Borrowers are increasingly seeking to challenge or frustrate the validity of an appointment of a receiver on technical grounds. While each case will be determined on its own merits and facts, a recent decision of the High Court is illustrative of the Court’s attitude towards some such arguments.

In this case, the receiver sought a declaration that he was validly appointed as receiver. The borrowers had sought to oppose the appointment of the receiver based on a broad spectrum of technical arguments ranging from a defective letter of demand to an invalid transfer of assets and security.

The borrowers unsuccessfully argued that the loans were not due, as the bank’s solicitor, as opposed to the bank, had issued the letter of demand.  The Court dismissed this argument as being without substance.  The Court clarified that a solicitor may, when instructed, act on behalf of the bank when declaring an act of default and specifying what is required to bring the borrower into compliance.

The borrowers also contended that the security for the loans issued by Bank of Scotland Ireland Limited did not form part of the assets which were transferred to Bank of Scotland plc when they merged.  This contention was based on the assertion that the mortgage did not constitute an asset within the meaning of the Directive on cross-border mergers of limited liability companies.  The Court held that there was no rational basis for concluding that, while the loans transferred, the security underlying the loans did not. The Court noted any other interpretation would make cross-border mergers impossible and would damage the interest of shareholders and creditors alike.  

The borrowers also unsuccessfully argued that the deeds of appointment of the receiver were invalid because they were executed by the relevant bank official (whose authority was also challenged unsuccessfully) on 28 May 2012 but dated 6 June 2012. The Court held that the effective date for the appointment was 6 June 2012 when the receiver accepted the appointment. The Court noted that the instrument of appointment has to be communicated to the nominated receiver so that he can accept or refuse appointment.  A receiver cannot be appointed without his knowledge and consent.  Accordingly, the appointment took effect on 6 June as was recited in the deeds of appointment.

This summary only refers to some of the arguments advanced unsuccessfully by the borrowers. Indeed, the Court in its judgment accepted that the proceedings had been defended on technical grounds with great industry and ingenuity.   However, the Court found that none of the points raised provided a defence and declared the receiver stood validly appointed.