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Background

IMD Corporate was instructed in an urgent and complex dispute resolution matter concerning the proposed auction of a high-value residential property worth approximately £2.5 million. The case arose following the appointment of Law of Property Act (LPA) receivers by a lender seeking recovery under a defaulted business loan. The matter was referred to our dispute resolution department by professional contacts, with only days remaining before the scheduled auction.

The property was jointly owned by a company director and his spouse, both of whom had provided personal guarantees for a secured business loan. The loan had been in arrears for several years, prompting the lender to initiate recovery proceedings through the appointment of LPA receivers and an expedited auction. This case presented both legal and human considerations, particularly concerning the director’s mental health and the need to safeguard his wellbeing in parallel with legal representation.

Key Legal Issues and Preliminary Assessment

The dispute centred on four primary legal issues:

Validity and Enforceability of Personal Guarantees:

Our first step was to conduct a rapid and thorough review of the guaranteed documentation, business loan agreements, and related correspondence. Although the debt was undisputed, questions arose regarding the manner and timing of the LPA receivers’ appointment, and the adequacy of notice given prior to the auction.

Compliance with LPA 1925:

Under the Law of Property Act 1925, LPA receivers are appointed as agents for the mortgagor (the borrower). This imposes a duty to act reasonably and in good faith. In this case, there was substantial evidence that the client had attempted to engage with the lender to reach a resolution but had been repeatedly ignored. Furthermore, the receiver had been appointed and proceeded to schedule the auction with minimal notice, denying the client any meaningful opportunity to respond or repay the debt.

Classification of the Contract

We examined the true nature of the loan arrangement, contending that although it was documented as a business loan, the security was a residential property and the funds were used for refurbishment of personal property. This raised the argument that the arrangement bore closer characteristics to consumer lending, potentially affecting the applicable regulatory framework and the lender’s obligations.

Applicability of the Breathing Space Scheme

We considered whether the client could benefit from the Debt Respite Scheme (Breathing Space), which provides temporary legal protection from creditor action for individuals with qualifying debts. Given the borrower’s personal guarantee, the use of residential property as security, and the client’s documented mental health concerns, we assessed whether the scheme’s protections could be invoked to pause enforcement and provide time for resolution.

Strategic Legal Response

Given the urgency of the situation, our litigation strategy prioritised immediate action to halt the auction and safeguard the client’s legal and personal interests. This involved:

• Issuing a formal legal representation to the lender’s solicitors and the appointed LPA receivers outlining:
  • The client’s willingness to negotiate repayment.
  • The inadequacy of notice and potential breach of duty by the LPA receiver.
  • The client’s vulnerable circumstances, including mental health considerations.
  • Potential eligibility under the Debt Respite Scheme.
• Negotiating a moratorium to allow sufficient time for debt management advice and repayment arrangements.

Within 48 hours of instruction, we secured agreement from the lender’s solicitors to withdraw the property from the auction catalogue and suspend enforcement. This decisive intervention not only preserved the client’s home but also created an opportunity for structured debt resolution outside of court.

Alternative Dispute Resolution and Cost Management

Litigation was not pursued in this case due to the substantial costs that formal proceedings would have incurred. Instead, our approach focused on pre-litigation negotiation and practical conflict resolution, recognising the commercial and personal interests of all parties. By addressing the lender’s primary concern—repayment—and demonstrating the client’s good faith and vulnerability, we were able to achieve a swift and cost-effective outcome.

This approach aligned with our broader dispute resolution philosophy: wherever possible, avoid litigation unless it is necessary to protect legal rights or compel fair treatment.

Counterarguments and Our Responses

The lender’s representatives maintained that the appointment of the LPA receiver was lawful and that the business loan was outside regulatory protections due to its commercial nature. Our counterarguments focused on:

• The breach of duty under the LPA 1925, citing the lack of engagement with the debtor and the limited notice prior to enforcement.
• The actual application of the loan funds, contending that although the loan was documented as being for business purposes, it was secured against a residential property and used for the refurbishment of personal property, thereby aligning the transaction more closely with consumer lending.
• The application of the Debt Respite Scheme, noting that vulnerability and mental health support were material factors warranting legal consideration and temporary relief from enforcement.

Client Objectives and Outcome

The client’s primary objective was clear: to prevent the sale of his home and allow time to raise the funds necessary to repay the debt. Through urgent and strategic legal action, IMD Corporate achieved this goal within a short timeframe, while also supporting the client’s access to debt advice and mental health services.

Client satisfaction was measured not only by the successful suspension of the auction but by the broader level of support and sensitivity shown during a highly stressful period. This reinforced our firm’s commitment to holistic legal representation—combining technical excellence with empathetic client care.

Key Takeaways

• Timely Legal Intervention is Critical
  In cases involving LPA receivership and auction proceedings, early and decisive legal representation can prevent irreversible outcomes such as forced sales.
• Duties of LPA Receivers Must Be Scrutinised
  LPA receivers are agents of the borrower and must act fairly. A lack of engagement or inadequate notice can amount to a breach of duty.
• Debt Respite and Mental Health Protections Matter
  Legal protections such as the Debt Respite Scheme offer essential breathing room for vulnerable individuals facing creditor action.
• Negotiation Over Litigation
  Strategic negotiation, especially in urgent matters, can achieve favourable outcomes without resorting to court proceedings, saving both time and costs.
• Client-Centred Legal Practice Delivers Results
  Understanding a client’s full circumstances—financial, legal, and personal—enables solicitors to provide effective and meaningful solutions.

At IMD Corporate, our dispute resolution team continues to deliver specialist advice and tailored representation in high-value and time-sensitive matters. This case underscores the importance of agile, ethical, and client-focused legal practice in protecting both assets and client legal rights.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.

To find out more about our services, visit Dispute Resolution section of our website.

Call us now to discuss your case 0330 107 0106 or email us at business@imd.co.uk.

This article was created by Aleksandra Nowicka – Solicitor