Challenging a Receivership:

There are various grounds in which a receivership can be challenged or set aside. If you are a director or manager of a company you may be concerned that a receiver is not exercising their duties in good faith, discharging their obligations in compliance with the authority conferred by security document, Corporations Law or the Court. Also you may be concerned they are acting improperly or outside the scope of their power, often referred to as acting ultra vires. Having correct legal and financial advice from an experienced Bankruptcy and Insolvency professional may be greatly advantageous to challenge a receiver. Comprehensive and sound advice from a Bankruptcy and Insolvency Lawyer regarding Receiverships can be greatly beneficial in this regard.

The first consideration is whether the appointment of Receiver was properly executed. The person who is approached by the secured party with a request to accept appointment as a receiver will be concerned before accepting the appointment to see the scope of the powers as receiver and whether the appointment will 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 and 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. Proper legal advice by a Bankruptcy and Insolvency Lawyer may be advantageous if you are acting to challenge a Receiver.

Unless the terms of the security agreement make it a condition precedent to the valid exercise of the power of appointment that a notice first be given specifying the grounds on which the power is being exercised, a secured party who is alleged to have made an invalid appointment can rely, as against the grantor, on a breach of the terms of the security interest discovered by the receiver after appointment. A company which is required to pay a debt payable on demand must be allowed a reasonable time to meet the demand before it can be said that the company has failed to comply

There is authority to suggest that a receiver appointed by the court owes fiduciary duties to persons interested in the property of which he is a receiver. 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 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. Although an agent of the company, the receiver owes duties in contract and tort and as a fiduciary to the appointor. Obtaining proper legal advice from a qualified and experienced Bankruptcy and Insolvency Lawyer can assist you, should you wish to challenge a Receivership.

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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