Receivership
A creditor holding security in the form of an equitable mortgage 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 document 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 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.
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 the 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.
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