BASSEY: Appointment of a Receiver as a Remedy in the Law of Mortgages

APPOINTMENT OF A RECEIVER AS A REMEDY IN THE LAW OF

MORTGAGES*

Abstract
A mortgage is a conveyance of title to property pledged as collateral security to guarantee
the repayment of loan advanced to the mortgagor by the mortgagee, which conveyance
becomes void at the repayment of the loan. The purpose is to ensure that the mortgagee,
which is usually a bank (and which must have been incorporated as a company), does not
lose her money. In the event of failure of the mortgagor; who may be an individual or a
corporate entity to repay the loan, there are several remedies available to the mortgagee;
prominent among which is the appointment of a receiver. The receiver may be appointed
by the mortgagee or the mortgagor, or by the court. The duty of the receiver so appointed
is among other things, to assist the mortgagee to recover the loan advanced to the
mortgagor, which is secured by collateral in form of a mortgage. This the receiver usually
achieves by selling or leasing the mortgage property and applying the proceed thereof to
offset the loan and any balance outstanding after settling all debts is given to the
mortgagor. Appointment of a receiver is essentially a remedy in favour of the mortgagee,
although he may be appointed by the mortgagor and he may also be required to protect
the mortgagor’s interest as much as possible. The target of this article is to examine the
appointment of a receiver as a viable remedy in mortgage.

Keywords: Receiver, Appointment, Remedy, Mortgages

1. The Meaning of a Receiver

The court gave the meaning of a receiver in Adetona & Anor v. Zenith International Bank
Limited1 where a receiver was defined as a person appointed by the court for the purpose
of preserving the property of a debtor (mortgagor) pending an action against him or for the
purpose of applying the property in satisfaction of a creditor’s (mortgagee’s) claim
whenever there is danger that in the absence of such appointment, the property will be lost,
removed or injured. A receiver may also be appointed by the mortgagee or the mortgagor
and he is mostly appointed when the mortgagor is in default of repaying the loan.

2. Circumstances that may give rise to the Appointment of a Receiver

In stating the circumstance that will warrant the appointment of a receiver, the court, in the
case of Fasakin v. Fasakin2, stated, among other things that a receiver will be appointed
where the company’s auditor declare at a general meeting and without being challenged by
the directors that after paying for liabilities, the company’s asset would only cover principal

*By Agbor I. BASSEY, LLB (Hons), LLM, BL, PhD (In view), Lecturer, Faculty of Law, University of
Calabar, Calabar, Email: megalife82@gmail.com. Phone No: 08035819883.
1 (2008) ALL FWLR, Part 440. 796
2 (1998) 5NWLR, (pt. 548) 42

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loans secured and that the company’s credit and funds were exhausted. The mere fact that
the company is insolvent is not sufficient for the court to appoint a receiver or manager;
there must be threats from creditors (mortgagees) or some jeopardy to the assets of the
company covered by the security, for example, that there was a risk of their being seized
to pay the claims of creditors.3 Furthermore, the need will arise for the appointment of a
receiver where a creditor (mortgagee) has obtained judgment. Here the receiver’s duty is
to prevent the judgment debtor from disposing of the property.4 This is in order to safeguard
the interest of the judgment creditor. Furthermore, one of the circumstances that will
warrant the grant of an application for the appointment of a receiver is when the court is
satisfied that events have occurred or are about to occur such as will jeopardize the position
of the creditors (mortgagee).5

3. The Legal Status (Position) of a Receiver

By Section 390(1) (2)(a) of the Companies and Allied Matters Act6 the legal status of a
receiver includes the following. The receiver is a manager or caretaker of property or any
other undertaking. He is deemed to be an agent of the person(s) who appointed him or on
whose behalf he is appointed. He stands in fiduciary relationship with the company or
person n whose interest he is working. He has a duty to carry out his responsibilities with
utmost good faith. He is expected to act in the best interest of such company or person so
as to preserve its assets, further its business and promote the purpose for which it was
formed. By his position, he is required to be faithful, diligent, careful and skillful. The
following points are also to be noted on the legal status of a receiver. A receiver appointed
out of court is prima facie merely an agent for the person(s) who appoints him and as such
incurs no personal liability if he acts within the scope of his authority. A receiver appointed
by a mortgagee under his statutory power is deemed to be the agent of the mortgagor, not
of the mortgagee. A receiver appointed by the court is an officer of the court and is not an
agent for any of the parties. He is therefore personally liable for his acts, although he will
usually be entitled indemnify himself out of the property concerned. Any interference with
such a receiver in the performance of his duties is a contempt of court and is punishable as
such.7 See also (S. 389(2) CAMA.

4. The Legal Implications (Effects) of Appointment of a Receiver

A receiver when appointed is charged with the control of the assets of the company.8 A
receiver is appointed by the creditor (mortgagee) or the court to take over the management

3 O. Orojo ‘Company Law and Practice in Nigeria’ (5th edition) South Africa: LexisNexis Butterworth. 2008.
P. 437
4 G. Kodilinye, ‘An Introduction to Equity in Nigeria’ London: Sweet and Maxwell. 1975. P. 207.
5 E.O.Akanki, ‘Essay on Company Law’ Lagos: University of Lagos Press. 1992. 249
6 Cap C20, Laws of the Federation of Nigeria 2004.
7 G. Kodilinye, Op. cit, 208
8 Bhadmus, On Corporate Law Practice, Enugu: chenglo Ltd. 2009. 336

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BASSEY: Appointment of a Receiver as a Remedy in the Law of Mortgages

of the security of the company (mortgagor) or undertaking.9 It is said that the effect of
appointment of a receiver by the court is that it practically removes the conduct and
guidance of the affairs of the company (mortgagor) from the directors and places it in the
hands of the receiver who thereupon absolutely supersede the company itself, so that the
directors become incapable of making any contract on behalf of the company or exercising
any control over any part of any property or assets of the company and that the company
is not thereby dissolved or annihilated any more than the taking of possession by a
mortgagee annihilates the mortgagor.10 With regards to the power of the directors after the
appointment of a receiver, the appointment will not preclude the directors from pursing a
right of action provided the action does not threaten the interest of the creditors (mortgagee)
and although the directors cannot dispose of the assets subject to the charge, they have a
duty to exploit them for the benefit of the company (mortgagor).11 The appointment of a
receiver does not extinguish all the powers of the board. The directors still have continuing
powers and duties. Also, the appointment of a receiver does not prevent them from suing
and being sued in respect of those matters outside the control of the receiver or manager.
The appointment of a receiver also does not operate as a stay of execution.12 In addition to
the foregoing, on the implications of appointing a receiver, it was held in Moss Steamships
v. Whinney13 that the receiver entirely supersedes the company in the conduct of its
business, deprives it of powers to enter into contracts, or to sell, pledge or otherwise dispose
of the property put under his possession or control.

5. The General Duties, Rights and Powers of a Receiver

Section 393(1) of CAMA, provides for the duties and powers of a receiver, as it provides
that:’ A person appointed a receiver of any property of a company shall, subject to the
rights of prior encumbrances, take possession of and protect the property, receive the rent
and profits and discharge all out-goings in respect thereof and realize the security for the
benefit of those on whose behalf he is appointed, but unless appointed manager, he shall
not have power to carry on any business r under taking. The following powers and duties
of a receiver can be sifted from the foregoing provision of the law: power and duty to take
possession of the property; power and duty to protect the property; power and duty to
receive rents and profits; power and duty to discharge all out-goings; and power and duty
to realize the security for the benefit of those on whose behalf he is appointed. Also, Section
131(3) of the Property and Conveyancing Law14 provides that: ‘The receiver shall have
power to demand and recover all income of which he is appointed receiver by action,
distress or otherwise, in the name either of the mortgagor or of the mortgagee to the full

9 F.J.Oniekoro, ‘Property Law Practice’. Enugu: chenglo Ltd. 2009. 68

10 O.Orojo, Op.cit, 439-440
11 Ibid 440
12 Ibid.
13 [1912] A.C.,254
14 Laws of Western Nigeria, 1959

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extent of the estate or interest which the mortgagor could dispose of and to give effectual
receipts accordingly for the same, and to exercise any powers which may have been
delegated to him by the mortgagee pursuant to this law’. Furthermore, the following rights,
powers and duties are conferred on the receiver by virtue of this statutory provision: right
or power to demand and recover all the income of which he is appointed to receive either
by the court action or by distress or otherwise; power to give or issue receipts for the monies
so obtained; and duty to exercise any powers which may have been delegated to him by
the mortgagee.

Another important duty of a receiver is to protect or preserve the property for the benefit
of the persons who have interest in it.15 Thus in Okoya v. Santilli16 on when the court still
interferes with the internal affairs of a company by appointing a receiver or manager, it
was held that: ‘If due to disputes among the directors they are unable to act and the affairs
of the company cannot be carried on, the court will interfere by an injunction or by the
appointment of a receiver or manager to take over the undertakings and assets of the
company until the management of the company is restored to a proper footing. This will
be done in a situation where owing to disputes as to the shareholdings the conduct of the
affairs of a company will suffer or be in jeopardy or where there is paralysis or imminent
paralysis of the conduct of the affairs of the company during civil litigation’. Also, a
receiver has the right or powers to borrow money, under the authority of the court, to enable
the receiver to carry on the business of the company or to preserve the property of the
company.17 A receiver can sell the property or lease the company’s mortgage property in
order to repay the mortgagor’s outstanding debt. He also has a duty to dispose of the assets
of the company where necessary in the following order: cost of collecting the assets; costs
and remuneration of the receiver, including any indemnification of personal liability; if the
charges is a floating charge, then the preferential debts; and settlement of the amount due
to the debenture holders and the surplus (if any) will go to the company.18 Furthermore, a
receiver can collect debts outstanding on property; enforce claims against the company;
compromise, settle and enter into arrangements in respect of claims by or against the
company on the company’s business with a view to settling it on the most favorable terms
or accept lease of land and licenses in respect of patents, designs, copyrights or trademarks
and to recover any installment unpaid on the company’s issued shares.19

6. Advantages of Appointment of a Receiver in a Mortgage Transaction

The mortgagee is prevented from losing his money advanced as loan to the mortgagor as
the receiver facilitates its recovery. The mortgagor is also likely to benefit from the proceed

15 E.O.Akanki, Op cit. 25
16 (1990) 2NWLR 172 (pt. 131), pg 204, (para. A-C)
17 Morse ‘Charlesworth’s Company l aw’( 13th edition) London: Stevens & Sons Ltd. 1987. 672
18 D. Keenan Smith & Keenan’s Company Law for Students’ (10th edition). Great Britain: Clays Ltd. 1996, 466
19 O. Orojo, Op.cit 442

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BASSEY: Appointment of a Receiver as a Remedy in the Law of Mortgages

of sale of the mortgage property provided the amount for which the property is sold is high
enough to offset the debt and some balance is left over. It prevents disputes and resort to
litigation by the parties to the mortgage.

7. Disadvantages of Appointment of a Receiver in a Mortgage Transaction

The mortgagor will likely lose his property. The mortgage property may be sold for an
amount that is less than the amount advanced as loan.

8. Conclusion
Mortgage is probably the most utilized forms of collateral security for bank loans in
Nigeria. The purpose of pledging a collateral security in form of mortgage for bank loans
is to secure the loan and guarantee its repayment. Where the mortgagor is in default of
repaying the loan sum, as a remedy against such default, a receiver can be appointed
basically to recover the loan as discussed above. The advantages of this remedy lies in the
fact that not only does a receiver facilitate the recovery of the mortgagee’s money by
possibly selling the collateral security, but he also ensures that the outstanding balance left
from the proceed of sale of the collateral property is given to the mortgagor, thereby
striking a balance and ensuring as much as possible that the mortgagor is not vehemently
prejudiced as the value of the property pledged as security is usually higher that the loan
advanced to the mortgagor . This makes it one of the best remedies in mortgage.
Consequently, it is recommended that appointment of a receiver should be adopted as the
first option of remedy where a mortgagor is in default of repaying the loan, before
considering other remedies in appropriate circumstances.

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