The most common type of receivership is where a secured creditor appoints a third party as receiver or receiver and manager of a company or its assets. A receiver may also be appointed to a company by the Court, however, these types of appointment are much less common.
This information relates to appointments of receivers made by secured creditors.
Appointment and Role of Receiver
A secured creditor can appoint a receiver to a company pursuant to a security agreement between the company and the secured creditor, which provides the secured creditor with security over some or all of the company’s assets. A receiver can only be appointed by a secured creditor to those assets over which the secured creditor holds security.
A receiver appointed to a company will generally:-
- Seek to realise or recover assets of the company which are secured by the security under which the receiver is appointed; and
- Distribute funds received in accordance with the requirements and priorities set out under the Corporations Act 2001 (Cth).
Distribution of Funds Realised by Receiver
The funds recovered by a Receiver will, after payment of the receiver’s costs, be distributed as follows:-
- From funds recovered from circulating assets (such as cash at bank, debtors and inventory) first in payment of certain priority employee entitlements and secondly in payment of amounts owed to secured creditor(s); and
- From funds recovered from the sale of assets which are non-circulating assets (such as land, real property, plant and equipment and motor vehicles) in payment of amounts owed to secured creditor(s).
Any surplus available to a receiver after paying the above required amounts in full will then be available to be paid to the company or a liquidator of the company if one has been appointed. There is generally no other obligation or requirement of a receiver to use or make a company’s funds available to pay amounts owed to ordinary unsecured creditors whose debts were incurred prior to the receiver’s appointment.
Director’s Duties and Obligations in Receivership
A company’s director has the same duties and obligations during the period of a receivership as the director had prior to the receiver’s appointment. In addition, a company’s director must provide a receiver with a Report as to Affairs for the company, all of the company’s books and records which are subject to the receiver’s appointment and the director must reasonably assist the receiver in carrying out his or her role.
Finalisation of a Receivership
A receivership will end when the receiver resigns from his or her appointment or the appointment is finalised by the secured creditor. This will generally occur when the receiver has realised sufficient funds to pay the secured creditor in full or has realised all assets of the company subject to the receiver’s appointment which are commercially warranted to realise. Upon the finalisation of a receivership control of the company will return to the director(s) unless a liquidator or administrator has been appointed to the company.
Advice Regarding Receivership
If you are seeking advice regarding receivership or if you wish to discuss appointing any of the qualified staff members at Pearce & Heers as receiver please contact our Brisbane or Gold Coast office and our experienced staff will be able to assist you.