A debenture contains terms and provisions of rights for debenture holder and secured borrower with regard to the loan extended to the borrower, as well as the rights of debenture holder on the security of the loan. There may be terms in the debenture or other loan document given by a company that allows the debenture holder as a 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. This usually occurs when the company is insolvent and the debenture holder is a bank; and a scheme of arrangement is proposed.
However, during a process of winding up, if the terms of the debenture do not state the right to appoint a receiver; a shareholder or a debenture holder may apply to the Court to appoint a receiver for the company.
A receiver appointed by the court is an officer of the court, not an officer of the company. A receiver appointed by the debenture holder owes his duty to the debenture holders and not to the company.
A privately appointed receiver/manager is subject to the Companies Act’s provisions relating to officers but a privately appointed receiver who is not also a manager is not subject to the Companies Act.
Upon appointment of receiver, every invoice, order for goods or business letter issued by or on behalf of the corporation or the receiver or manager (or the liquidator) which is a document on which or in which the corporation’s name appears, must contain a statement that a receiver or manager has been appointed.
Upon appointment by the court, a receiver is given such full power and control over the company’s assets and property. The specific powers and duties of a receiver may vary and will depend on the reason for the appointment and be ascertained from and interpreted in accordance with the order. A receiver appointed by the court is personally liable for debts incurred by him/her in the course of that receivership for services rendered, debts for goods purchased and debts for property hired, leased, used or occupied. However, although personally liable, a receiver (but not as a manager) has the right to indemnify an indemnity out of the assets in respect of all liabilities is properly incurred. In the case of a receiver/manager, the receiver has a right to indemnify out of the assets in respect of all liabilities is properly incurred by the receiver in carrying out the business of the company.
Where the receivership arose from a default in debenture which is secured by a floating charge, the receiver must pay out any assets debts in priority to any claim for principal or interest of in respect of the debentures. The priority of debts is similar to those debts under winding up as set out in Section 292(3) and Section 292(5).
| Self-test 4.4
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