In some cases, such as in the insolvency context, it is necessary for a secured creditor to appoint a receiver over the assets (the subject of a security) because there has been a default under the security instrument. More seldom, the receiver is appointed where it appears the assets of the company may be placed in jeopardy.
Here are some topics:
⦁ what is receivership?
⦁ what is the purpose of receivership?
⦁ who can act as a receiver?
⦁ how is a receiver appointed?
⦁ what happens if a receiver is not validly appointed?
⦁ what are some of the powers of receivers?
⦁ how do you know if a receiver was appointed to a company?
⦁ what happens to the company once a receiver is appointed?
⦁ how does a receivership end?
In a broad sense, receivership is when an external person is appointed to accompany to realise the assets so that outstanding debts can be paid (if possible). Outside of the insolvency context, a receiver can be appointed where assets may be in jeopardy.
What Is The Purpose Of Receivership?
In most cases a receiver is appointed so that a secured creditor, who has the right to do so under a security document, can have an external person take possession of property and then realise it to pay the debt. It is also possible to appoint a receiver in other circumstances such as when partners to a business fallout and the assets are at risk of being dissipated.
Contrary to what most people may think, only a registered liquidator can act as a receiver. This means that some persons such as auditors, who are not registered liquidators, are prevented from fulfilling this function.
Whilst a receiver can be appointed in more than one fashion the appointment typically takes place when a debtor fails to make such payments as may be required under a debenture deed. Where this happens, the right to appoint comes about by reason of what he said in the security instrument.
In other contexts, and more rarely, a receiver is appointed by the court through the exercise of its statutory powers (or in its inherent jurisdiction) to for instance avoid partnership assets being placed in jeopardy.
What Happens If A Receiver Is Not Validly Appointed?
If a receiver is not validly appointed there can be a range of complications. For instance a person purporting to act as a receiver (without a valid appointment) may find themselves in a position of having trespassed, and if so, may be liable in tort.
What Are Some Of The Powers Of Receivers?
Ordinarily, a receiver has a range of powers that quite often include the ability to operate, sell or borrow against secured assets for the purposes of discharging such debts as may be owed to the secured creditor. The Corporations Legislation also sets out the specific powers that may apply where those powers could potentially include the ability to take or defend proceedings.
How Do You Know If A Receiver Was Appointed To A Company?
When a company has a receiver appointed to it there is an obligation to state certain things on its public documents (and negotiable instruments). In many cases the company will simply state after its name that a receiver is appointed.
What Happens To The Company Once A Receiver Is Appointed?
Just because a receiver has been appointed doesn't mean that the company will come to an end necessarily. In a practical sense it is quite likely that the role of the directors will be substantially diminished although it may be possible for the directors to challenge the validity of the appointment (if there are grounds for doing so).
In the event that the secured creditor is paid then the receivership will end and there would be an obligation on the part of the receiver to account for any surplus. Quite often, however, receivership is simply a prelude to voluntary administration.
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