The appointment of a receiver(s) can be effectively challenged by scrutinising the terms and conditions of the mortgage and the contents and form of letter or deed of appointment.
The appointment document must be executed in accordance with the relevant statutory provisions, which may include any or all of the following:
The Law of Property Act 1925 s109(1) – Must be under ‘his’ hand
The Companies Act 2006 s44 – Execution of documents - Hilmi & Associates Ltd v 20 Pembridge Villas Freehold Ltd  EWCA Civ 31
The Law of Property Miscellaneous Provisions Act 1989 s1 – If made by deed of appointment, although even if the appointment is not affective as a deed it may still be affective as ‘under his hand’
In practice this means that the letter of appointment must be signed in accordance the Companies Act 2006 s.44 and be signed either by:
Two authorised signatories
A director in the presence of a witness, who attests the signature
By a person authorise to execute documents on behalf of the company under a power of attorney , in accordance the Power of Attorney Act 1971
If the letter of appointment is not properly executed the appointment is void and the ‘lender’ and any receiver(s) acting under the appointment are liable for damages.
The next thing to check is whether the appointment is in accordance with the mortgage deed, for example if the appointment document appoints two receivers to act jointly and severally, but the mortgage only allows for the appointment of one or more receivers and does not stipulate that they may act jointly and severally then the appointment is deemed ineffective and void.
The principle that the Lender is obliged to appoint receivers in accordance with the Mortgage is accepted and applied by the courts throughout the common law world.
The Bank purports to appoint Receiver(s) without the aid of the courts in pursuant to its contractual rights under the Mortgage with the Receiver's authority being derived directly from the Mortgage. Therefore the receiver has to be appointed in strict compliance with the terms of the contract between the parties (mortgagee and the mortgagor).
Since the receiver's authority is derived from the mortgage under which he is appointed, an appointment is not valid unless it is made in accordance with the terms of that mortgage. This principle has been recognised by the leading commentators (Receivers and Administrators, Kerr & Hunter; and The Law of Private Companies (3rd Ed, Courtney).
Lynch-Fannon Corporate Insolvency and Rescue (2nd ed.) has noted that "the penalty for non-compliance with the formalities for the appointment of the receiver is that such appointment is void". She also observed that non-compliance with formalities of appointment amounts to an abuse of process.
In Wrights Hardware v. Evans (1988) 13 A.C.L.R. 631 the Supreme Court of Western Australia, the deed of charge authorised the Chargee under clause 4.3 to “appoint in writing any person to be a receiver or receiver and manager ... of the mortgaged premises" and under clause 4.4 "in addition ... appoint in writing any person to be an additional receiver or receiver manager" who had “full powers and authority to exercise all or any part of the powers expressed to be conferred on a receiver appointed...".
The Chargee had in fact appointed the defendants “jointly and severally to be receivers and managers" of the plaintiff. The plaintiff sought interlocutory relief restraining the defendants from acting as receivers and managers on the basis that the appointment was invalid, there being no power in the charge to appoint receivers and managers jointly and severally. The defendant argued that the proper construction of the charge authorised the appointment of joint and several receivers and managers or, in the alternative, the appointment was nevertheless valid insofar as it authorised the defendants to act jointly.
The Supreme Court of Western Australia held that the relevant clauses could not have the meaning contended for by the defendants and granted the injunction. Franklyn J. emphasised the importance that the terms of the debenture be complied with by stating:
"I am satisfied that the relevant law applying to the appointment of a receiver or receiver and manager, and receivers or receivers and managers pursuant to the charge is as follows:
1. The manner in which a receiver is to be appointed is prescribed by the debenture deed, in this case the charge, and must be strictly followed…”
I am aware that many mortgagees are appointing two receivers to act jointly and severally, when in fact the terms of the mortgage do not permit the appointment of receivers to act jointly and severally; any such appointment is void.
If the receivers appointment is void, then the receiver(s) are trespassers and liable to damages for trespassers and if they have sold your property they are liable for conversion and/or trespass with conversion. The lender may also be vicariously liable for trespassers and conversion, and liable for breach of contract.
Even if the letter of appointment is valid, receive(s) will routinely act outside of the scope of their powers, and as such commit acts of trespass. Unless the power of the receiver(s) are extended by the terms of the mortgage, the extent of the powers of the receiver(s) are limited to those derived from the LPA 1925 s.109(3) – (8). This means that unless the powers of the receiver(s) have been extended the receiver(s) may not:
Grant tenancies, or leases
Accept the surrender of tenancies or leases
Bring possession proceedings unless it is in relation to rent
Market or sell the property
Although under s109(3) mortgagee may delegate powers to the receiver(s), on my reading, the mortgagee can only delegate its own powers to the receivers and cannot delegate the powers of the mortgagees and this would make the receiver the agent of the mortgagee. So unless the receiver(s) powers have been extended by the terms of the mortgage the extent of the receiver’s powers as the agent of the mortgagor are limited to those stipulated in the LPA 1925 s.109(3) – (8). If the receiver(s) exercise any power that is delegated by the mortgagee, then the receiver becomes the agent of the mortgagee, and the mortgagee becomes a mortgagee in possession.