It is common practice for Australasian companies to provide financiers with security over the assets of their businesses so as to raise finance.  In the event of default by such a borrower, a creditor that holds security in the nature of a fixed and floating charge over a business may appoint a Receiver.  In those circumstances, a Receiver (or Receiver and Manager) assumes control of the business’ assets and will typically sell the business in order to satisfy the claim of the secured creditor.

The circumstances in which this type of appointment is most appropriate

Receivership may be appropriate where a borrower defaults and it is in the secured creditors’ interests to take control of the assets and have them realised.

A secured creditor may also have the option to appoint a Voluntary Administrator, or to elect not to exercise the right to appoint a Receiver in cases where Voluntary Administrators are appointed by a company’s directors.  Factors which a secured creditor would take into consideration in this regard will include an assessment of the prospects of success of rehabilitating a company via a Deed of Company Arrangement, and the prospects of sufficient value being preserved to enable lower ranking creditors to be repaid.

Receivers’ powers

The powers of the Receiver are usually contained within the security document and the instrument appointing the Receiver.  The specified powers are supplemented, for companies, by the statutory powers contained in the Corporations Act and the application of relevant case law.

A Receiver and Manager typically has powers to manage a business and continue its trading operations in addition to the powers of a Receiver to realise the business’ assets, thus enabling businesses to be sold as going concerns.

Points to note

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 generally has a right of indemnity against the assets of the company subject to the mortgage and may also be indemnified by the secured creditor who made the appointment.

The Receiver is not required to pay any debts due to creditors of the company prior to the appointment and does not call for Proofs of Debt nor declare dividends to unsecured creditors.

Where a company over which the creditor has security is placed into Voluntary Administration, provided the secured creditor has an enforceable charge over the whole or substantially the whole of the company’s assets, it may, within ten 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.

Court appointed Receiver

A Receiver may also be appointed by the Court in a variety of circumstances, for example, to recover property for those who are entitled to it.  This alternative is sometimes used in cases of dispute amongst company owners or managers.

Court appointed Receivers must act in accordance with the terms of the Court Order by which they were appointed.  The Receiver will usually have powers to realise or at least manage the assets in the Receivership.

§  Receivership: a guide for creditors

§  Receivership: a guide for employees

Case studies