Receivership in New Zealand

What receivership is

Receivership is governed by the Receiverships Act 1993. A receiver is a person appointed to take possession of, manage and sell the assets of a company that are subject to a security interest, and to apply the proceeds towards the debt owed to the secured creditor who appointed them.

A receiver is most often appointed by a secured creditor under the terms of a security agreement, such as a general security agreement, when the company has defaulted on its obligations. The security agreement and the Act together set out the receiver's powers over the charged assets. In some circumstances a receiver may instead be appointed by the court.

The receiver's duties

A receiver holds a statutory office and has duties under the Receiverships Act 1993. They must exercise their powers in good faith and for a proper purpose. Their primary accountability is to the secured creditor who appointed them, but the Act also imposes duties that protect others with an interest in the assets.

• Best price reasonably obtainable. When selling property, a receiver has a duty to take reasonable care to obtain the best price reasonably obtainable at the time of sale.
• Good faith and proper purpose. A receiver must act in good faith and exercise their powers for a proper purpose connected with the security.
• Reporting and accounting. A receiver must meet reporting obligations, including preparing reports on the conduct of the receivership and accounting for receipts and payments to those entitled to receive them.
• Preferential claims. A receiver must account for certain preferential claims in the order the law requires before returning a surplus.

How receivership differs from liquidation

Receivership and liquidation are different processes that serve different parties, and it helps to be clear about which is which.

A receiver acts for the secured creditor who appointed them and deals only with the assets covered by that creditor's security. The receiver's task is to realise those assets and apply the proceeds towards the secured debt. A liquidator, by contrast, acts for the creditors as a whole. The liquidator takes control of the company, realises its remaining assets and distributes the proceeds among creditors according to the priorities set by law.

The two processes can run at the same time. It is common for a company to be in receivership and in liquidation concurrently, with the receiver dealing with the secured assets while the liquidator administers the balance of the company's affairs. Where both are in place, the receiver generally has first call on the assets covered by the security, subject to preferential claims.

The typical process

Every receivership turns on the terms of the security and the circumstances of the company, but the broad shape of the process is usually as follows.

1. Appointment

   The secured creditor appoints a receiver under the security agreement, or the court makes an appointment. The receiver's powers are set by the security and the Receiverships Act 1993.

2. Taking control

   The receiver takes control of the charged assets, notifies the appropriate parties and registers the appointment as required. The company's ability to deal with those assets is suspended.

3. Assessment

   The receiver reviews the assets and the company's position, and decides whether to continue trading the business for a period or to move directly to realisation.

4. Realisation

   The receiver sells the charged assets, taking reasonable care to obtain the best price reasonably obtainable, and collects amounts owing to the company that fall within the security.

5. Distribution and reporting

   The receiver applies the proceeds towards preferential claims and the secured debt, reports on the receivership and accounts for receipts and payments. Any surplus is dealt with as the law directs.

What it means for directors and unsecured creditors

When a receiver is appointed, the directors lose control of the assets covered by the security. The directors remain in office and their statutory duties continue, but their power to deal with the charged assets is suspended while the receiver is in place. Directors are usually required to provide information and reasonable assistance to the receiver.

For unsecured creditors, a receivership is primarily about the secured creditor's position. Unsecured creditors are not the receiver's principal concern, and they generally rank behind the secured creditor and preferential claims. Where a company is also in liquidation, unsecured creditors look to the liquidation, and to any surplus the receiver returns, for any recovery.