Receivership
Companies may offer security against assets such as plant and equipment to obtain finance or assist with cash flow. The creditor then has an interest in that security. In the event of default the creditor can appoint a receiver to collect and sell the asset in which they have a security interest. Assets which are not secured remain with the company.
What is receivership?
Receivership is an appointment for the purpose of realising assets or managing the business of a company for the benefit of security holders under the terms of a security, or by a Court. Receivership is governed by the Receiverships Act 1993.
Sometimes secured assets are critical to the operation of the company and trading cannot continue without them. In these situations, liquidation can soon follow.
Who is a receiver and what do they do?
A receiver is a person appointed by the Court or under a Deed or Agreement to realise assets or manage the business of a company for the benefit of the security holders. The Receiverships Act 1993 defines the qualifications of a Receiver.
Two or more receivers may be appointed and may act jointly or severally unless a deed or agreement states otherwise.
A receiver is responsible for payment of preferential claims such as unpaid wages and amounts owed to Inland Revenue. Preferential claims must be paid before the secured creditor.
What is the difference between receivership and liquidation?
In a receivership assets are realised for the benefit of the secured creditor who made the appointment of a receiver.
In a liquidation the assets are realised primarily for the benefit of the unsecured creditors.
Who is the Registrar?
Who the Registrar is depends on the type of body corporate you are dealing with. For example: For a company it is the Registrar of Companies, for an incorporated society it is the Registrar of Incorporated Societies.
The role of the Registrar is to monitor compliance of the reporting obligations of Receivers.
Note | A body corporate is a separate legal entity that includes Companies and Incorporated Societies. Top
Receivership life cycle
Receivership involves the appointment of a receiver to realise assets or manage the business of a company for the benefit of the security holders. Receiverships may differ slightly in the way they are administered but the core elements remain unchanged and are outlined in the following receivership life cycle.
