21 February, 2010

Receivers


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.
Anguilla has had since 1974 a pure system of registered land titles.  It is called the Torrens system after its Australian inventor Robert Torrens.  This system exists in several parts of Canada, the Commonwealth, and the United States, as well as in Anguilla.  It is a system whereby all deeds, and all common law concepts of land titles and interests in land, are abolished and replaced by a Register kept by government.  This Register is the only evidence of title to land in Anguilla. 
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.  Sale 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.
          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.



4 comments:

  1. Don opined, "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."

    Lawyer Bunton stated that following any public acquisition, there would have to be a public auction. Lawyer Hubert, however, made it clear before the election that he intends to take the property by public acquisition on behalf of Salamander.

    Is Hubert about it take us on another "Talk Your Mind" odyssey, all the way to the Privy Council, to prove he knows better than the constitution, while what's left of Flag continues to rust and rot to self-destruction and we pay out millions in lawyer fees?

    "I have all the answers." --Hubert Hughes, 19th October 2002

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  2. Don is absolutely correct on this point.

    Lawyer Bunton is absolutely incorrect; there would not HAVE to be a Public Auction at all.

    Lawyer Hubert is therefore correct. The Government can compulsorily acquire Flag and then sell it to Salamander by private treaty.

    The acquisition would be for a Public Purpose as the case of the Pinneys' acquisition in Nevis where the government of Nevis compulsorily acquired lands from the Pinneys' Estate and sold it to a developer by private treaty. The case was upheld in the Government's favour at the Privy Council.

    Over the past few weeks persons who may have/may have had an interest in the maintenance of the ownership status quo at Flag publically said many things about Flag and compulsory acquisition intended to scare Anguillans into believing that compulsory acquisition was dangerous and deadly for Anguilla. They were fearmongering. They were wrong. You must question why they were telling the Public those wrong things, especially during the middle of a very heated Elections campaign.
    Government.

    To recap: Don is correct;
    Lawyer Bunton is incorrect;
    Lawyer Hubert can lawfully
    achieve what he is quoted as
    saying; and,
    The Fearmongers were wrong, and the people of Anguilla realized that.

    ReplyDelete
  3. If the Government of Anguilla seizes or nationalizes any part of this property, you can kiss any and all future foreign investment goodbye. So long, see, OK, bye bye, have a nice day. Why would any potential investor take any sort of chance?

    In a recent press conference, the new Chief Minister stated that Anguilla is not a banana republic. If he feels that way, then under no circumstances should he even breach the thought in a public forum.

    Nevis tried to take over Caribbean Cable, which resulted in a splattering mess. That was pure banana republic, and allusions to some prior agreement that "allowed" for the nationalization of a fully private business is just smoke.

    After that mess, no rational investor would go near that island.

    Let's not let that happen here. Stop _any_ consideration of the Government seizing property -- let the free market handle this (within legal bounds), and investors will continue to consider Anguilla as a viable option.

    http://www.leewardstimes.net/jla/index.php?option=com_content&view=article&id=650%3Agovernment-seizure-of-ccc-turns-into-chaos&Itemid=50

    ReplyDelete
  4. In Anguilla government makes agreements with investors and often keeps up its side of the deal even when investors do not keep up their end of the bargain. Hubert is right to end any agreement when the investors do not do what they promised. Give them hell Hubert!

    ReplyDelete

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