High Court clarifies duties owed by receivers to borrowers

Facts

On 26 March 2019, the High Court clarified the duty of receivers when selling secured property to a company connected to a creditor.

The claimant alleged that the receivers, appointed on behalf of, and selling to a party connected to the creditor, had acted in bad faith, had placed themselves in a position of conflict and had engaged in self-dealing.

The court also assessed where the burden of proof lies when allegations of failing to act in good faith are raised.

Outcome

The court held that for a receiver to breach its duty of good faith there must be "intentional conduct amounting to more than mere negligence and encompassing either an improper motive or an element of bad faith."

Here, the court found that the receivers had acted properly; there was no evidence to suggest otherwise. The receivers did not benefit from a lower price being obtained for the sale of the property to a company connected to the creditor, so there was no self-dealing, nor were they were acting in bad faith or under a conflict of interest.

As the receivers would not stand to benefit, there was no duty on the receivers to prove they had obtained the best price possible. As such, the burden of proof remained with the claimant.

Comment

Although a creditor and a receiver both have duties of good faith to a borrower, they do not share those duties. The duties of receivers are limited to managing the creditor's security for the creditor's benefit.

Devon Commercial Property Limited v Robert Adrian Barnett, Robert John Belcher [2019] EWHC 700 (Ch)