Receivership and liquidation are distinct processes for addressing financial distress in companies. Receivership allows a company to operate under the management of a receiver to repay creditors, preserving some control for the company’s owners.
In contrast, liquidation marks the company’s end by selling off assets to settle debts, completely removing the owners and directors from their roles and leading to the company’s closure.
Read below for more information on Receivership vs Liquidation.
What Is Liquidation?
Liquidation is an insolvency procedure that allows creditors to recover the money they are owed from an insolvent company. Should a company become unable to repay its debts as and when they’re due, it will be deemed insolvent, and creditors or shareholders may choose to place the company into liquidation.
The court liquidation process is overseen by an independent Liquidator. The Liquidator’s role is to take control of the company, realise the value of any assets and distribute that money to secured and unsecured creditors.
During the process, the Liquidator will also investigate the company’s affairs to recover voidable transactions and report possible offences to ASIC. Along the way, the Liquidator will have a duty to all creditors, and is required to hold meetings with secured and unsecured creditors to report on the company’s affairs.
It’s possible for a company in liquidation to also be in receivership. Learn more about liquidation.
What Is Receivership?
A company enters receivership when a secured creditor (such as a bank that holds a mortgage) appoints an independent Receiver to help recover a debt the company owes. Secured creditors are entitled to appoint a Receiver because they hold a secure interest over the company. Secured interests take two forms:
- Non-circulating interests – such as an interest in real property, plant or equipment
- Circulating interests – such as assets that are used in the course of normal trading, such as cash and stock
Receivers have a duty to the secured creditor that made the appointment. During the process, the Receiver has the power to collect and sell the company’s assets to recover the creditor’s money.
Importantly, Receivers aren’t limited to selling the secured asset – they may also sell other company property to satisfy the debt. Receivers have no duty to report their findings to unsecured creditors, although they are obligated to sell assets for market value.
It’s possible for a company in receivership to also be involved in administration, liquidation or a Deed of Company Arrangement.
The Difference Between Receivership and Liquidation
A company that owes money to a secured creditor may find itself facing receivership or liquidation. While the two look similar on the surface, receivership vs liquidation are very different proceedings. There are 4 key areas of difference:
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Legal action
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How creditors are repaid
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The outcome
Voluntary vs involuntary
It’s common for the directors of a company to commence liquidation proceedings voluntarily if they suspect that the business is insolvent. Receivership is always commenced involuntarily by a secured creditor or, rarely, the court.
Experiencing Financial Difficulty? Speak to the Team at SV Partners Today
There’s often a fine distinction between receivership vs liquidation. The two systems overlap in certain areas, and it’s not always clear which option will provide the best outcome for creditors, employees and your company. If you’re exploring your options then get in touch with SV Partners.
SV Partners are experienced Receivers and Liquidators. We offer assistance and advice for a wide range of liquidation proceedings. If your company has received a demand or is at risk of receivership and liquidation, get in touch with our team. Seeking early advice is the best thing you can do to protect your business. Contact us to make an appointment or phone us on 1800 246 801 for a confidential consultation.