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enquiries@fsia.com.au

Receivership

The primary role of a Receiver is to preserve and sell assets for a secured creditor usually when assets are under threat due to the insolvency of a debtor or as a result of a dispute.

The difference between a receiver and a liquidator, is that a receiver’s main duty of care is to a secured creditor, which is usually a bank, whereas a liquidator is concerned with all of the affairs of a company and all of its creditors.

The appointment of a Receiver is made either privately or by the Court. Private appointments are by far the most common. They are made either under the powers contained in a Debenture Deed or under powers in Real Property legislation.

The powers of a receiver are set out in the Debenture Deed under which they are appointed. However, the receiver also has additional powers pursuant to section 420 of the Corporations Act. The receiver’s main role is to take possession of assets subject to the debenture and to manage and realise the assets for the benefit of the secured creditor.

Pursuant to section 420A of the Corporations Act, a Receiver must take all reasonable care in exercising the power of sale. The receiver must ensure that all care is taken to sell the property for its market value or the best price that is reasonably attainable.

Prior to taking on an appointment it is normal for a Receiver to obtain an indemnity from the secured creditor.

The Corporations Act covers persons who are referred to as “controllers”. The term is defined as:

* a receiver, or receiver and manager, of that property; or
* anyone else who is in possession, or has control of that property of the purpose of enforcing a charge.

So the Corporations Act, also deals with mortgagees and their agents, who enter into possession of secured property owned by a company or who assume control of the property.

A Court Appointed Receiver is appointed pursuant to section 1323 of the Corporations Act. The primary role of a Court Appointed Receiver depends on the specific Order made by the Court.

This form of appointment is not as common as a private appointment. It is normal for such an appointment to be made where the Court sees that it is desirable to protect the interests of creditors and shareholders and to preserve the assets of the company until specific matters are resolved by the Court. Insolvency is not a pre-requisite to this type of appointment and more often arises as a result of a partners or shareholders dispute.

Upon the appointment of a receiver by the Court the powers of the directors to administer a company are suspended and they will be excluded from the management of the company.