Receivership

A company is in receivership when an external party (a receiver) is appointed by a secured creditor (usually a bank) or the court, to take control of, or recover property, for the benefit of the entity entitled to it. The receiver may take all or some of the company’s assets to repay the debt owed to the creditor.

A receiver must be a registered liquidator and may be privately appointed after a company has defaulted under a security agreement, usually after the non-payment of instalments. The receiver is appointed in accordance with the provisions of the agreement and will have the powers provided therein.

The receiver’s role is to collect and sell a company’s assets to satisfy the debt while preserving the business to maximise the return to a creditor. The receiver acts in the primary interests of the secured creditor but also has a duty to act with due care and diligence towards the company. Suspected breaches by company officers of statutory and fiduciary duties must be reported to the Australian Securities and Investment Commission (ASIC).

In some instances, the receiver may also be appointed manager (receiver and manager) and take over the company’s external affairs and operations. The company may continue to trade with a view to maximising the return to the secured creditor. While control of the company’s operations vest in the receiver, the internal board of directors is usually not displaced.

The company must indicate in all public documents that a receiver has been appointed.

During the receivership, other creditors are not prevented from pursuing the company for a debt owed, however may not proceed against the secured assets, the subject of the receivership.

If the company goes into liquidation or enters a scheme of arrangement after a receiver is appointed, then the receiver continues with his or her functions in the capacity as agent for the creditor but must assist the liquidator or administrator with their operations.

The receivership continues until the secured assets are realised, the secured creditor is paid, and the receiver’s duties are completed. The receiver is discharged of his or her position and, if the company remains financially viable may take control of any remaining assets and continue trading.

If you are a director of a company that is being pursued by a secured creditor, going into receivership may avoid the need to wind up the company. Directors however should be properly informed about their available options when their company is facing financial problems to ensure the best possible outcome and to minimise risk of personal liability.

If you need any assistance contact one of our lawyers at [email protected] or call 07 4046 1111 for a no-obligation discussion and for expert legal advice.

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