Receiverships

Appointing a receiver enables secured creditors to protect their interests in the assets that constitute the security and, if necessary, to realise those assets to satisfy the debt owing to them.

Appointment is by a person or business that holds a deed or general security agreement allowing them to appoint a receiver or the appointment may be by order of the Court.

Receivership involves the appointment by the secured entity (normally a financier) of a person known as a receiver whose job is to realise funds from within the company to repay the financier. If a company should already be in liquidation a secured creditor may wish to consider their option to appoint a receiver to realise their security interest. At IML we can discuss this process this with you.

A receiver may be appointed by or under a deed, a general security agreement or by the Court.

Appointment will usually take place on the occurrence of default or breach events specified in the security documentation. The security documentation normally set out fully the events that will allow the holder to appoint a receiver, or a receiver and manager.

The most common events are:

• default by the borrowing company in payment of principal or interest;
• compositions with creditors;
• execution of a judgment against the borrowing company to enforce payment of a debt;
• applying moneys secured by a security agreement for purposes other than those for which they were advanced;
• failure to observe and perform the covenants and conditions contained in the security agreement or in any collateral security;
• appointment of a liquidator to the borrowing company;
• cessation of business by the borrowing company;
• failure to observe and perform the covenants and conditions contained in the security agreement or in any collateral security;
• changes to the borrowing company's constitution in a manner detrimental to the security holder.
 

Key points of Receivership include:

• The security holder must ensure the appointment is strictly in accordance with the terms of the security agreement.

• A receiver generally has a wide range of powers conferred by the appointing document or the Court to trade the business and /or realise the assets.

• The board of directors of a company could approach the security holder requesting the appointment of a receiver on the grounds that there are circumstances that are insolvency pressures on the company and those events are now beyond the board’s control.