In most cases the company borrows money and agrees that if it defaults, the lender can appoint a receiver to manage the company. To better understand the dynamics of a receivership it is important to understand the various working parts:
Grantor
The company who gives a security interest to someone else is called a grantor. If a company allows a bank or lender to take a security interest in company property then that company is called the grantor.
General security agreement (GSA)
Holders of a general security agreement have a blanket security interest over all of the assets of the company, or over a specific class of assets. In insolvency proceedings, the priority of their claim will depend on the terms of the GSA and the timing of its registration on the Personal Property Securities Register (PPSR). GSAs are a common tool used by financial institutions and other lenders to secure loans and credit facilities in case of default.
Process
Prior to being appointed the receiver will review the security documents, GSA and matters to verify the right to appoint, and to ensure that there has been a default.
Once appointed, the receiver has the power to run the business in receivership, including hiring staff, managing property, selling assets, entering into contracts. The receiver can also call up unpaid capital.
In a receivership the directors’ powers are suspended sufficiently to allow the receiver to do their job. They do not cease to be directors, and can undertake some action in the name of the company. In reality, this is limited to legal action. The company in receivership, the grantor, must make all documents, bank details and more, available to the receiver.
A receiver acts mainly in the interest of the GSA holder that appointed them. However, they also have a duty of care to the company and other creditors to not act negligent.
The receiver needs to report on the progress of the receivership within two months, and again after every six months after appointment. Receiver must also report any serious problems they become aware of during the course of the receivership.
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