The appointment of a receiver is a mechanism for the enforcement of security granted by a company by way of a fixed and/ or floating charge over its assets. The receiver’s powers are set out in the debenture deed. The 2014 Act provides statutory powers for receivers.
A receiver may be appointed under a fixed charge, a floating charge or under a combined fixed and floating charge. In contrast to a court-appointed receiver, he is appointed “out of court” by a deed made by the chargee who is the secured lender under the charge. The receiver has the power to gather in, collect and sell the secured assets.
A debenture deed often grants fixed and floating charge over all of the company’s assets. In this case, a receiver may be appointed on enforcement and may take complete control of the company’s assets and business. In contrast, a company may grant a fixed charge only, so that a “fixed charge receiver” is appointed over the secured asset only.
The rights of the receiver are largely defined by the debenture deed under which he is appointed. The charge holder appoints a receiver who thereby takes control of the assets within the scope of the charge as at the date of the appointment. The effect of appointment is to fix (or crystallise) any floating security over the assets within its scope
The receiver is deemed agent of the company and not the debenture holder. The company and not the debenture holder is primarily responsible for the receiver’s remuneration and wrongful actions.
The primary function of a receiver is to realise the assets within the scope of the security for the benefit of the charge holder. His obligations to third parties are limited. In particular, he does not have any duty to trade or to try to save the company or business.
When a receiver stands appointed for three days, a court may not hear any application for appointment of an examiner. No receiver may be appointed when a company is in examinership.
All Assets Charges I
A fixed and floating charge over all present and future assets may create a security (and allow the appointment of a receiver) over most and in some cases, all of the company’s assets, business, and undertaking. This can be a very effective form of security as it allows the secured creditor to sell the company’s business as a going concern, provided that the charge is in sufficiently broad terms. It may be granted to a single lender and charge holder, to one representative lender in a syndicate or to a trustee on behalf of a series of debenture holders.
The difference between a receiver and so-called “receiver manager” is one of degree. The traditional receiver, appointed under mortgages of real property by individual and corporates, is limited largely to the receipt of the property income. It is almost invariably the case that a corporate receiver is granted more extensive powers. His role is more properly described as that of a receiver-manager. For ease of reference, the expression “receiver” is used here.
All Assets Charges II
The receiver’s powers are defined in the mortgage or debenture document. In the case of a “statutory” receiver appointed by the National Asset Management Agency, the supplemental powers set out in that Act apply. The Companies Act 2014 confers similar extensive powers on an all assets receiver.
Charges given to banks and other credit institutions are the most commonly encountered. There is no reason, however, why a debenture cannot be granted in favour of any party as security. A debenture, as with any other mortgage or security, may be given to secure any debt. The lender is required to be regulated only if it conducts a regulated business such as banking or secured lending.
Receivers of a company’s assets are subject to requirements under the Companies Acts, which do not apply to receivers appointed under mortgages and charges granted by individuals. Some of the duties of a liquidator apply to a corporate receiver. There are obligations to make returns to the Companies Registration Office. There are obligations to pay preferential creditors to a defined extent, from the floating charge proceeds
Grounds for Appointment
The grounds for appointment of a receiver are set out in the debenture deed. They are usually based on a default. The grounds will generally include:
- non-payment of principal or interest due;
- breach of the terms of the debenture, loan agreement or another security document;
- the company ceasing or threatening to cease business;
- a petition in respect of insolvency;
- something jeopardises the security;
- a material adverse change takes place.
In addition, certain events which are precursors of impending insolvency are often default events, which trigger the entitlement to appoint a receiver. They may include the company;
- being unable to pay (other) debts;
- failing financial covenants;
- creating a further security without consent;
- defaulting under another loan.
Many company facilities provide that repayment is due on demand. The charge holder may be entitled to demand repayment at any time. In such circumstances, it must generally allow a reasonable period to allow payment. There are different views on what is reasonable, but the balance of opinion is that the time given need only be that required logistically in order to organise and make payment.
The debenture document will define when the lender may enforce the security (including by appointment of a receiver). The circumstance is commonly defined as an event of default. Typically, this occurs on a financial default, an event commencing formal insolvency proceedings or an event which jeopardises the existence or carrying on of the company’s trade.
The floating charge in the debenture will usually crystallise and become a fixed charge on assets within its ambit upon enforcement. The lender’s powers are exercisable, and a receiver may be appointed. The director’s powers may be thereby suspended.
The receiver/receiver manager is entitled to conduct the company’s affairs in the interests of the debenture holder. In Ireland, there is no obligation to consider the options of trading, as applies under the UK Administration regime. If the receiver believes that disposal of the charged assets is the appropriate course in the interests of the security holders, he is entitled to so do, without regard to whether the business might otherwise survive as a going concern.
Appointment and Removal I
A receiver is usually appointed under the terms of the debenture deed without the necessity for a court application. The wording of the debenture may require a prior demand, before the entitlement to appoint a receiver arises.On the appointment of a receiver, the floating charge fixes on all assets within its terms at that time.
The appointment must usually be in writing under the terms of the debenture. A failure to follow the appointment procedure is likely to invalidate the appointment. The courts have generally insisted on strict compliance with requirements for appointment.
The debenture itself must be valid. If it has not been registered in the Companies Office within 21 days of creation, it is invalid against a liquidator. It may retain a certain force, in the absence of a claim by a liquidator or creditor.
Appointment and Removal II
It is essential that the receiver is appointed in accordance with the terms of the debenture. If there is a defect in the debenture deed or in the appointment, the receiver may be liable for acts which are (accordingly) undertaken without proper authority. A liquidator who is later appointed may challenge the validity of the debenture deed and/or the receiver’s appointment under it.
An appointment is not valid until accepted by the receiver. The appointment must be advertised in the Official Gazette and in at least one newspaper circulating in the area where the company has its registered office. The notices must be published within seven days. The notice must be filed with the Companies Registration Office.The failure to comply does not invalidate the appointment.
A person who obtains an order for the appointment of a receiver or appoints a receiver under an instrument, shall cause to be published in Iris Oifigiúil, and deliver to the CRO, within seven days of the appointment, a notice in the prescribed form.
Where a receiver is appointed under a floating charge over a company’s assets, notice must be given to the company within 14 days.
Ni formal qualification is required to act as a receiver. A professional body of which the receiver is a member must report findings of misconduct to the Director of Corporate Enforcement. This includes, in particular, failures as a receiver. The ODCE may make requirements of receivers and may inspect their books and records.
In practice, most company receivers are accountants who specialise in insolvency. Certain categories of people are disqualified from acting as receivers. They include undischarged bankrupts and persons involved in the company’s management or connected to them. Specifically, the following persons are disqualified from acting as a receiver.
- persons connected with, persons who have been officers or employees of the company within the previous 12 months.
- an undischarged bankrupt;
- a parent, spouse, civil partner, brother, sister or child of an officer of the company;
- a person who is a partner of, or in the employment of, an officer or employee of the company;
- a person who is not qualified for appointment as receiver of the property of any group company;
- a company or other body corporate.
It is an offence to act as a receiver while disqualified. He may be prosecuted, summarily with and be subject to a fine on conviction, with a further daily fine, or on indictment, with larger maximum fine, and with a further daily fine.
Under the Companies Act, a person may be disqualified from acting as a receiver of a company or its holding companies, under the same procedure that applies to disqualification as a director.
Resignation and Removal
A receiver must give one month’s notice of his or her intention to resign to the company and certain other prescribed parties. The appointing document will generally entitle the debenture holder to remove the receiver. The court may appoint an alternative receiver.
A receiver may resign under the provisions contained in the relevant instrument. A receiver appointed by the court may resign only with the authority of the court, on such terms and conditions, if any, as the court may specify.
The court may, on cause shown, remove a receiver of company property and appoint another receiver. Prior notice of an application to remove must be given to the receiver.
Where a person appointed receiver ceases to act as receiver, he shall, on so ceasing, deliver a notice to the CRO office in the prescribed form. A person defaulting in any registration obligation is guilty of a category 4 offence.
Indemnity by Appointer
The receiver may require an indemnity from the charge holder, because of the risk that he may be subject to personal liability for his actions. He is entitled to an indemnity at common law from the assets within the debenture, but this may not be enough to cover the liabilities and expenses incurred.
An indemnity may be wide ranging or it may cover a specific risk only, such that the debenture/mortgage or appointment might later be found to be invalid (so that the receiver’s appointment and acts are thereby invalid).
An indemnity from the appointing creditor, may or may not be available, depending on the circumstances. The creditor may grant a limited indemnity in relation to particular risks and defects in the appointment that may have been identified. It may grant a wider indemnity, provided that the receiver acts in good faith and exercises due care.Even if the receiver is indemnified in wider terms, it is unlikely to cover his misconduct and default.
The receiver is entitled to be indemnified out of the company’s assets. In the absence of an indemnity from the appointer, the receiver is left to fall back on the common-law indemnity from the company.
The common law indemnity may be of limited value as the company’s solvency will usually be impaired. The indemnity is an ordinary obligation of the company with no priority.
An application may be made by a liquidator where the company is being wound up to terminate the receivership and prohibit the receiver from acting. This may apply to particular assets or to the assets of the company generally. No order may affect any security or charge over the undertaking of the company, save to the extent below. An orderThis cannot affect the rights of the debenture holder to its security.
On the application of a liquidator, where a company is being wound up other than in a members’ voluntary winding up, the court may make an order that the receiver shall cease to act as and from the date specified by the court, or prohibit the appointment of any other receiver, or that the powers of the receiver shall, be limited. The court order shall be on such terms and conditions as the court thinks fit. The order may be varied from time to time.
The order shall be served on the receiver and on the person who appointed him not less than seven days before the hearing of the application. The receiver may appear and be heard by the court in respect of the application.
The receiver’s remuneration is set under the terms of the security deed. The Conveyancing Act 1881 provided a cap of 5% of gross receipts or such higher rate as may be allowed by the court. The 2009 Act provides for a rate to be prescribed by the Minister.
There is controversy as to whether this provision may be increased by the terms of the deed. There is support for the view that the statutory cap is limited to a statutory receiver and may not apply to a contractual receiver, appointed under a power in the debenture.
The debenture deed may specify the rate of remuneration. It may state that it is determined by agreement between the debenture holder and receiver. Any remuneration must be set in good faith. If the debenture makes no specific provision, the courts imply that the receiver is to receive reasonable remuneration.
The company itself, creditors or liquidator may apply to the court to fix or determine the basis of the receiver’s remuneration. This provision is intended to limit excessive remuneration. If a receiver’s appointment is invalid, he may not be entitled to remuneration. He may be entitled to payment for the fair value of work done.
An application may be made to the court to fix remuneration, regardless of what is provided in the security deed. The application may be made by a liquidator, creditor or a shareholder. The court order fixing the remuneration of the receiver.takes priority to the instrument.
Remuneration may be fixed for a period. The court may require reimbursement of remuneration already paid, at the level fixed by the court. However, an order may not be made in relation to the period before the order unless, in the opinion of the court, there were special circumstances making it proper for this power to be exercised. The court may from time to time, on the application of above parties, vary or amend the order in relation to remuneration.
Court Appointed Receiver I
The courts have the power to order the appointment of a receiver in an appropriate case. This court power is distinct from the power of a mortgagee to appoint a receiver, out of court.
The courts have the power to appoint a receiver where it is just and convenient. A receiver may be appointed to protect a creditor’s interest, where for example, the security is in jeopardy or is unperfected. If for example the security is defective and the intended statutory power to appoint a receiver out of court does not apply, a receiver may be appointed by the court.
The court will usually give directions when appointing a receiver. An order may be made to facilitate the receiver in taking possession. An injunction may be granted, ordering persons who are resisting delivery of possession to cease to do so.
Court Appointed Receiver II
The appointment of a receiver is an equitable remedy. Equitable remedies are at the discretion of the court and are not available as an entitlement. They are flexible and may be tailored to meet the justice of the situation. They are granted when the common-law remedies of damages would be inadequate in the circumstances.
In practice, the courts will readily exercise power to appoint a receiver in a number of circumstances. They include where security is in jeopardy, where assets to enforce the judgment are in jeopardy, where there is a dispute regarding a trust, partnership property or deceased’s estate and assets are at risk.
The remedy of the receiver by way of equitable execution is a means to enforce a court judgment. This remedy is distinct from the remedy of a receiver in this present context, which is a pre-trial remedy. The receiver’s function is to preserve the assets generally pending full proceedings and execution of judgement.
References and Sources
Companies Act 2014 (Irish Statute Book)
Companies Act 2014: An Annotation (2015) Conroy
Law of Companies 4th Ed. (2016) Courtney
Keane on Company Law 5th Ed. (2016) Hutchinson
Other Irish Sources
Tables of Origins & Destinations Companies Act 2014 (2016) Bloomsbury
Introduction to Irish Company Law 4th Ed. (2015) Callanan
Bloomsbury’s Guide to the Companies Act 2015 Courtney & Ors
Company Law in Ireland 2nd Ed. (2015) Thuillier
Pre-2014 Legislation Editions
Modern Irish Company Law 2nd Ed. (2001) Ellis
Cases & Materials Company Law 2nd Ed. (1998) Forde
Company Law 4th Ed. (2008) Forde & Kennedy
Corporations & Partnerships in Ireland (2010) Lynch-Fannon & Cuddihy
Companies Acts 1963-2012 (2012) MacCann & Courtney
Constitutional Rights of Companies (2007) O’Neill
Court Applications Under the Companies Act (2013) Samad
Company Law – Nutshell 3rd Ed. (2013) McConville
Questions & Answers on Company Law (2008) McGrath, N & Murphy
Make That Grade Irish Company Law 5th Ed. (2015) Murphy
Company Law BELR Series (2015) O’Mahony
Companies Act 2006 (UK) (Legilsation.gov.uk)
Statute books Blackstone’s statutes on company law (OUP)
Gower Principles of Modern Company Law 10th Ed. (2016) P. and S. Worthington
Company Law in Context 2nd Ed. (2012) D Kershaw
Company Law (9th Ed.) OUP (2016) J Lowry and A Dignam
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UK Practitioners Services
Tolley’s Company Law Handbook
Gore-Browne on Companies
Palmer’s Company Law