Entering receivership is not something any company wishes upon themselves. Following recent receiverships that have seen a large amount of media attention, including Ebert Construction who owe their sub-contractors a reported $33.84 million, it is important to understand what a receivership is, and the responsibilities of the receiver.
What is a receivership?
A company can be put into receivership if it is unable to pay debts to a secured creditor. A receiver is then appointed to manage the secured assets.
A receiver is usually appointed by a secured creditor under section 6(1) of the Act. Receivers must have complete independence from the company entering receivership so cannot be an existing employee. Furthermore the company cannot appoint or dismiss the receiver themselves. Public notice is given of a receiver’s appointment.
All receivers are bound by a wide range of duties to various parties including to the company and the secured creditor. These include for the receiver to act in good faith and proper purpose and to act in the best interests of those for whom they were appointed, to get the best price obtainable when selling property, as well as to keep proper records and to report the state of affairs of the properties involved.
Receivers also carry with them other powers including the ability to demand and recover income, manage and insure the property, repair and maintain property, and the power to inspect books and documents that relate to the property.
Preston Russell Law advises creditors and companies on receiverships, liquidations, and bankruptcy.