The duty of receivers appointed over a property where the mortgagor is bankrupt

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Facts of the case

In Purewal v Countrywide Residential Lettings Ltd and another [1], the mortgagor, Mr Purewal, purchased a property on a buy to let basis and later took a charge out over the property with The Royal Bank of Scotland plc (the Bank). He went into arrears on the mortgage and the Bank appointed fixed charge, or LPA, receivers (the Receivers) to manage the property. The Receivers told Mr Purewal that they would insure the property and that he should cancel his buildings insurance policy, which he subsequently did.

Mr Purewal was made bankrupt in September 2009. Later in the month on a visit to the property he discovered that there was a leak causing severe water damage and informed the Receivers of this on the same day. He contacted the Receivers again in February 2010 and it was revealed that in the interim they had not taken any action to remedy the situation. The court could find no evidence that the Receivers had actually insured the property, but it was agreed that even if they had insured it would have been too late to make a claim by then. The Receivers appointment was terminated in April 2010, but the bankruptcy order remained in place until April 2011.

Mr Purewal carried out repairs to the water damage at the property at his own cost and in August 2011 his trustee in bankruptcy transferred the property back to him for a nominal amount. Mr Purewal claimed that the Receivers had breached their duty of care by not promptly submitting the insurance claim and should pay him back his costs of repairing the property.

Court’s decision

The Court of Appeal dismissed Mr Purewal’s claim and held that once he was made bankrupt the duty of care was owed his trustee in bankruptcy and not to him. This is because the on appointment of a trustee in bankruptcy the interest in the equity of redemption vests in the trustee. There were no mitigating factors here that would cause them to consider if the duty of care should be widened.

The court went on to say that even had Mr Purewal been able to establish a duty of care he would still have lost his claim because the Receivers would no doubt have directed that any insurance monies were paid to the mortgagee rather than being used on repairs.

WM Comment

This is a good opportunity to remind receivers of their duty of care generally in their dealings with a property. Specifically, receivers and lending institutions alike should bear in mind that if a mortgagor becomes bankrupt the duty of care is owed to the trustee in bankruptcy rather than the mortgagor. A mortgagor who becomes bankrupt and has LPA receivers appointed over his properties should think carefully before taking any action in relation to those properties that could fall under the remit of his trustee.


[1] [2015] EWCA Civ 1122