English Court of Appeal rules on administrators' power to recover mortgaged property

Quick read

In a recent decision, the Court of Appeal considered whether s.234 Insolvency Act 1986 (IA86) (which allows administrators to require persons to deliver up "property to which the company appears to be entitled") could be used by administrators to obtain possession of a mortgaged property when receivers had already been appointed.

Background

Mr R set up Rose Cottage Farm Limited (the Company) to buy a property. TFG Capital No.2 (TFG2) loaned the Company £2.85 million to fund the purchase, secured by way of mortgage over the land. The terms of the mortgage prevented anyone related to the Company from occupying the property.

Mr R and his family lived in the property, but the Company defaulted on its loan repayments.

Starting enforcement proceedings

TFG2 appointed receivers and started possession proceedings in the County Court. TFG2 also appointed administrators who applied to the High Court under s.234 IA86 for possession of the property.

The High Court found that the Company’s registered title to the land was sufficient to establish that it was entitled to possession of it, because none of the respondents had any better title.

The appeal

The Court of Appeal overturned this decision on the basis that as receivers had been appointed, the Company had no entitlement to the land other than its "equity of redemption" (any value which remained after TFG2 was repaid in full), which did not include the right to possession once the mortgagee had commenced enforcement action.

The appeal was allowed and the possession order set aside.

Key takeaways

This decision provides valuable clarification about the scope of administrators' powers when dealing with mortgaged property. It confirms that s.234 cannot be used to bypass existing possession proceedings or to circumvent the rights of mortgage holders who have already appointed receivers.