RECEIVERSHIP

What is Receivership?

Secured creditors of a company may appoint receivers (external officeholders), to take possession of, and sell secured property to repay the debt secured by such a security interest. A receiver and manager have very broad powers to manage the company’s business and will generally seek sale as a ‘going concern’.

Receiverships are governed by Part 5.2 of the Corporations Act and the security agreement between the company and the secured party. The court also has discretion to appoint receivers, but it rarely occurs. Similarly, the court usually has little, or no involvement in the receivership process, yet, it has certain powers in which it can exercise if deemed necessary.

Receivers are generally appointed pursuant to a security agreement, which gives the secured party the right to appoint a receiver, following an event of default.

Powers of the Receiver

The receiver has the power to sell the secured property over which they are appointed, but must take reasonable care to sell the property at market value, or if the property does not have market value, for the best price reasonably obtainable.

The security agreement will apply the proceeds of sale. Usually, the security agreement will provide for payment of the receiver’s costs, expenses and remuneration fist and then repayment of the debt secured by the security interests. Surplus money is to be paid back to the company.

Learn more about corporate insolvency and how it relates to you.