Partners at Hamlins LLP
Lenders with defaulting borrowers may want to take control over the secured assets. A lender may have various options but if it holds security over property, appointing a Fixed Charge Receiver, also referred to as an LPA Receiver, will often be a speedy and cost effective choice. In this article we briefly explain the key steps.
Appointing a Receiver enables the appointment of a property professional who can manage and/or dispose of the property in the borrower’s name. This has advantages. Alternative methods of enforcement such as appointment of an administrator could, if the principal asset is a property, bring unwelcome issues and costs such as dealing with staff and other elements of the borrower’s business. Exercising its power of sale would require a lender taking possession if the property is occupied, thereby creating liabilities particularly if the lender does not wish to dispose of the asset immediately nor engage with the borrower directly.
If the security documents do not contain an express power to appoint a Receiver, lenders have power to appoint a Receiver under the Law of Property Act 1925. There must be a legal mortgage over the property which should be reviewed before an appointment is made. If the charge permits, then a lender will often appoint joint receivers with power to act jointly and severally. Once a lender decides to appoint a Receiver, it will want to act quickly and the Receiver may not have time to carry out all the available checks to be satisfied the appointment is valid, such as that the mortgage is by deed, that it is registered against the property at the Land Registry and, if the borrower is a company or LLP, registered at Companies House. If the mortgage is not by deed then the lender will not have the power to appoint a Receiver and would need to request the Court to make the appointment. If the mortgage had not been registered at the Land Registry then it will be an equitable charge rather than a legal charge which will mean that the Receiver will not have power to convey the property unless authorised by the Court, although the power of attorney usually contained in the mortgage deed may give sufficient authority to do so whilst the borrower is not in liquidation. The lender would also be very exposed and would not be protected if the property was sold or charged to another lender. If the borrower is a company or limited liability partnership and the mortgage was not registered at Companies House at the time of the loan then the mortgage will be void against any liquidator, administrator or other secured creditor and the lender will rank as an unsecured creditor unless late registration was possible; although the lender would still rank behind other secured creditors. If the charge is defective then the Receiver could be liable in damages.
The appointment should be by a formal deed and (if over a company’s property) require the Receiver to formally accept before the end of the business day following receipt and then the appointment should be registered at Companies House within seven days. Notice of the appointment should be served on the borrower, other creditors, tenants and landlords.
Once appointed, the Receiver has power to collect and take action to recover income from the property. The Receiver will need to ascertain whether the mortgagor has opted to tax and if VAT is payable on the rents he collects. The legal mortgage will nearly always extend the Receiver’s powers to allow the Receiver to sell the property, grant and surrender leases, undertake works to the property and take all other steps necessary for the sale or management of the property. The sale of a property can be made by the Receiver or alternatively negotiated by the Receiver and completed by the mortgagee exercising its power of sale.
A Receiver will usually act as agent of the borrower but this may change to agent of the lender if the borrower enters into bankruptcy or liquidation and there are duties the Receiver owes to both lender and borrower. The Receiver will owe a duty of good faith to the borrower and in relation to a sale, a duty to achieve the best price obtainable, which may now mean having to consider the availability and value of capital allowances. A Receiver would usually obtain two independent valuations and it is prudent to advertise the property for sale in the normal manner and offer to sell the property to the borrower, any guarantors and other mortgagees. Whilst not normally personally liable, the Receiver does assume responsibility for the payment of head rents, VAT, environmental liabilities for contaminated land and in some circumstances business rates.
When accepting the appointment with the lender, a Receiver will want to agree remuneration and may seek an indemnity for any other costs or liabilities. An indemnity is important should the mortgage be invalid as the Receiver could be subject to a claim from a party who suffered a loss from the actions of the Receiver. It would also be important in other situations where there could be potential liabilities which fall to the Receiver, for example, where there was a risk that the land was contaminated. Whether an indemnity is provided or not, a Receiver should maintain professional indemnity insurance.
A Receiver’s role will usually come to an end after completion of the sale of the property but the lender can terminate the appointment at any time. If the borrower is a company then within one month of termination the Receiver needs to file accounts and notice at Companies House.
To conclude, appointing a Fixed Charge Receiver is an effective means for a lender to manage and dispose of properties where the borrower is in default. Whilst quick and straightforward, it is important to carry out and follow the necessary checks and formalities.
Diana Featherstonhaugh and Ben Kilshaw, Partners at Hamlins LLP
Diana Featherstonhaugh is a partner in the Commercial Property Department. She has extensive experience in all aspects of commercial property, particularly investment property, commercial leases, rent reviews, management agreements, acting for LPA/fixed charge receivers in connection with their appointment, post appointment and on sale and termination and acting for investors, property developers, pension funds and lending institutions
Ben Kilshaw is a partner in the Commercial Property Department. He has a wide range of experience in commercial property including acting for receivers, property investors, occupiers and leisure operators. He also advises on non-contentious construction law.
Northern Trust: Outsourcing Accelerates Through Pandemic as Investment Managers Seek to Improve Margins, Enhance Business Resilience, and Future-Proof Operations
White Paper Sees Increase in Managers Outsourcing Middle and Front Office Functions to Achieve Optimal Business Structures
According to a white paper published today by Northern Trust (Nasdaq: NTRS), investment managers of all sizes and strategies have been prompted to undertake a comprehensive review of their operating models as a result of the Covid-19 pandemic which has accelerated existing trends that are compounding cost pressures. This has led increasing numbers of managers to outsource in-house dealing and other functions, such as foreign exchange and transition management, hitherto seen as core.
While cost savings remain a core driver, and indeed are one outcome of outsourcing, costs are no longer the only focus. Far from being solely a defensive reaction to increased pressure on margins, the white paper (‘From Niche to Norm’) describes outsourcing as part of the target operating model, or moving toward the ‘Optimal State’ for many investment managers, and explains how the focus “has expanded to the variety of other potential benefits offered – enhanced capabilities, improved governance and operational resilience.”
Gary Paulin, global head of Integrated Trading Solutions at Northern Trust Capital Markets said: “The pandemic has challenged a range of operational assumptions. Working from home has, for example, questioned the need for a portfolio manager to be in close proximity with the dealing desk. Previously considered essential, the pandemic has effectively forced firms to ‘outsource‘ their trading desks to remote working setups and the effectiveness of this process has disproved the requirement for proximity, in turn, easing the path to third-party outsourcing. Many investment managers are actively considering outsourcing to a hyper-scale, expert provider as a potential, cost efficient solution – one that maintains service quality and, hopefully, improves it whilst adding resiliency.”
Northern Trust’s white paper compares outsourced trading to software-as-a-service stating: “instead of carrying the cost and complexity of running an in-house solution, firms move to an outsourced one, free up capital to invest in strategic growth and move costs from a fixed to a variable basis in line with the direction of travel for revenues.”
Guy Gibson, global head of Institutional Brokerage at Northern Trust Capital Markets said: “The opportunity to deploy capital to build new fund structures, develop new offerings, focus on distribution and enhance in-house research has been taken up by several of our clients to the benefit of their investment approach, and to the benefit of their investors. Additionally, in the last two months alone, many firms have recognized that outsourcing to a well-capitalized, global platform has enabled them to take advantage of cost-contained growth opportunities in new markets.”
A further development, which has echoes of the journey the technology industry has already undertaken, is the move towards ‘whole office’ solutions, which represent the next potential wave in outsourcing.
According to Paulin; “recently we have observed a growing number of managers wanting to outsource to a single, hyper-scale professional service provider who can do everything, everywhere. This aligns with Northern Trust’s strategy to deliver platform solutions for the whole office, serving our clients’ needs across the entire investment lifecycle.”
Integrated Trading Solutions is Northern Trust’s outsourced trading capability that combines worldwide locations and trading expertise in equities and fixed income and derivatives with access to global markets, high-quality liquidity and an integrated middle and back office service as well as other services, such as FX. It helps asset owners and asset managers to meaningfully lower costs, reduce risk, manage regulatory compliance and enhance transparency and operational efficiency.
How are investors traversing the UK’s transition out of lockdown?
By Giles Coghlan, Chief Currency Analyst, HYCM
Just when we thought we had overcome the initial health challenges posed by COVID-19, the UK Government has once again introduced lockdown measures in certain regions to curb a rise in new cases. This is happening at a time when the government is trying to bring about the country’s post-pandemic recovery and prevent a prolonged economic downturn.
This is the reality of the “new normal” – a constant battle to both contain the spread of the virus but also avoid extended economic stagnation.
Of course, no matter how many policies are introduced to spur on investment, traders and investors are likely to act with caution for the foreseeable future. There are simply too many unknowns to content with at the moment.
To try and measure investor sentiment towards different asset classes at present, HYCM recently commissioned research to uncover which assets investors are planning to invest in over the coming 12 months. After surveying over 900 UK-based investors, our figures show just how COVID-19 has affected different investor portfolios. I have analysed the key findings below.
At present, it seems that by far the most common asset class for investors is cash savings, with 78% of investors identifying as having some form of savings in a bank account. Other popular assets were stocks and shares (48%) and property (38%). While not surprising, when viewed in the context of investor’s future plans for investment, it becomes evident that security, above all else, is what investors are currently seeking.
A third of those surveyed (32%) said that they intended to put more of their wealth into their savings account, the most common strategy by far among those surveyed. This was followed by stocks and shares (21%), property (17%), and fixed interest securities (17%).
When asked about what impact COVID-19 has had on their portfolios throughout 2020, 43% stated that their portfolio had decreased in value as a consequence of the pandemic. This has evidently had an effect on investors’ mindsets, with 73% stating that they were not planning on making any major investment decisions for the rest of the year.
Looking at the road ahead
So, it seems that many investors are adopting a wait-and-see approach; hoping that the promise of a V-shaped recovery comes to fruition. The issue, however, is that this exact type of hesitancy when it comes to investing may well slow the pace of economic recovery. Financial markets need stimulus in order to help facilitate a post-pandemic economic resurgence, but if said financial stimulation only arrives once the recovery has already begun, the economy risks extended stagnation.
It seems, then, that there are two possible set outcomes on the path ahead. The first is a steady decline in COVID-19 cases, then an economic downturn as the markets correct themselves, followed by a return to relative economic stability. The second potential outcome is a second spike of COVID-19 cases which incurs a second nationwide lockdown – delaying an economic revival for the foreseeable future. At present, the former of these two scenarios is seemingly playing out with economic growth and GDP steadily increasing; but recent COVID-19 case upticks show that it’s still too soon to be certain of either scenario.
A cautious approach, therefore, will evidently remain the most common investment strategy looking ahead. But investors must remember that, even in the most uncertain times, there are always opportunities for returns on investment. Merely transforming a varied portfolio into cash savings risks a long-term decline in value.
High Risk Investment Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. For more information please refer to HYCM’s Risk Disclosure.
Hatton Gardens 5 top tips for investing in Diamonds
By Ben Stinson, Head of eCommerce at Diamonds Factory
Investing in diamonds can be extremely rewarding, but only if you know what to look for. For investors who lack experience, finding your diamond in the rough can be quite daunting.
For even the most beginner of diamond investors, the essentials are fairly obvious. For instance, you need to ask yourself will the diamond hold its value over time? What’s the overall condition of the stone and the jewellery? Is there history behind the item in question?
Although common sense plays a big part in investing, people often need insider tips and tricks to go from beginner to expert. Tony French, the in-house Diamond Consultant, at Diamonds Factory shares his professional knowledge on the 5 most important things to look for when investing in diamonds.
1: Using cut, weight and colour to determine value
Firstly, consider the shape, colour, and weight of your diamond, as this can play a pivotal role in guaranteeing growth in the value of your item. Granted, investing trends change with time, but a round cut of your diamond will almost always be the most sought after. The cut of your diamond is incredibly important, as it can influence the sparkle and therefore, the overall value. It’s a similar story for the intensity of some colours, such as Pink, Red, Blue, Green etc. Concerning weight, the heavier (bigger) stones will generally increase in value by a bigger percentage. Collectively these factors also contribute to the supply and demand aspect, which will determine their high price, and will ensure your item is re-sellable.
Looking for significant value? Well, aim to own jewellery or diamonds that come from an important public figure. If you’re lucky enough to own a piece that has significant history, or was owned by a celebrity or person of interest, it’s an absolute must to have concrete evidence of this. Immediately, this proof will increase an item’s overall value, and there’s a good chance the stardom of your item might drum up interest amongst diehard fans, increasing the value even further…
Equally, it’s possible to proactively bring provenance to unique diamonds of yours. For instance, you can offer to loan bespoke, or unusual pieces for film, theatre, or TV performances – then it can be advertised as worn by xyz.
3: Find the source
Establishing your diamond’s source is one of the most important things you can do when investing in diamonds. If you’re starting out, try to purchase diamonds that have NOT been owned by too many people, as the overall value of the diamond will reflect multiple ownership. Alternatively, I’d always recommend buying from suppliers like ourselves or other suppliers and retailers, who buy directly from the people who have had them certified.
Primarily, this will allow you to have a greater degree of transparency, which is crucial when buying such a valuable item. Next, you should immediately see an increase in value of your diamonds, as identifying a source will allow traceability and therefore, market context.
Linked closely with my previous point, is the requirement to ensure that your diamonds are certified by a credible lab, and you have the evidence to prove so (a written document with specific grading details about your diamonds) – this will remove any doubts of impropriety.
It’s essential to remember that not all labs are the same, and many labs are better than others. Both the AGS (American Gem Society) and GIA (Gemological Institute of America) have great reputations and are world renowned. I’d recommend doing your own research into the labs, and when you’ve found the pieces that you’d like to invest in, then make an informed decision based upon your findings. Ultimately, proving certification will make your stones easier to insure, and deep down, you can have peace of mind knowing you have got what you have paid for.
Don’t forget to keep this paperwork in a safe location as well – you’d be surprised how many people we’ve met who have lost, or forget where they’ve placed it.
5: Patience is a virtue…
If the market is strong, it might be tempting to look for an immediate sale once you’ve purchased a high value item. However, I suggest holding onto your diamonds for some time before even thinking about selling. More often than not, an item is more likely to increase in value over a few years than a few days – try and wait a little longer!
Equally, I would encourage having your diamonds, or jewellery professionally valued regularly. If you don’t have the knowledge to make a rough judgement on how much your pieces are worth, a consultant or expert can provide both a valuation, and contextualise that amount in the wider market. From there, you should be empowered with the knowledge to decide whether to keep or sell.
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