Receivership is a legal process where an external party, known as a receiver, is appointed to take control of a company’s assets or business operations. This usually occurs when a company is struggling to meet its debt obligations, and creditors seek to recover outstanding amounts.
In receivership, the primary responsibility of the receiver is to collect and manage the company’s assets with the aim of maximising returns for creditors.
Receivership generally arises when a secured creditor, such as a bank, Inland Revenue or other financial institution, exercises their right under a security agreement.
This action typically follows significant loan defaults, where the creditor’s primary concern is asset protection and recovery of funds loaned to the company.
For example, if a company is unable to repay a secured loan, the secured lender may opt to place the business into receivership to recover as much of the debt owed as possible through asset sales or business restructuring.
Receivership generally arises when a secured creditor, such as a bank, Inland Revenue or other financial institution, exercises their right under a security agreement.
This action typically follows significant loan defaults, where the creditor’s primary concern is asset protection and recovery of funds loaned to the company.
For example, if a company is unable to repay a secured loan, the secured lender may opt to place the business into receivership to recover as much of the debt owed as possible through asset sales or business restructuring.
In New Zealand, receiverships can generally be classified into two main types, based on the nature of the appointment and the receiver’s responsibilities:
A private receivership is the most common type of receivership, usually initiated by a secured creditor, like a bank, that has a specific charge or security interest over certain secured assets.
Private receiverships are tailored to satisfy the claims of the appointing creditor, making them a focused approach for secured debt recovery.
A court-appointed receivership occurs when a receiver is appointed by the court rather than a private creditor. This type of receivership usually happens when there is a broader financial or legal concern about a company’s management or the fair treatment of all creditors.
While receivership is often seen as a path towards business closure, it’s distinct from liquidation or voluntary administration in the following ways:
Receivership primarily benefits secured creditors, with the appointed receiver focusing on the creditor’s interests.
Liquidation is a broader process aimed at closing a business, where a liquidator is appointed to wind up the company’s affairs, sell assets, and distribute proceeds to all creditors in an orderly manner.
Voluntary administration offers a company an opportunity to reorganise its debts and possibly continue operating, protecting it from creditors for a short period as a strategy for avoiding liquidation or receivership.
Each process addresses financial distress differently, and choosing the right one depends on the business’s unique financial circumstances.
During a receivership, the appointed receiver takes control of the assets or operations of a business with the primary goal of recouping funds on behalf of the secured creditor who appointed them.
Here’s a detailed look at what happens throughout the receivership process:
Upon appointment, the receiver quickly moves to secure the business’s assets. This may involve taking physical control of properties, inventory, equipment, and any other assets covered by the security agreement. The receiver may change locks, monitor access to premises, or conduct an inventory of all assets to safeguard them from potential misuse or loss.
The receiver assesses whether continuing business operations would be beneficial for the secured creditor. In some cases, running the business temporarily can increase its value or preserve key contracts, ultimately leading to a better return for the creditor. However, if ongoing operations aren’t financially feasible, the receiver may decide to proceed directly with the sale of assets.
If the receiver chooses to operate the debtor company, they assume control over daily management. This includes overseeing employees, managing customer and supplier relationships, and ensuring that the business runs efficiently. The receiver’s management aims to enhance the company’s value, focusing on cost control and revenue generation to benefit the creditor.
Whether or not the business continues operations, the primary purpose of receivership is often asset sale. The receiver identifies and values assets, preparing them for sale either individually or as a part of the business.
Sales may be conducted through public auctions, private sales, or other arrangements to maximise returns. Asset sales are prioritised to satisfy the secured creditor’s outstanding debt, though any surplus funds may eventually be distributed to other creditors.
Throughout the process, the receiver maintains transparent communication with all stakeholders, including creditors, employees, suppliers, and directors. The receiver is legally required to keep these parties informed about the receivership’s progress, including any significant developments or asset sales.
Receivership can impact employees, depending on whether the business continues to operate or assets are sold off. If the receiver opts to close the business, employees may be made redundant. The receiver will handle employee entitlements such as unpaid wages, holiday pay, and other entitlements in accordance with New Zealand employment laws. In cases where the business continues to operate, employees may keep their roles temporarily.
The receiver is responsible for creating and filing regular reports, detailing the receivership’s progress and financial outcomes. These reports provide transparency and accountability, ensuring that creditors and other stakeholders understand how assets are being managed, sold, and distributed.
Once the receiver has completed asset sales and distributed funds, the receivership is concluded. Secured creditors are the first to receive payment from the proceeds, with any remaining funds going to unsecured creditors in order of priority. If all creditor claims are settled and any funds remain, these are returned to the company or its shareholders.
Business owners and directors typically lose control over the company assets included in the receivership and may no longer have a say in daily operations if the receiver decides to continue the business.
However, they are required to cooperate with the receiver, providing necessary information and access to help facilitate the receivership process.
As experienced insolvency practitioners in Auckland, we offer tailored support to guide you through every stage of receivership. Our focus is to provide practical solutions that protect your interests, whether you’re a creditor, business owner, or other stakeholder facing the complexities of financial distress. Here’s how we can help:
We begin with a thorough assessment of your situation, helping you understand the best approach to maximise asset recovery or mitigate losses. Our team explains your options and obligations in simple terms, ensuring you are well-informed and confident about the path forward.
If you are a secured creditor, we can act as the receiver on your behalf. With our extensive expertise, we help you maximise the efficiency and effectiveness of the receivership process.
Our skilled receivership team manages assets responsibly and transparently, aiming to recover maximum value. Whether it involves securing properties, selling inventory, or overseeing operations temporarily, we handle every aspect of asset management with diligence to secure optimal outcomes for creditors and stakeholders.
Throughout the receivership, we keep you and other stakeholders informed with clear, timely updates and comprehensive reports. We prioritise transparency and ensure that you understand each step taken, including asset sales, funds distribution, and compliance with New Zealand’s receivership regulations.
We understand that receivership involves various parties, from employees and directors to unsecured creditors. Our team is experienced in managing stakeholder relationships, negotiating fair solutions, and ensuring that all parties are treated respectfully and in accordance with the law.
Receivership can involve complex tax and legal matters, particularly if Inland Revenue is a creditor. We work with Inland Revenue to address outstanding tax obligations, helping to streamline processes and manage compliance. Our legal guidance ensures that the receivership is conducted in line with New Zealand law, minimising risks for all involved.
Once we have completed our duties as the receiver, we oversee the final stages of the process, including the distribution of funds to secured creditors and, where possible, other creditors. Our goal is to conclude the receivership efficiently, leaving all parties with a clear record of the process.
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Unsecured creditors have a lower priority in receivership, meaning they are paid only after the secured creditor’s claims are settled. If funds remain after the secured debts are satisfied, unsecured creditors may receive partial payment, but this is not guaranteed.
No, insolvency and receivership are not the same. Insolvency refers to a financial state where a company cannot meet its debt obligations, whereas receivership is a process where a receiver is appointed to manage or sell assets on behalf of a secured creditor.
The Receiverships Act 1993 is New Zealand’s legislation governing receiverships, outlining the rights, duties, and powers of receivers. It ensures that receivership processes are fair and transparent, protecting the interests of secured creditors and stakeholders.
During receivership, the receiver may pay staff if they decide to continue operating the business. Any outstanding wages or entitlements owed to employees are prioritised, depending on available funds after secured creditors.
A receiver has the authority to take control of secured assets, manage the business, and sell assets to repay the secured creditor. Their powers are defined by the security agreement and are focused on maximising returns for the appointing creditor.
Yes, it is possible to come out of receivership if the company successfully settles its debts or negotiates an arrangement with creditors. Once the receiver has fulfilled their duties and obligations, the business may resume normal operations if financially viable.
The appointment of a receiver typically occurs when a secured creditor, such as a bank or lender, exercises their right to enforce a security interest over a debtor’s assets. This right is usually detailed in a loan agreement or other security document, allowing the creditor to recover the debt by taking control of secured assets if the borrower defaults on their obligations.
Time really is of the essence.
If you are involved in a receivership either as a creditor or debtor, or have any questions, queries or concerns about your business – then please contact us directly by filling out the form below.
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