The Importance of Indemnities During Insolvency Procedures

In a (perhaps unsurprising) recent ruling, the High Court has confirmed that the employers of Law of Property Act (LPA) Receivers, cannot be held vicariously liable for the conduct of those receivers during their appointments. The decision in Yerbury v Azets Holdings Ltd* confirms the principle that receivers are personally appointed office-holders and act independently of the firms that employ them.

The Facts

A and B were appointed as joint receivers over a commercial property after the borrower defaulted on a bridging loan. The property was valued by two different valuers at £5m but was sold by the receivers for only £4.28 million, £720,000 below the suggested value. The sale was allegedly made without proper market exposure, bypassing two higher-value offers and resulting in a sale to a party connected to the lender.

The claim was assigned by the borrower’s liquidator to an individual. The assignment defined the claims as being against the individual receivers, not the firm. The claimant bought claims for professional negligence and breach of duty. However, the stated defendant was C, the firm that employed the Receivers at the time, and not the individuals themselves.

Due to a standstill agreement entered into with C (but not A or B) the Claimant was still within time to sue C but the limitation period had expired for a direct claim against A and B by the time proceedings were issued.

At first instance, C successfully applied to strike out the claim. They were successful in their arguments that the receivers were appointed as principals in a personal capacity and the assignment clearly related only to claims against A and B, not C. The claim was therefore bought against the wrong defendant and there was no legal authority supporting vicarious liability in this context.

An application to join the Receivers would have failed as the claim was statute-barred against them.

The Claimant was granted permission to appeal, limited to the issue of vicarious liability.

The Judgement

The High Court dismissed the appeal and confirmed the previous decision. The following key points were made:

Receivers appointed under section 109 of the LPA 1925 are appointed in a personal capacity. Section 30 of the Insolvency Act 1986 serves to explicitly disqualify any corporate body from acting as a receiver of a company's property and the language of section 109 of the LPA 1925 is itself only apt to refer to an individual. Once appointed, the receiver owes duties to the borrower and the lender, not to their employer, which is at odds with the doctrine of vicarious liability.

The Court reaffirmed that vicarious liability arises only where there is a relationship akin to employment and the wrongful act is closely connected to that employment. In this case, the Receivers were not acting in the course of employment, but in the execution of their personal statutory appointment. The judgment highlighted that there were no prior cases where a professional firm had been held vicariously liable for the misconduct of a receiver it employed.

The Court confirmed that the assignment was clear and unambiguous, only covering claims against A and B personally. Because the Claimant only entered into a standstill with C, and not with the Receivers, the claim was out of time as against the receivers.

Commentary

The High Court’s decision is clear that firms offering receivership services are not vicariously liable for the conduct of employees acting as receivers.

For claimants, this serves as a sharp warning—identify the right parties early, or risk losing the claim entirely.

For firms, it offers welcome protection. However, firms should bear in mind that there was some criticism of the firm in this case for allowing the Claimant to enter into a standstill arrangement with them without suggesting they were not the correct defendant. The judge felt that this behaviour fell short of their own professional code of conduct and reflected this in the costs order at first instance.

For receivers themselves, it highlights the importance of having the right indemnities in place when taking an appointment. Receivers should insist on an indemnity from the firm they work for (and who are getting the benefit of the services they provide) and, in larger and more complicated matters, from the lender who appoints them, if they can be persuaded to give it. [2025] EWHC 757 (KB)

If you require further assistance regarding the issues discussed in this article, please do not hesitate to get in touch. Contact Veracity Law International on 0161 53113274 or email us info@veracitylawinternational.co.uk

Disclaimer: This blog is for general information only and is not intended to provide legal advice on any general or specific matter.