Creditors - Receivership

 

What is a receivership?

A company most commonly goes into receivership when a receiver is appointed by a secured creditor who holds security over some or all of the company’s assets. The receiver’s primary role is to collect and sell sufficient of the company’s charged assets to repay the debt owed to the secured creditor. 

What is the receiver's role?

The receiver’s role is to:

  • collect and sell enough of the charged assets to repay the debt owed to the secured creditor (this may include selling assets or the company’s business)
  • pay out the money collected in the order required by law, and
  • report to ASIC any possible offences or other irregular matters they come across.

The receiver’s primary duty is to the company’s secured creditor. The main duty owed to unsecured creditors is an obligation to take reasonable care to sell charged property for not less than its market value or, if there is no market value, the best price reasonably obtainable. A receiver also has the same general duties as a company director.

The receiver has no obligation to report to unsecured creditors about the receivership, either by calling a meeting or in writing. However, the receiver will usually write to all of the company’s suppliers to inform them of their appointment. Unsecured creditors are not entitled to see the receiver’s reports to the secured creditor.

A detailed list of the receiver’s receipts and payments for the receivership must be lodged with ASIC every six months. Copies of these detailed lists of receipts and payments may be obtained from any ASIC Business Centre, on payment of the relevant fee.
 

Continuing to supply during receivership

Any debts that arise from the receiver authorising the purchase of goods or services during the receivership are paid from asset realisations as costs of the receivership. If there are insufficient funds available from asset realisations to pay these costs, the receiver is personally liable.

To have the benefit of this protection, you should ensure you receive a purchase order authorised in the manner advised by the receiver.

If the receiver continues to use, occupy or hold property owned by another party that is in the company’s possession or occupied by the company, they are personally liable for any rent or amounts payable arising after seven days from the beginning of the receivership. The receiver can avoid this liability by informing the other party within seven days from their appointment that they don’t intend to use the property. 

How does a receiver distribute money?

The most common way a receiver will obtain money from the assets they are appointed over is to sell them. In the case of a company’s business, the receiver may continue to trade the business until they sell it as a going concern.

The money from the realisation of assets must be distributed as follows:

  • money from the sale of fixed charge assets is paid to the secured creditor after the costs and fees of the receiver in collecting this money have been paid, and
  • money from the sale of floating charge assets is paid out as follows: first, the receiver’s costs and fees in collecting this money; second, certain priority claims, including employee entitlements (if the liability for these hasn’t been transferred to a new owner); and, third, repayment of the secured creditor’s debt.

In both cases, any funds left over are paid to the company or its other external administrator, if one has been appointed.

If the receiver is appointed under a security comprising both fixed and floating charges, which is common, there will be costs and fees of the receivership that cannot be directly allocated to realising the fixed or floating charge assets. These costs are allocated in proportion to the fixed and floating realisation amounts.

If employee entitlements are to be paid by the receiver under a floating charge, the payments must be made in the following order:

  1. outstanding wages and superannuation
  2. outstanding leave of absence (including annual leave, sick leave—where applicable—and long service leave), and
  3. retrenchment pay.

Each class of entitlement is paid in full before the next class is paid. If there are insufficient funds to pay a class in full, the available funds are paid on a pro rata basis (and the next class or classes will be paid nothing).

The receiver has no obligation to pay any other unsecured creditors for outstanding pre-appointment debts. 

Do I get paid in a receivership?

The receiver has no obligation to pay ordinary unsecured creditors for outstanding pre-appointment debts.

Legal action may be commenced or continued against the company despite the appointment of a receiver. This means that an unsecured creditor can apply to the court to have the company put into liquidation on the basis of an unpaid debt. Reasons you might wish to do this, particularly if the company owes you a large amount, include:

  • an expectation that there will be money or property left over after realisation of the charged assets and payments by the receiver
  • possible recoveries that may be available to a liquidator for the benefit of unsecured creditors, which are not available to a receiver
  • a desire for a liquidator to investigate potential offences by those associated with the company, or
  • the ability of the liquidator to review the validity of the appointment of the receiver and of the charge, and to monitor the progress of the receivership. 

What happens when a receivership ends?

A receivership usually ends when the receiver has collected and sold all of the assets or enough assets to repay the secured creditor, completed all their receivership duties and paid their receivership liabilities. Generally, the receiver resigns or is discharged by the secured creditor. Unless another external administrator has been appointed, full control of the company and any remaining assets goes back to the directors.

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Last updated: 23/03/2016 03:13