A creditor holding a security interest in property of a company may appoint a Receiver (or Receiver & Manager), to assume control of the assets the subject of the security. The Receiver, who must be a registered Liquidator, will then proceed to realise those assets in order to satisfy the debt due to the secured creditor.
The powers of the Receiver are usually contained within the security agreement and the instrument appointing the Receiver. For companies, the specified powers are supplemented by the statutory powers contained in the Act and the application of relevant case law. Generally, a Receiver will be given full powers to carry on the business, receive income and realise assets.
A Receiver usually acts as agent for the company. Whilst generally personally liable for debts incurred for services rendered, goods purchased or property hired, leased, used or occupied, the Receiver has a right of indemnity against the assets of the company subject to the mortgage. The Receiver is not required to pay any debts due to creditors by the company that relate to the period prior to the appointment, nor is he required to declare dividends to unsecured creditors or call for Proofs of Debt.
Where a company, over which the creditor has security, is placed into Voluntary Administration, and provided that the secured creditor has an enforceable security interest over the whole or substantially the whole of the company’s assets, it may, within thirteen business days of being notified of the Voluntary Administrator’s appointment, elect to appoint a Receiver in respect of its security. Alternatively, the secured creditor may allow the Administrator to remain in control of the company’s assets.
A Receiver may also be appointed by the Court in a variety of circumstances. The most frequent type of Court appointment is in respect of a partnership where, for example, the partnership is insolvent or the partners are in serious dispute. A Court appointed Receiver must act in accordance with the terms of the Court Order by which he or she was appointed. The Receiver will usually have powers to realise or at least manage the assets, the subject of the Receivership.
As a variation on a theme, a secured creditor may appoint a person, normally a registered Liquidator, to act as its agent whilst it is in possession of the property the subject of a mortgage. The mortgagee is able to direct their appointed agent to a greater degree than is possible under a Receivership, with the usual purpose of managing the property and realising the asset.
The above information is by necessity, general in nature and its brevity could lead to misunderstanding. For further information, you are invited to contact O’Brien Palmer.