Role and source of appointment of a receiver
The usual role of a receiver is as protector and enforcer of the rights for a secured creditor who is usually a debenture holder. The receiver takes possession of the secured property to collect the income from that property, and thereafter to apply it in accordance with the terms of the debenture document under which the power of appointment arose.
Receivers are often vested with the power to also act as managers. There are two distinct ways for a receiver to be appointed, e.g., by the court and out of court (also known as privately).
2. Appointment of a receiver
Most receivers that are appointed by the court are at the request of the debenture holders. A shareholder who applies for an order for the receivers to be appointed should note that before the court appoints an interim receiver of a company, the court must be satisfied that:
a. the person applying for the appointment has established a good title to the company’s property
b. the property is in jeopardy, and
c. the applicant will be in a worse position if the appointment is delayed.
Nonetheless, there may be terms in the debenture or other loan document given by a company that allow the lender in the event of default to appoint a receiver. In this instance, there is no need to make an application to the court to appoint a receiver.
A debenture document gives the right to appoint not merely a receiver but a receiver/manager who may continue the business of the company while he/she seeks to get in the amount due. There is a distinction between a receiver per se , and a receiver who is also a manager .
An immediate announcement pertaining to the appointment of receiver, manager or receiver/manager, liquidator or special administrator or such other person appointed for a listed company, at any of its subsidiaries or major associated companies, shall be made to Bursa Securities (para 9.19 Bursa Malaysia Main Market Listing Requirements).
According to Pt D of Appendix 9A (para 9.19(20)) the following information shall be included in the announcement:
(a) the date of appointment
(b) the details of the listed company, any of its subsidiaries or major associated companies which are under the receiver, manager or receiver and manager, liquidator or special administrator or such other person
(c) the net book value of the affected assets
(d) the details of the events leading to the appointment
(e) the financial and operational impact of the appointment on the group, if any
(f ) the expected losses, if any, arising from the appointment, and
(g) the steps taken or proposed to be taken by the listed company in respect of the appointment.
In an appointment of a special administrator, additional information as set out in Pt E of Appendix 9A must be provided in the announcement which includes:
(a) the date of appointment
(b) the particulars of the special administrator
(c) the details of the events leading to the appointment of the special administrator
(d) the terms of reference of the special administrator
(e) the financial and operational impact of the aforesaid appointment on the group, if any
(f ) the effect of the appointment on the business operations of the company
(g) the steps taken or proposed to be taken by the company in respect of the appointment of the special administrator, and
(h) the role of the board of directors in light of the appointment of the special administrator.
The following shall not be qualified and must not act as receiver of the property of a company (Section 182 CA):
a. a corporation
b. an undischarged bankrupt
c. a mortgagee of any property of the company
d. an officer of the company or of any corporation which is a mortgagee of the property of the company
e. an auditor of the company
f. any person who is not an approved liquidator or the Official Receiver.
Court appointed receiver and a privately appointed receiver
The role of the receiver differs according to the source of his/her appointment.
“To some extent the privately appointed receiver, particularly in current commercial practices, makes an effort to restore the financial prosperity of the company whose affairs he has been appointed to administer by a debenture holder. A Court appointed receiver, however, does not fill the same position. He is not so much what might be described as a company doctor, but rather his function is that of a company caretaker” per Street J in Duffy v Super Centre Development Corp Ltd (1967) 1 NSWR 382.
1. Court appointed receiver
A receiver appointed by the court is an officer of the court, not an officer of the company. Interference with the receiver is contempt of court. The court will exercise control over the appointed receiver. For example, if the receiver conducts his/her duties in a defective manner (arising out of a want of good faith or an erroneous approach to the law) the court will intervene. Mere dissatisfaction of the receiver will not justify the interference of the court.
The appointment of a receiver/manager by the court terminates the employment of the staff of the company. Thus a receiver appointed does not need to dismiss the staff of the company but he/she must re-employ the required staff.
2. A privately appointed receiver
For a privately appointed receiver, the receiver’s primary duty is to the debenture holders and not to the company. As receiver/manager with ancillary powers of management, he/she is not, however, a person appointed to manage the
company’s affairs for the benefit of the company.
A privately appointed receiver/manager is subject to the Act’s provisions relating to officers but a privately appointed receiver who is not also a manager, is not.
The date of appointment of a privately appointed receiver may not be as clearcut as that of the court appointee. A written appointment takes effect when the document is handed to the receiver by a person having authority to do so and the receiver accepts the proffered appointment.
Difference between a receiver and a receiver/manager
“A receiver means a person who receives rents or other income, paying ascertained outgoings; but he does not manage the property in the sense of buying and selling anything of that kind. The receiver merely takes the income and pays necessary outgoings; the manager carries on the trade or business”, per Jessel MR in Re Manchester & Metford Railway (1880) 14 Ch D 645.
The purpose of making provision for the appointment of a receiver/manager is to keep the business alive in order to sell it as a going concern, i.e., to restore the company to financial stability, akin to a company doctor.
Unless the receiver is given powers as manager the receiver is restricted in his/her function. The receiver’s obligation (in the case of appointment by a debenture holder) is to realise the secured property only; any exercise of managerial power by a receiver who is not also manager renders him/her in those actions a trespasser ab initio and his/her acts are unauthorised.
The power to appoint a receiver/manager is bestowed by the debenture document. A manager can, however, only be appointed where the charge is over the business of the company, that is, over “the whole of the undertaking” or on “the undertaking and property”. If the security for the loan is only part of the company’s assets a manager may not be appointed. A receiver/manager may be appointed by the court or out of court.