There are many situations in which a Receiver might be appointed to an individual’s assets. A secured creditor will invariably have the power under the security documents to appoint a receiver to take control of the secured assets. Secured creditors may appoint a Receiver for the sale of those assets on the one hand, or as a Receiver and Manager of business assets for the purpose of carrying on the business enterprise so as to generate profits either to reduce the secured debt or to make the enterprise as a whole more salable.
In the case of a company, to appoint an Administrator for the purpose of reconstruction of the business may head off the appointment of a Receiver, as a secured creditor will generally be satisfied that the secured assets have been taken under control. In the short term a moratorium is imposed on the rights of the secured creditor. It is important to understand that the security documents so far as they provide for appointment of receivers deal with the secured assets at essentially two levels:
- Firstly, the rights of the secured creditor create a fixed charge over fixed assets, i.e., plant and equipment property and the like, and a floating charge over stock and debtors;
- Secondly, the rationale behind this is that if the company wants to sell fixed assets, it would need the approval of the secured creditor. However, this would be untenable in the case of debtors and stock.
In the event of default, however, the floating charge will become fixed so that the company giving the security will not be able to deal with any assets without the consent of the secured creditor.
Banks are particularly reluctant to appoint receivers in case the appointment of a receiver is found to be defective, the bank may be liable to damages.
There are other circumstances in which a receiver may be appointed.
If you are contemplating litigation, there may be circumstances where you need to obtain a court order to preserve assets which might be available to satisfy judgment. If however you are facing litigation, be careful to obtain legal advice before making any response.
Strangely enough, in some circumstances, a receivership appointment can be more desirable than liquidation in that the receiver has limited investigative powers and does not have the power to recover voidable transactions. One must appreciate that a company in receivership may still be placed into liquidation.