Day 150 Receivership

Receivership

When a company is not able to pay all of its debts on due, it enters insolvent. The creditors may take actions to wind up the company, in order to recover the debt from the assets. However, the secured creditors normally will appoint a receiver to process the property, and consequently, the proceeds is used to cover their debts. 

Generally, the receiver is act on behalf of the secured creditor to recover the debts by selling or distributing the security on that liability. However, the creditor must be appointed on valid grounds, otherwise the take-over of the secured property may be treated as trespassing. Therefore, the receiver should either obtain an court order to make the appointment valid (S.418A), has a reasonable ground to believe the validation of appointment(S.419(3) or receives an indemnity from the secured creditor. On the other hand, the ASIC may also apply to the court to appoint a receiver while investigating breach of Corporations Act. In addition, the court could appoint the receiver in order to protect the interest of parities that the company liable to. After the appointment has taken effect, the receiver will be granted with power set out in security agreement. Moreover, the Corporations Act provided several statutory powers to the receiver as well. According to section 420, the receiver has the power to do all thins necessary as to achieve the objective of the receivership. For example, the receiver may carry on business, sell property or bring/defend legal proceedings on the purpose to recover that secured debt. Besides, the receiver has the power to obtain information. Where the directors must submit a report on the affairs of the company within 14 days of the appointment.(S.429) Furthermore, the receiver can request reports from officers /employees(S.430) and inspect the company’s books(S.431).  Although the creditor has so much power on the receivership, there are certain duties for them to perform. In fact, this position has a conflict of interest, where the duties owed to creditors and company are contrast. The section 420A further explained the duty of care owed to the company. It stated:’ receiver has the specific duty when exercising power of sale to take all reasonable care to sell property at not less than market value or for the best price that is reasonably obtainable. 

The receivership would commonly end once the objective is achieved. Otherwise, the director retains the power to challenge the appointment under s.418A.