Focusing on mortgage receivership, Falcon Chambers barrister Tricia Hemans and Imogen Dodds worked through “thorny issues” facing receivers when there are multiple charges and potentially multiple receivers appointed over the same asset.
 
Use and Distribution of Funds – Income                   
 
A receiver's obligation in respect of monies received depends on the source of power which led to them receiving the money.
 
Law of Property Act 1925 S109(8) 
Hierarchy by category:
i.rents, taxes, rates, and outgoings whatever affecting the mortgaged property; and
ii.keeping down all annual sums or other payments, and the interest on all principal sums, having priority to the mortgage in right where of he is receiver; and
iii.of his commission, and of the premiums on fire, life, or other insurances, if any, properly payable under the mortgage deed or under this Act, and the cost of executing necessary or proper repairs directed in writing by the mortgagee; and
iv.payment of the interest accruing due in respect of any principal money due under the mortgage; and
v.in or towards discharge of the principal money if so directed in writing by the mortgagee; 
vi.to pay the residue, if any, of the money received by him to the person who, but for the possession of the receiver, would have been entitled to receive the income of which he is appointed receiver, or who is otherwise entitled to the mortgaged property.
 
Key points

1. Although the statute doesn't say whether the receiver should distribute in full on each receipt by reference to the liabilities fallen due, it would seem sensible only to distribute once in a position to assess all claims that are likely to be faced during the receivership, and also all of the income likely to be received. 
2. If the receiver does not have enough money to pay everyone in a particular category it is suggested that they should be paid pro rata, with the exception of prior charges which should be paid by the receiver in order of priority.

 
Categories in more detail
 
Category i) – review terms of all contracts (utilities, leases etc.) ensure sums are payable and level of any arrears
 
Category ii) – where certain sums which have priority to the mortgage under which the receiver has been appointed.
 
When considering priority:
 

• check Land Registry office copy entries
• check date on which the charge under which receiver was appointed was registered
• obtain a copy of the terms of that charge, and ascertain what sums are due, to work out what is going to fall within that second category 
• check for any note altering priorities

 
Category iii) – commission 
 
s109 (6) deals specifically with remuneration. The default 
'A receiver is entitled to retain out of any money received by him for his remuneration, and in satisfaction of all costs, charges, and expenses incurred by him as receiver, a commission at such rate not exceeding 5% on the gross amount of all money received as is specified in his appointment, and if no rate is specified then at the rate of 5% on that gross amount, or such other rate as the court thinks fit to allow on application made by him for that purpose.'
 
The default is 5% maximum commission, but alternative charging regimes may be set out in the appointment or more likely, in the mortgage. 
 
Category v) – must be a direction in writing by lender. This must be checked.
 
Category vi) –residue has to be paid to someone who but for the *possession of the receiver would have been entitled to receive the income of which he is appointed receiver, or who is otherwise entitled to the mortgaged property
 
*“possession” here can mean receipt of rents and profits
 
Unresolved question

• if there is a lender who is in possession, the residue is to be paid to that lender. 
• But – if the lender is not in possession, and has not been paid out under subsection 5, there is an unresolved question over whether that lender is nonetheless a person who is entitled to the mortgaged property. 
• One possible solution might be for the subsequent charge holder to appoint the same receivers to act, and alternatively, if there is a dispute as to who the residue should be paid to, it is possible to make a stakeholder application to the court for directions, using part 86 of the Civil Procedure Rules.

 
 
Additional powers under the mortgage deed?
If there are additional powers to collect income, the receiver should construe the mortgage to work out what the parties’ intentions as to distribution were – that may or may not be the same as the statutory scheme.
See: 

• Re Hale [1899] 2 Ch 107  receiver was authorised to pay business debts in priority to the payments which fell under this statutory hierarchy

 
 
Use and Distribution of Funds – Sale             
 
Borrower’s power of Sale - Where the receiver exercises the borrower's right of sale of the property, the terms of the mortgage must be construed to decide who is entitled to proceeds, as a sale does not fall into the statutory regime.
 
Costs of sale – a particular and as yet unresolved difficulty can arise in relation to the costs of sale, which do not sit neatly into any of thes.109 categories. In a case called Marshall v Cottingham, the court construed a mortgage deed which had a stipulation that all money received by the receiver shall be applied first in payment of the costs of realisation, and then the first three categories. However, the judge said he could see some merit in the argument that in the absence of any provision in the mortgage, the costs of sale might fall within the costs which do have to come out of the receivers' commission.
 
It might be possible to imply a term that the parties must have intended for those costs to be deductible from the proceeds of sale. 
 
Lender’s Power of Sale – under s105, where the receiver exercises the lender's power of sale it’s likely the lender priority regime applies, which has a slightly different order:
 
s105 LPA 1925:

1. all costs, charges and expenses properly incurred by him as incident to the sale or any attempted sale;
2. the mortgage money, interest and costs and any other monies due under the mortgage; 
3. the residue is to be paid to the person entitled to the mortgaged property, or authorised to give receipts for the proceeds of the sale thereof.

 
 
Priority 
When you have multiple charges over a single property, and each appoints a receiver, the rights and the powers of those receivers depend on the priority of those charges. However, this does not provide a complete answer to all of the questions which could arise. 
 
Scenario with difficult questions 
 

• Owner, O, mortgages his property to first chargeholder, A.
• Second charge is held by B, so long as A with the first charge does not seek to enforce its charge, 
• B is free to appoint receivers or pursue such other remedies as sees fit (although if receivers are appointed, they must comply with the distribution principles)

 
If A then decides to appoint their own receiver, not the same receiver that B has appointed, 
A’s charge takes priority, displacing B’s charge.
 
Q1: what is the procedure for A to do the above – does A need to apply to court?
Answer

• If the B’s first appointed receiver was appointed by the court, then that receiver is considered to be an officer of the court, it would be a contempt of court to interfere with an officer of the court carrying out duties, so A needs to obtain leave to appoint receivers, or go into possession – although leave is likely to be granted as a matter of course.

 
Q2: what is meant by displacement – is B’s receiver discharged?
Answer 

• We don't have cases directly on this point but there probably is no automatic discharge. In practice, it is unlikely to matter, because while A's receiver remains in office, B's receiver is displaced in practice. 
• But if, for example, A's receiver's receivership was terminated, you would need to consider whether there was a need for a subsequent appointment. 

 
Q3: is there any right of recourse for B?
Answer:

• B's options are quite limited given that B's interest in the property is subject to A's better rights.
• The duties of A’s receivers are equitable, limited to acting in good faith and for proper purposes, and also taking reasonable care to obtain a proper price.
• If A is in breach of those duties, B can seek damages, or possibly injunctive relief, but it's going to be a high bar to get over. 
• It's always open to a subsequent chargeholder, as a person who is interested in the equity of redemption, to redeem the first charge.
• Alternatively, the second chargeholder, again interested in the equity of redemption, could seek an order for sale under Section 91 of the Law of Property Act 1925 (in practice, a court may well be reluctant to interfere with A).