What is receivership?
Receivership is the appointment of an independent person, the receiver, to take control of assets that a company has charged to a secured creditor (for example, under a debenture). Under the security document and Part 6 of the IRDA, the receiver’s role is to realise those assets and apply the proceeds to repay the secured creditor.
There are two common forms:
Receiver
Appointed to take control of and realise specific charged assets.
Receiver and manager
Appointed with the wider power to carry on the company’s business for a period, where doing so preserves or increases the value of the secured assets.
A receiver may be appointed out of court, under the powers in the security document, or by the court.
What receivership is not: it is not a process run for the benefit of creditors generally. A receiver acts primarily in the interests of the appointing secured creditor, within the limits the law sets, including the rule that certain preferential debts are paid out of assets ahead of the floating charge holder. It is also not the same as liquidation; a company can be in receivership while still in existence.
Who is receivership for?
Secured creditors
such as banks and lenders, seeking to enforce security after a default and recover what they are owed through an independent, properly conducted process.
Companies and directors
dealing with the appointment of a receiver over their assets, who need to understand what it means for the rest of the business.
When is a receiver appointed, rather than a liquidator or judicial manager?
Receivership comes into play when a secured creditor wants to enforce its security, typically after a default under the terms of the loan or debenture. It is asset-focused: it deals with the charged property, not the whole company. By contrast, liquidation winds up the entire company for all creditors, and judicial management aims to rescue the business as a whole. The processes can overlap, and which applies depends on who is acting and what they are trying to achieve.
How does receivership work?
1. Trigger
A default occurs under the security document, giving the secured creditor the right to appoint a receiver.
2. Appointment
The secured creditor appoints a receiver out of court under the debenture, or applies to court for an appointment. The appointee must not be a disqualified person.
3. Taking control
The receiver takes control of the charged assets and, if appointed as receiver and manager, of the relevant business operations.
4. Realisation or management
The receiver realises the assets, or manages the business to preserve value, with a view to repaying the secured debt.
5. Applications of proceeds
Proceeds are applied towards the secured creditor’s debt, subject to any preferential debts payable in priority, with any surplus dealt with according to law.
6. Conclusion
Once the secured debt is satisfied or the assets are realised, the receivership ends.
Receivership compared with liquidation and judicial management
| Receivership | Liquidation | Judicial Management | |
|---|---|---|---|
| Acts mainly for | |||
| Acts mainly for | The secured creditor | All creditor | The company and its creditors |
| Scope | |||
| Scope | Charged assets | The whole company | The whole company |
| Company keeps existing | |||
| Company keeps existing | Yes | No, it is dissolved | Yes, while in Judicial Management |
| Triggering conditions | |||
| Triggering conditions | Default under security | Inability to pay debts | Distress with a viable core |
Why DHA+ pac
A receivership has to be conducted to the letter: the receiver’s powers come from the security document and the law, and missteps create disputes. DHA+ pac has acted in enforcement and recovery matters in Singapore since 1994. Our Licensed Insolvency Practitioners take receivership appointments with the rigour and independence the role demands, balancing the appointing creditor’s interests against the duties a receiver owes.
FAQ
Usually a secured creditor, acting under the powers in a debenture or other security document. A receiver can also be appointed by the court.
Not necessarily. Receivership deals with the charged assets. The company continues to exist and may keep operating, depending on the circumstances and whether other processes follow.
A receiver takes control of and realises specific assets. A receiver and manager has the additional power to run the company’s business for a period, usually to protect or build the value of the secured assets before sale.
A receiver acts primarily for the secured creditor who appointed them, while still observing the duties that the law imposes on the conduct of the receivership.
Not sure where to start?
Whether you are a lender looking to enforce security or a company facing the appointment of a receiver, early advice clarifies your position and your options.
Contact us for a confidential review.