Receiverships can occur in respect of companies, trusts or partnerships. However, corporate receiverships are the most common form of receivership. They usually arise when a secured creditor appoints a Receiver to a debtor that has defaulted pursuant to the terms of a loan contract. The power to appoint a Receiver is provided for in a security document such as a charge or mortgage. It is not unusual for a Receiver to be appointed following the appointment of a Voluntary Administrator or Liquidator.
The Corporations Act regulates both receivership and controllerships, such as when a mortgagee goes into possession of a debtor’s property.
A Receiver appointed to a company pursuant to the Corporations Act must be a Registered Liquidator. The Receiver’s powers will be set out in the mortgage or charge granted to the secured creditor by the debtor. Receivers also have powers and responsibilities pursuant to the Corporations Act.
The purpose of a corporate receivership is to repay the debt owed to the secured creditor from the sale of the company’s assets. A privately appointed Receiver is responsible to the secured creditor. He or she will not be responsible for the pre-appointment, unsecured debts owed by the company to its creditors.
The main advantage of a receivership is for the secured creditor, to have its debt repaid from the assets of the company. Further, there are no requirements to report to unsecured creditors or to convene meetings of creditors.
If the Receiver is appointed by the Court, then the Receiver must act in accordance with the Orders by which he or she was appointed. Receivers may be appointed by a Court where there is a partnership dispute or to effect the sale of assets owned by a trust.