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Frequently Asked Questions about Receivership

We have collated the most frequently asked questions in one place to help you find quick answers to important matters.

Receivership is the process where a receiver is appointed by a secured creditor (usually a bank) that holds security over some or all of the company’s assets. The receiver’s appointment is usually subject to the terms of a charge such as a mortgage over the company’s assets.

A receiver will collect, sell, and distribute money to creditors in accordance with the law. It is important to note that being in receivership does not necessarily mean that a company will go into liquidation and cease to exist. In fact, the company may well survive and succeed after the receivership ends.

The role of a receiver revolves around three key areas

  • Protect, collect, and sell: This process may involve selling some or all the company's assets to repay debts.
  • Distribute: Payout any proceeds in the correct order as set out by legislation.
  • Report: The receiver must provide ASIC with a detailed list of receipts and payments. They are to also inform the regulator of any possible offenses.

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If your bank is planning to appoint a receiver it is likely that you have been unable to pay your debts on time. In this circumstance, the creditor is the bank that holds an interest in one of your non-circulating assets. This may include property, land, plant, or equipment.

The role of the receiver is to act on the behalf of the creditor (bank). It is important to protect your own interests and the best way to do so is by obtaining professional advice and representation.

Read more about Australian Debt Solvers receiverships services and how we can help.

A secured creditor is an entity that holds a secured interest in some or all company’s assets. This is usually in the form of a mortgage. Companies regularly obtain finance in the form of a loan and in the process provide company assets as a form of ‘security’. In this case, the financial institution that provided the loan is a secured creditor.

There are several key differences between the three and they are made clear in the roles carried out by each party.

  • A receiver is appointed by a secured creditor that holds an interest in some or all the company’s assets. Their role is to collect and sell assets to repay debts owed to the secured creditor.
  • The role of an administrator is to examine the company and report to its creditors. The report will outline information on company assets, management of affairs, processes, and current financial circumstances. Recommendations will also be provided.
  • In comparison, a liquidator has a responsibility to all company creditors. Their task is to protect, collect, and sell all company assets. The proceeds are then distributed to creditors with an inquiry into the failure of the company also conducted.

Read more about the difference between receivership, administration, and liquidation.

‘Controller’ refers to a person who is in control of a property for the purpose of enforcing a mortgage or charge. A receiver is commonly referred to as a controller. Read more about the receivership

Company directors will continue to hold their positions during receivership but it is their powers and responsibilities which change. The extend of these changes will depend on the power's granted to the receiver and the assets which they control during the receivership period.

Directors must provide the receiver with a Report on Company Activities and Property as per ASIC guidelines. They must also provide the receiver with full access to books and records about the secured assets.

One of the key roles of a receiver is to collect and sell assets in order to obtain money to pay off debts. Once money from the sale of circulating assets (liquid assets such as stock) is collected, it is then paid out in the following order:

  • receiver's fees
  • priority claims including employee entitlements
  • secured creditor's debt

If there are any funds remaining, they will be paid either to the company or any other external administrator (if applicable).

In most circumstances receivership is not a choice made by directors but rather appointed by a secured creditor such as a bank. The options of directors are limited during this process which is why it is important to be proactive if your company is experiencing financial stress.

Acting early provides directors with a number of options including voluntary administration, restructure and turnaround, and safe harbour to name a few.

In many circumstances, directors may be able to maintain control while attempting to return the company to a position of financial strength.

If you are concerned about your business, Contact Us today for a free consultation.

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Receivership Resource Centre

Want to learn more about receivership or how to appoint a receiver and manager? Check out the Australian Debt Solvers Resource Centre featuring detailed information from industry professionals.

Receivership News

Want to learn more about the receivership process and legal requirements? Expand your knowledge and understanding by taking a closer look at real-life case studies.