Receivership is when a secured creditor, usually a lender, appoints a receiver to take control of some or all of a company’s assets so it can recover the money it is owed. The receiver usually protects, collects and sells the secured assets, then pays the secured creditor from the proceeds.

What is receivership?

In a receivership, the secured creditor acts through the receiver to take control of the company’s secured assets. A secured creditor can appoint a receiver under the terms of its security agreement. In some cases, the court can also appoint a receiver.

When the appointment gives the receiver power to run the company’s business as well, the receiver is called a receiver and manager. In that case, the receiver and manager may keep trading the business while it is sold.

How receivership works

1. Default. The company breaches its loan or security agreement, for example by missing repayments.
2. Appointment. The secured creditor appoints a registered liquidator as receiver under its security agreement.
3. Control of the secured assets. The receiver takes control of the assets covered by the security and, if appointed as receiver and manager, the business.
4. Sale. The receiver protects, collects and sells the secured assets. The receiver must take reasonable care to sell them for at least market value or, if there is no market value, the best price reasonably obtainable.
5. Payments. The receiver pays the secured creditor from the proceeds, after the costs of the receivership and any amounts that have priority.
6. End of the receivership. The receivership ends once the receiver has collected and sold enough secured assets to repay the secured creditor and has completed all their duties.

Who does the receiver act for?

The receiver’s main duty is to the secured creditor that appointed them. However, the receiver also owes duties to others, including the duty to take reasonable care when selling secured assets.

What happens to the directors?

The directors stay in office, but their powers depend on the powers of the receiver. In practice, the directors lose control of the assets the receiver takes over. They must still help the receiver, for example by providing the company’s books and records.

What happens to employees?

From the company’s circulating assets, such as stock and debtors, the receiver must pay certain employee entitlements before the secured creditor. They are paid in this order: outstanding wages and superannuation, then leave entitlements, then retrenchment pay. If there isn’t enough to pay a category in full, the employees in that category are paid proportionately.

What happens to unsecured creditors?

Unsecured creditors generally receive nothing from a receivership unless there is money left over after the secured creditor and the costs of the receivership have been paid. However, unlike in liquidation or voluntary administration, unsecured creditors can still start or continue legal action against the company. They can also apply to have the company wound up.

Receivership vs liquidation

A company can be in receivership and, at the same time, in liquidation, voluntary administration or a deed of company arrangement. For example, a liquidator may deal with the unsecured assets while the receiver deals with the secured assets.

How Greengate helps

Our registered liquidators act as receivers and managers for secured lenders, and we advise directors whose company’s lender is considering an appointment. We explain each step in plain English, Mandarin, Cantonese or Korean. Examples of our receivership work:

• Receivership of a Melbourne CBD commercial office building
• Property developer: receivership working with secured private lenders

If your company is under pressure from a lender, getting advice early can open up other options, such as small business restructuring or voluntary administration.

Common questions

What is receivership?

A process in which a secured creditor appoints a receiver to take control of some or all of a company’s assets, usually to sell them and repay the debt owed to that creditor.

Who can appoint a receiver?

A secured creditor, under the terms of its security agreement. In some cases, the court can also appoint a receiver.

What is the difference between receivership and liquidation?

A receiver acts mainly for the secured creditor and deals with the secured assets. A liquidator acts for all creditors, deals with all of the company’s assets and winds up the company.

Do the directors lose control in receivership?

The directors stay in office, but their powers depend on the receiver’s powers, and they lose control of the assets the receiver takes over.

Can unsecured creditors take action during a receivership?

Yes. Unsecured creditors can still start or continue legal action against the company, and can apply to have it wound up.

What do unsecured creditors get in a receivership?

Usually nothing, unless money is left over after the secured creditor and the costs of the receivership have been paid.

This page is general information, not advice about your situation. Source: ASIC Receivership: a guide for creditors.