Receivership is another formal procedure generally instigated by a secured party. This can be a successful way of preserving the business of an otherwise distressed company.

A company most commonly goes into receivership when a receiver is appointed by a secured creditor who holds security over some or all of the company’s assets.

The receiver’s role is to:

  • Collect and sell enough of the charged assets to repay the debt owed to the secured creditor;
  • Pay out the money collected in the order required by law; and
  • Report to ASIC any possible offences or other irregular matters noted.

The receiver has no obligation to report to unsecured creditors about the receivership, either by calling a meeting or in writing. However, the receiver will usually write informing all of the company’s suppliers that a receiver has been appointed. Unsecured creditors are not entitled to see the receiver’s reports to the secured creditor.

What happens when a receivership ends?

A receivership usually ends when the receiver has collected and sold all of the assets or enough assets to repay the secured creditor, and has completed all duties of receivership and paid their receivership liabilities. Generally, the receiver resigns or is discharged by the secured creditor. Unless another external administrator has been appointed, full control of the company and any remaining assets revert to the directors.