Receivership is a remedy that derives from courts of equity. The relevant law in relation to receivership is largely made up of rules which the courts have developed by applying general contract law and equitable principles. Receivers are appointed under a relevant security e.g. a mortgage or a charge which contains the contractual terms in relation to their appointment and their powers under the instrument. Depending on the circumstances of the case, courts may also, on application from a secured creditor, exercise their discretionary powers to appoint a receiver. Receivers can also be appointed under the Land and Conveyancing Law Reform Act 2009 in the case of mortgages created after 1 December 2009, and the Conveyancing Act 1881 for mortgages created prior to that date.
Section 437 of the Companies Act 2014 confers statutory powers on the receiver of the property of a company and is intended to alleviate many of the problems which may arise from poorly drafted debentures. However, section 437(4) makes clear that these powers are limited by any provision in the instrument under which the receiver was appointed, again underlying the essentially contractual nature of receivership.
A receiver will have the right to secure and sell the property the subject of the debenture so that the debt to the lender can be repaid. However, section 437(5) of the Act provides that the conferral of powers in relation to the property of a company does not affect any rights in relation to that property of any other person.
When selling the property, a receiver has specific statutory duties under section 439 of the Companies Act 2014 which provides that:
(i) receivers must achieve the best price reasonably obtainable at the time of sale; and
(ii) the receiver must not sell by private contract a non-cash asset of a company to a person who is or who, within three years prior to the date of appointment of the receiver, has been, an officer of the company unless the Receiver has given 14 days’ notice of his or her intention to do so to all creditors of the company who are known to him or her or who have been intimated to him or her.
These statutory duties make it imperative that the receiver obtains expert legal and valuation advice in relation to the sale of property, consistent with the duty “to obtain the best price reasonably obtainable”. Breach of a receiver’s statutory duties may result in the receiver being held personally liable for any loss incurred.
It should be noted that receivers of the property of a company also have a duty under Part 8 of the Companies Act 2014 to provide certain information to the Registrar of Companies and the Office of the Director of Corporate Enforcement.