What Is the Role of a Receiver?
When a business experiences financial difficulty, a receiver may be appointed to protect the interests of a secured creditor and manage specific company assets or the business itself.
The appointment of a receiver can be a stressful and uncertain time for directors, employees, creditors and stakeholders. Understanding the role of a receiver and what happens during a receivership can help provide clarity around the process.
Why Is a Receiver Appointed?
A receiver is most commonly appointed by a secured creditor under a General Security Agreement (GSA) or other security arrangement.
A receiver may also be appointed:
- Under a deed or other contractual arrangement.
- By the High Court in certain circumstances.
- Where shareholder disputes or other issues place the ongoing business at risk.
A receiver is generally appointed when a company has failed to meet its obligations to a secured creditor.
The security agreement will usually define what events constitute a default. The most common reason is failure to make required payments.
What Happens When a Receiver Is Appointed?
Once appointed, the receiver takes control of the assets and business activities covered by the security agreement.
The receiver’s role may include:
- Taking control of company assets.
- Managing business operations.
- Assessing the viability of the business.
- Protecting and preserving asset value.
- Selling assets where appropriate.
- Recovering funds for the secured creditor.
The outcome of a receivership depends on the circumstances of each business.
In some cases, the receiver may stabilise the business, recover the secured creditor’s position and return control to the directors.
In other situations, the receiver may determine that the best outcome is to sell the business or realise assets, which may ultimately lead to further restructuring or liquidation.
Does the Appointment of a Receiver Mean the Business Is Over?
Not necessarily.
A receivership does not automatically mean a business will close.
A receiver may be appointed to:
- Manage a business while financial issues are addressed.
- Sell underperforming assets or parts of the business.
- Preserve value for stakeholders.
- Create an opportunity for the remaining business to continue.
The receiver will assess the business objectively and determine the best available option based on the circumstances.
What Duties Does a Receiver Have?
A receiver holds an important and challenging position.
While a receiver is usually appointed by a secured creditor, they also have obligations to act appropriately and consider the interests of the company and other affected stakeholders.
A receiver must:
- Act with due care, skill and judgement.
- Exercise their powers appropriately.
- Act in accordance with their statutory obligations.
- Seek the best price reasonably obtainable when realising assets.
A receiver must balance competing interests while working to achieve the best possible outcome in the circumstances.
Can a Business Trade Through Receivership?
Yes, in some circumstances.
A receiver may continue trading a business if they believe there is a realistic prospect of achieving a better outcome by doing so.
This requires careful analysis of:
- Historical trading performance.
- Future profitability.
- Cash flow requirements.
- Market conditions.
- The likely outcomes of alternative options.
Receivers must make decisions based on commercial reality rather than simply continuing a business without a reasonable prospect of success.
What Does a Receiver Consider When Assessing a Business?
A receiver will typically review:
- The company’s financial position.
- Existing debts and security arrangements.
- The value of assets.
- Trading performance.
- Market conditions.
- Future opportunities.
Independent valuations may be obtained to understand the likely realisable value of plant, equipment, property or other assets.
Advice for Directors, Creditors and Stakeholders
Receivership involves complex legal, financial and commercial issues.
Whether you are a director, secured creditor, unsecured creditor or stakeholder, obtaining independent advice early can help you understand your position and the options available.
At Pryde Accounting & Advisory Limited, we provide practical insolvency advice and professional insolvency services to help stakeholders navigate challenging situations.
About the Author
Hamish Pryde BBS, CA (PP) is a Chartered Accountant, Public Practitioner and Licensed Insolvency Practitioner (IP47). He advises business owners, directors and stakeholders on accounting, business advisory, restructuring and insolvency matters.
Hamish Pryde BBS, CA (PP)
Chartered Accountant | Licensed Insolvency Practitioner (IP47)
Principal – Pryde Accounting & Advisory Limited