Banking & Lender Disputes | Dispute Resolution | Banking and Finance
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The recently published judgment in Ghai, Ghai and Somal v Maymask (228) Ltd  UKUT 293 (LC) of the Upper Tribunal (Lands Chamber) confirms that, where receivers are appointed, a sale of the charged property by the registered owner should be registered, even though the purchaser knew of the appointment of the receivers, and the receivers had not given authority to the registered owner to sell.
Although the risks to receivers of unauthorised sale by the mortgagor are relatively small, they may be material. Receivers should be aware of the steps which they can take to reduce their exposure in appropriate cases.
The Investors claimed that the sale by BHL to Maymask was void and of no effect because, at the time of the sale, the receivers were still appointed over the property and, as such, the board of BHL had no authority to deal with the property. Because Maymask knew that receivers were appointed, it was on notice that Mr C (acting as a director of BHL) had no authority to dispose of the property unless authorised to do so by the receivers. No such authority had been given.
Maymask claimed that the sale was effective because BHL was the registered legal proprietor of the property and so could dispose of it. The transfer took effect in law when the application to register the transfer was made. That application was made 3 days after completion, by which time it was indisputable that the receivers had resigned and so Mr C had authority to dispose of the property at the relevant time.
Unusually, the Judge agreed with neither party's analysis. On Maymask's case, his view was that the disposition was made when the transfer was signed (i.e. the date of completion), not when it was applied to be registered. He did, therefore, have to consider Mr C's authority to dispose of the property on the day of completion (for the purpose of the Judge's analysis, the parties agreed that the receivers were still in office when the transfer was signed by Mr C).
On the Investors' case, relying on ss 24 and 26 of the Land Registration Act 2002, the Judge said that there was no basis on which Maymask needed to go 'behind' the transfer and consider whether Mr C had authority to bind BHL. He made no ruling on that point. Instead, he found that:
Usually the risk to receivers that a mortgagor might sell the property without their consent is very low, and there should be no adverse consequences for them. A purchaser will ordinarily only purchase with certainty that the charge under which the receivers are appointed is removed from the register, and that charge will only be redeemed if the entire secured sum (including the receivers' costs) is paid in full. Further, in practical terms, the sale will not happen without the mortgagee's consent (but of course the mortgagee must not place a clog on the equity of redemption and so cannot block the sale without good cause).
However, there are circumstances in which receivers should be cautious. In particular, the risk is heightened where:
Receivers can mitigate for this risk by: