A Guide to Receivership
Receivership is a legal process in which a legally appointed receiver acts as a custodian to safeguard a business or a company’s assets. This is often seen in cases of bankruptcy, where the receiver’s role is to sell assets or manage all of a business’ operations and trading.
What is receivership?
If a company is in financial difficulty, a secured creditor (usually a bank) or the courts may put the company into receivership. Receivership allows a company the opportunity to put a proposal to creditors rather than going into liquidation.
Who is a creditor?
You are the creditor of a company if the company owes you money. In most circumstances, a creditor is owed money by a company because they have provided goods or services or have made loans to a company. There are generally two types of creditors; a secured creditor or an unsecured creditor.
A secured creditor is someone who holds a security interest (such as a mortgage) in some or all of a company’s assets.
An unsecured creditor is a creditor who does not hold a security interest in the company’s assets and who do not have their debt associated with a particular asset.
Who is a receiver?
The receiver’s role is to collect and sell the charged assets in order to repay what is owed to the secured creditor. A Receiver and Manager may have the responsibility of extending their role in managing the company, in order to provide a business with the opportunity to restructure and avoid liquidation.
A key distinguishing factor of receivership compared to when a company goes into administration is that a company in receivership continues to exist, and its directors remain in their office – but, their authorities and roles are limited. Under the authority of a receiver, certain assets may be liquidated in order to bring a company back into a profitable, financially-secure state.
Roles and responsibilities of a receiver:
- Managing a company’s assets, obligations, and its restructuring.
- Helping to aid a company back into recovery.
- Protecting threatened property and assets during legal proceedings.
- Returning a company to a profitable state.
- Reviewing a company’s practices and overseeing that it’s complying with government standards.
- Payout the money collected in the order required by law.
- Report to ASIC any possible offences or irregular matters they’ve come across.
What are the causes of receivership?
There are several causes for a company to go into receivership. These include:
- A company that is unable to pay its debts.
- Inadequate resources to cover the costs to make the company viable.
- Improper or lack of financial management.
- Lack of knowledge and expertise in business operations and legalities.
- Disputes between shareholders or directors of a company.
- Continued losses and poor trading performance.
- Default on loan repayments to secured lenders.
How does receivership impact a company and its creditors?
Legal action may be continued against a company despite the appointment of a receiver. This means an unsecured creditor can apply to the court to have the company put into liquidation due to unpaid debt. This may happen particularly if a company owes a large amount, or if there’s an expectation of any money or property left over when the receivership is complete. If there are any assets or money left over, they will be returned to the company and under the control of the company’s directors unless a liquidator or other external administrator is appointed. If a liquidator is appointed, they must carry out the liquidation for the benefit of all unsecured creditors.
Where can I get more information?
If your company is facing financial difficulty, or you would like more information about receivership and how it may help you, call Australian Debt Solvers for a free 15-minute consultation on 1300 789 499.
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