Receivership is an immediate remedy that is available to secured creditors that hold a charge over either all the present and after-acquired assets of a company or over specific assets of the company. Appointing a receiver enables secured creditors to protect their interests in the assets that constitute the security and, if necessary, to realise those assets to satisfy the debt owing to them. Where a receiver has been appointed by secured creditor, the receiver has the ability to do what is necessary to realise the value of the assets. This may include actions such as continuing to trade a business or selling some of the assets to raise a return back to the receivers appointor. It is common for the receiver to work in the best interests of the secured creditor that has appointed them. However, a reputable receiver will also have a general duty to the remainder of the creditors of the company.
Appointing a Reciever
Receivership involves the appointment by the financier or other secured entity of a person known as a receiver whose job is to raise funds from within the company to repay the financier. This often leads to liquidation, particularly if the secured assets form a significant part of the business. A receiver may be appointed by or under a deed or agreement or by the Court. Appointment will usually take place on the occurrence of certain events specified in the debenture or deed. Debentures normally set out fully the events that will allow the debenture holder to appoint a receiver, or a receiver and manager.
The aim of receivers is to protect the interests of the secured creditor and ensure that debt is repaid as quickly as possible. If you are a secured creditor or General Security Agreement holder of a company and need to discuss your enforcement options, please contact us to discuss how we can assist you.
Receivership – GSA
Receivership is an immediate remedy that is available to secured creditors that hold a charge over all the present and after-acquired assets of a company. These charges are typically referred to as General Security Agreements (GSA’s) and will usually include the right to appoint a receiver over the company’s assets in the event of a default. When a receiver has been appointed by a GSA holder, the directors cease control of the company, and the receiver will run the business for the benefit of the creditor that appointed them. An appointed receiver acts to realise assets of the company to repay the GSA holder. In the event there are surplus assets after the GSA holder has been repaid, these will be returned to the control of the directors of the company. Typical GSA holders are financial institutions such as banks and finance companies while private individuals can also possess a GSA over a company’s assets. Irrespective of who the appointing secured creditor is, a receiver must act quickly to take control of the company’s assets as they are personally liable for expenses incurred while appointed as receiver. The benefit of a receivership over liquidation is that the appointment and effect of a receiver is immediate without having to wait to go to Court as is the case with a liquidation. If you are a GSA holder of a company and need to discuss your enforcement options, please contact Principle Insolvency to discuss your enforcement strategy.
Receivership – Asset Recovery
A receiver may also be appointed over a specific asset of a debtor as opposed to over all the assets. This type of receivership is referred to as a specific asset receivership and can occur when a secured creditor holding a charge over a specific asset along with the right to appoint a receiver elects to enforce their rights and take possession of their specifically charged asset. While much less common than other types of receivership, asset recovery is effective where a creditor has a specific security over a large asset or an asset of high value. This type of appointment can narrow the receiver’s focus and scope of work which may assist in reducing the cost of enforcement against a debtor. A receiver appointed in this capacity is still obligated to notify publicly of the receivership however their involvement in the company’s affairs is limited to securing and realising the specific asset they are appointed over. An alternative to appointing a receiver to a specific asset would be asset recovery as agent of the secured creditor. This would involve an engagement acting as the secured party’s agent to find, secure and realise any asset subject to its security. If you are a creditor holding security over an asset of a company and need to discuss your enforcement options, please contact Principle Insolvency to discuss how we can assist you in achieving a result.