When dealing with smaller receiverships an important factor is minimising the costs of receivership and maximising recoveries.
Factors that can increase the costs of receivership include:
- Commencing litigation or conducting an extensive investigation into the affairs of the Company to identify and pursue all avenues of recovery.
- Having the receivership last for an extended period of time.
It’s important to make a sober assessment of the Company’s assets, their realisable value, along with the cost associated with recovering the funds.
Background
Fibre Optic installers traded as a subcontractor installing fibre optic internet connections.
We were appointed to act as receivers by our client, a finance company who had a first ranking GSA and first ranking security interest in the accounts receivable book of the Company, our client was owed $28,883 at the commencement of the receivership.
After conducting our initial investigation, we identified the following realisable assets:
- A Motor vehicle owned by the Company specifically fitted out for fibre-optic installation.
- Specialist equipment and tools associated used for fibre-optic installation.
- An outstanding accounts receivable invoice.
The motor vehicle was subject to a first ranking security interest to another finance company.
After considering our options we dealt with the assets as follows:
Motor Vehicle and specialist equipment
When dealing with specialist equipment, it is important to identify buyers in the industry and form a strategy to maximise the realisable value of the assets. Specialised equipment is more valuable to parties operating in the industry because they are able to fully utilise the assets.
Because of this, it was important we sold the van and specialist equipment to a party operating in the fibre-optic installation business.
In order to minimise costs, we worked with the director of the Company who utilised his contacts in the fibre-optic installation business to sell the motor vehicle and specialist equipment to a Company which was established in a similar business.
As part of this we were able to pay a full distribution to the secured creditor with a first ranking charge on the motor vehicle.
Accounts receivable
We identified an outstanding invoice owed to the Company at the date of liquidation. Upon making contact with the customer, the customer initially refused to pay citing a warranty period.
In our view, under the contract, the customer was due to pay the outstanding invoice and not able to withhold payment due to warranty concerns.
After making an assessment of the situation we determined that the customer was not refusing to pay by virtue of poor workmanship but instead wanted to ensure they did not pay money and have any warranty issues down the track; they were using the outstanding amounts owed as a form of guarantee against the possibility of defective works in the future.
After considering the costs associated with recovery and given that the customer was not disputing workmanship, we initially decided to wait for the warranty period to expire.
Following on from this strategy, we reviewed the file and liaised with the customer of the Company; ultimately coming to an arrangement to facilitate the outstanding invoice prior to the expiry of the warranty period.
Conclusion
We ultimately paid the following distributions:
- Distributions of $19,000 to our client (approximately 66 cents on the dollar)
- A full distribution of $1,260.00 to the finance company with a specific charge on the motor vehicle
By working with the director of the Company, we were able to successfully maximise the realisable value of the specialist motor vehicle and equipment while minimising the cost to sell the asset.
Furthermore, we were able to successfully address the concerns of the customer by waiting for a period of time and then negotiating an early release of the outstanding invoice.
The receivership was ultimately concluded in one year which is a small amount of time given the issues encountered above (particularly with respect to the disputed invoice).
