21 February, 2010
Can the Receiver at Flag Luxury Resort find a new buyer? The answer is yes, he can find a new buyer. But, there is not a damn thing he can do with the buyer, except tell him to go and talk to Robert FX Sillerman, the owner of Flag Luxury Resort.
I do not know if you heard JB Turbidy being interviewed by Iwande on Upbeat Radio on the morning news about ten days ago. What Turbidy said concerned me. He repeatedly assured Iwande that the Salamander Group of investors was looking forward to the appointment of the Receiver at Flag Luxury Resort by Credit Suisse because that would enable the project to be sold to a new investor such as the Salamander Group. He seemed convinced that the Receiver had the power to sell Flag to his group. That is so wrong, that I wondered if he had any advice before he spoke.
Turbidy is not the only one mistaken. The various newspapers carrying articles on the topic continue to repeat that Credit Suisse has “assumed ownership” of Flag. Nothing could be further from the truth.
One of the reforms of the Registered Land Act of
Anguilla was the abolition of mortgages, and the traditional rights of a mortgagee. A lender secures a loan by registering “a charge” over real property. When a secured loan goes into default, the creditor has only two remedies under our Act. They are, briefly, either (1) to appoint a Receiver of the charged property; or (2) to exercise the power of sale by public auction. If a loan is in default, the secured creditor must give a 3-months notice either (1) to appoint a Receiver, or (2) that the property will be sold. He cannot do both in the same notice. Let us look at these two remedies.
First, what does it mean to appoint a Receiver of land in
Anguilla? The rights and powers of the Receiver are set out in the Act. These rights and powers may not be expanded by contract beyond those given in the Act. A lender cannot make a borrower sign a debenture increasing the rights and powers of the lender beyond those given by the Act. To permit otherwise would be to corrupt and distort the remedies given in the Act. Every lender would inevitably oblige every borrower to vary the limited rights of the lender to give the lender the widest possible rights. The law does not permit that.
If a loan goes into default, the Chargee may give the defaulting borrower a notice to the effect that unless the loan is brought current within 90 days the Chargee intends to appoint a Receiver. The law enables the Receiver only to go into possession of the property and to manage it. The Receiver runs it for the benefit, essentially, of the creditor until the loan has been paid off. On the satisfaction of the debt, the Receiver is obliged to hand the property back to the owner. His rights and powers are limited to managing the property in order to ensure the income goes to satisfying the debt. Under no circumstances can he sell it to another investor, regardless of what the loan documents say. He can sell nothing except in the ordinary course of business, eg, the sale of food in a restaurant.
A secured creditor has one alternative remedy under the Act. That is the right of sale by public auction. He no longer has the traditional remedies of a mortgagee under the common law. The holder of a mortgage under the old law used to have the “right of forclosure”. Forclosure gave the mortgagee title to the property, subject only to the right of the borrower to pay off the loan and get title back. The holder of a mortgage used to have the right to go into possession of the property and to sell it to satisfy the debt. He could sell by any means, once he tried his best to get the full market value. That power of sale included the right to sell by private treaty. That remedy has been abolished.
The rights and powers of the lender who holds a mortgage charge are set out in the Act. These rights and powers may not be varied except to the limited extent permitted by the Act. The right of sale is, essentially, to appoint an auctioneer to sell the property by public auction. No private sale is permitted. The remedy of sale is given only to the holder of a charge exercising the right of sale as a chargee. That right does not extend to a Receiver, who has no power of sale. A sale by Chargee has the advantage that it wipes from the title all remaining charges and liens. The purchaser from a Chargee obtains a free and clear title to the property.
In the event that a Chargee gives a notice to appoint a Receiver, the Chargee must appoint the Receiver with the limited powers of a Receiver, ie, to manage for the benefit of the lender. A Chargee may not appoint a Receiver and simultaneously exercise the right of sale by public auction. If the lender/chargee wishes to change his mind and sell, he must give the defaulting borrower a second notice to that effect, with another 3-month grace period. The creditor has to give 3 months in either case. So that, if there is no revenue to make the appointment of the Receiver worthwhile, and the creditor decides to exercise the right of sale, he must give another 3-months grace period to that effect.
Given that Flag Luxury has no significant income that I am aware of, I cannot imagine why Credit Suisse would have wanted to appoint a Receiver. There would be no income for the Receiver to deal with in satisfying the debt owed to the lender.
In the unlikely event that the Receiver did find a buyer, and persuaded the defaulting debtor to sell to this buyer, such a sale would be a disaster. It would essentially be a sale by owner. Such a sale would leave the property bound by all the existing obligations registered against title. A sale by the chargee/lender is much more advantageous.
by the Chargee would wipe the existing obligations from the title. A purchaser would obtain a clean title from the Chargee. That advantage is lost if the Chargee permits or pressures the borrower to sell to a new purchaser. The new purchaser would take title encumbered with all the other debts and charges. No properly advised potential investor in these circumstances would buy from the Receiver or owner. He would insist on buying only from an auctioneer, or from the government after compulsory acquisition. Sale
Is there something in all this that is a matter of public record and that I am missing?
Just remember that Don Mitchell is a dead-out, retired, ex-lawyer, and nobody can safely rely on anything he says about the law.