Receivership is a type of external administration that occurs when a secured creditor needs to recover the money it’s owed by a business.

In these situations, the creditor typically has the option of placing the business into liquidation.

Alternatively, the creditor can appoint a Receiver to realise and sell company assets in order to repay its debts.

What is Receivership?

Receivership is a tool that allows secured creditors to recover an outstanding debt without having to place the debtor business into liquidation.

If a company goes into receivership, an independent Receiver is appointed to control and manage the company. The Receiver has control of the company’s assets, debts and daily activities, and they may also handle business turnaround.

It is the Receiver’s job to recover part (or all) of a debt owed to the secured creditor that appointed them. Unlike liquidation, receivership allows the opportunity for the debtor to trade on and reach an agreement with their creditors.

The agreement could potentially include recovering debts by selling the business as a going concern.

Instead of moving directly to liquidation, the company will have a chance to meet its obligation to the secured creditor, and potentially continue to trade as normal.

The possibility of continuing to trade means that receivership services are a preferable solution for many businesses. They also provide better returns for secured creditors when compared to placing a business into liquidation.

What Causes Receivership?

Receivership is typically caused by a company being unable to pay its debts to secured creditors. A Receiver may also be appointed if the company is unable to cover its expenses.

A creditor or the Court may place a business in receivership where:

  • The company has defaulted on loan repayments to secured lenders

  • There has been a major failure in business control and management

  • To resolve disputes between directors and shareholders

  • The company is experiencing ongoing losses 

  • The company has failed to improve trading performance

  • Business management does not have the skillset to operate under continued financial strain

A secured creditor or other interested party (such as shareholders, directors or investors) can make an application to Court to recover a debt that’s owed. If that happens, a Receiver is appointed to administer the process.

How Long Do Receiverships Last?

There is no set time period for receiverships. A receivership may last a few months, or the process could continue for several years.

A receivership typically ends when the Receiver has sold enough property to repay the debt owed to the secured creditor that appointed them.

While the Receiver has a duty to the appointing creditor, they are required to take reasonable care to sell assets (or the business itself) for market value.

If the Receiver has difficulties selling assets for a reasonable value, or if other complications arise, the process may continue for several years.

The Role of Receivership Services

A Receiver is a registered professional that is charged with administering the receivership process as an impartial third party. The Receiver has a duty to protect the interests of the secured creditor that appointed them.

The key responsibility of the Receiver is to collect and sell company assets in order to repay the debt that is owed to the secured creditor. To achieve that, the Receiver takes control of the company to investigate the debtor’s financial position and make decisions about:

  • Properties of the debtor that are available to discharge their debts
  • How the properties will be dealt with
  • Any debtor income that is available to discharge their debts
  • Developing an Agreement to discharge the company’s debts
  • The conditions under which the Agreement is to take effect, and any conditions under which the Agreement terminates
  • The extent to which the debtor is released from their debts once the Agreement is complete
  • Specifying whether the Registered Trustee can pursue historical transactions
  • Nominating a Registered Trustee to administer the agreement

Receivership typically ends when the Receiver has collected and sold enough company assets to repay the secured creditor. The Receiver must also complete their receivership duties and pay their receivership liabilities.

After the receivership ends, the Receiver resigns or is discharged by the secured creditor. Unless another external administrator is appointed, full control of the company and its assets is returned to the directors.

Receivership vs Voluntary Administration

Receivership and Voluntary Administration are two options available when a business becomes unable to repay its debts.

Receivership is designed to help a secured creditor recover money they are owed, potentially without placing the debtor business into liquidation.

Voluntary administration is designed to help a company repay its debts and develop a plan that may allow the business to avoid liquidation.

In both processes, a Registered Liquidator is appointed to take charge of the business’ operations, investigate its financial situation, and develop a plan that ensures creditors are repaid.

The main difference is that voluntary administration is commenced by the directors and shareholders of the company, and that the is Liquidator responsible for looking after the interests of all creditors.

On the other hand, receivership is initiated by a secured creditor or the court, and the Receiver is only responsible for the interests of the appointing creditor.

Both receivership and voluntary administration may allow the business to repay its debts and continue trading as normal.

How Receivership Affects Creditors

Receivership is distinct from insolvency proceedings like Liquidation and Voluntary Administration. In receivership, the Receiver is only responsible for the secured creditor that appointed them.

The Receiver is under no obligation to pay dividends or report findings to unsecured creditors.

This means that receivership can impact other creditors, and the Receiver may not be required to look after the interests of other parties.

It is important to note that creditors can still bring legal action against a company that is in receivership.

This may occur where an unsecured creditor applies to the court to recover their debts, or if there is an expectation that assets or money will remain in the company’s control once the receivership is complete.

In this way, unsecured creditors are still able to recover outstanding debts without interfering in the receivership process.

How Receivership Affects Employees

The employees of a company in receivership may be entitled to have outstanding wages and entitlements paid before the secured creditor is repaid.

Where the Receiver is responsible for paying employee entitlements (such as if the Receiver is continuing to trade the business), some of the money collected from the sale of assets may be paid to employees.

Employee entitlements are distributed in the following order:

  1. Outstanding wages and superannuation

  2. Outstanding leave entitlements

  3. Retrenchment pay

Each category of entitlements is paid in full before the next category is paid.

If the Receiver has not collected enough money to repay a category in full, the available funds are divided on a pro rata basis, and the remaining categories are paid nothing.

If you are the employee of a business in receivership and you are unsure of your entitlements, you should contact the Receiver for advice.

How can SV Partners help?

The team at SV Partners are experienced Receivers, able to manage the process of realising company assets in order to recover debts owed to secured creditors. 

Our team has worked extensively in receivership, navigating complex scenarios to reach effective solutions for all stakeholders.

We have proven success working with banks, secured lenders and company directors to assist companies through a receivership. Visit our FAQ for more details on receivership services.

You can contact us on our confidential assist line at 1800 246 801 to discuss your situation with our expert team.

Are you concerned about your financial position? Contact us now for an obligation free consultation.