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    What is a Receiver?

    Nov 14, 2019 5:24:23 PM

    It is commonplace for a company to borrow funds to advance their business. This can take the form of commercial loan facility or specific equipment finance. In most if not all cases the loan facility is secured either by a security interest over the whole business, or the company, or against the equipment itself.

    Take for example a manufacturing company called Manu Co Pty Ltd. They have just won a contract to produce cardboard boxes for a beauty products business. As a result of the new contract they need to purchase a new machine. They approach FinCo Pty Ltd an equipment finance company to borrow the funds to purchase the new machine.

    At this point FinCo Pty Ltd will most likely secure their loan against the machine itself. In some cases when the loan facility is more general, such as an overdraft, the lender will secure the repayment of the lent funds by registering an interest over the whole of the company’s assets on the Personal Property Security Register (PPSR).

    If the borrower fails to repay any of the lent sum, the lender will likely appoint a receiver to recoup funds or to mitigate their potential losses.

    A receiver is a registered liquidator who is appointed by the lender or secured party to take possession of the assets secured, manage them and realise them in order to benefit the appointor/lender.

    A receiver’s power is generally governed by the Debenture Deed/Agreement which was executed between the borrower and the lender. A receiver’s powers are listed in s420 of the Corporations Act 2001 (Cth).

    Once a receiver is appointed, they are placed in a unique position whereby they are, in most cases, an agent of the company/debtor. This position results in the receiver owing duties to the debtor company as well as the appointor (lender).

    The seminal case in Australia law is Expo International Pty Ltd v Chant [1979] 2 NSWLR 820. This case identifies that certain duties are owed by the receiver to the debtor. These duties include:

    1. To act in good faith;
    2. To act strictly within boundaries of appointment; and
    3. To account to the debtor company for any surplus.

    Furthermore, section 420A of the Corporations Act 2001 (Cth) bolsters the above requirements by requiring the receiver to sell assets for market value or otherwise the best price reasonably possible.

    Once the receiver realises the assets, any surplus assets go back to the debtor company and the task of the receiver is complete. 

    Key to this task is understanding the PPSR. For more information on PPSR please click the below links:

    How to use the PPSA in your favour

    What to do if the loan is not perfected

    Takeaway

    A receiver is a registered liquidator whose task is to secure the secured assets, manage them and realise them so as to recover the funds for the lender or at least mitigate their potential losses.