Receivership action from a Bank:

Often financing is done through a large financial institution such as a bank, credit union or other financial provider. If you default on the debt agreement, then financial institution is likely to appoint a receiver who holds security over some or all of the company’s assets and will manage the company’s affairs. As a secured creditor who holds security over some or all of the company’s assets the bank will appoint a receiver to manage the company’s affairs and collect and sell sufficient of the company’s charged assets to repay the debt owed to the secured creditor. Challenging or responding to such recovery actions by a bank can be quite difficult and time consuming as the receiver (and often also manager) is appointed by the loan agreement and can have wide reaching, extensive powers to deal with company assets and operations. Having accurate legal and financial advice from a team of skilled Bankruptcy and Insolvency professionals may be of great benefit to ensure you are appropriately aware of your rights.

Having a bank appoint a receiver can be a formidable experience as the bank has more resources in terms of capital, professionals and experience in debt recovery matter and enforcement of obligations under a loan agreement. They may carefully draft a very detailed and long loan agreement which sets out extensive and far reaching rights, powers to the receiver as regards the grantor of the security. There may be very complex and thorough default provisions in this agreement and minimal requirements for notice and dispute resolution before a receiver can be appointed to recover debts owing to the bank. Comprehensive and sound advice from a Bankruptcy and Insolvency Lawyer throughout this complex area of law can be of significant value to appropriately and thoroughly advise you of your rights and remedies.

There are many ways in which you can challenge an administrator. The first consideration is whether the appointment of receiver was proper in accordance with contract and law. If the bank approaches a registered liquidator with a request to accept appointment as a receiver, they may only accept an appointment if it would be valid. A receiver who acts without authority could be liable for trespass or conversion. The validity can be questioned on the grounds of whether the security interest was validly created so as to bind the company, this includes the propriety of exercise of corporate power; authority for exercise of corporate power; not being tainted by illegality; whether the security interest could be invalid or set aside; where applicable, whether the security interest has been perfected by registration; whether, if the security interest is perfected and the grantor goes into formal external administration, the security interest has vested in the grantor; whether an event stipulated in the security agreement as an event of default has in fact occurred; and whether the secured party has validly exercised the power to appoint a receiver in accordance with the terms of the security agreement.

There are also avenues of redress if an administrator does not act in good faith. This means breach of these duties may render the Receiver liable and their authority or actions challenged. A receiver appointed under a security agreement is usually appointed as an agent of the grantor's company. An agent normally owes fiduciary obligations to his principal but, exceptionally, because the agency of the receiver for the company is an unusual agency, being a contrivance to save the secured party from liability, the receiver does not owe fiduciary obligations to the company. The receiver is not under a duty to act in the interests of the company but has a duty to act in good faith. The duty to act in good faith inhibits the receiver by preventing him or her from acting entirely in disregard of the interests of the company. This means a Receiver cannot act negligently, recklessly or with complete disregard to the interests of the grantor in fulfilling his duties. Obtaining professional legal advice from a qualified and experienced Bankruptcy and Insolvency Lawyer can assist you this complex area of law.

If you would like further information or wish to discuss your receivership matter with an experienced Bankruptcy and Insolvency Lawyer please do not hesitate to contact us by telephone on (02) 9233 4048 or by email to info@navado.com.au. 

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