Appointing a receiver enables secured creditors to protect their interests in the assets that constitute the security and, if necessary, to realise those assets to satisfy the debt owing to them.

Appointment is always by a person or business who has a deed or debenture allowing them to appoint a receiver and who also has a registered security interest.

Receivership involves the appointment by the secured entity (normally a financier) of a person known as a receiver whose job is to raise funds from within the company to repay the financier. This may lead to liquidation particularly if the secured assets form a significant part of the business.

A receiver may be appointed by or under a deed or agreement or by the Court

Appointment will usually take place on the occurrence of certain events specified in the debenture or deed. Debentures normally set out fully the events that will allow the debenture holder to appoint a receiver, or a receiver and manager.

The most common events are:

  • default by the borrowing company in payment of principal or interest;
  • compositions with creditors;
  • execution of a judgment against the borrowing company to enforce payment of a debt;
  • Applying moneys secured by a debenture for purposes other than those for which they were advanced;
  • failure to observe and perform the covenants and conditions contained in the debenture or in any collateral security;
  • appointment of a liquidator to the borrowing company;
  • cessation of business by the borrowing company;
  • failure to observe and perform the covenants and conditions contained in the debenture or in any collateral security;
  • Changes to the borrowing company's constitution in a manner detrimental to the debenture holder. 

Key points of Receivership include:

The debenture holder must ensure the appointment is strictly in accordance with the terms of the debenture.

A receiver has the powers conferred by the deed or agreement of appointment under which the appointment is made or the order of the Court (if the receiver is appointed by Court). The deed, agreement, or order may also confer various implied powers.

If there is more than one debenture holder who rank equally then the power of appointment must be exercised wisely and in the interests of all the debenture holders.

A board could approach a debenture holder requesting the appointment of a receiver on the grounds that a term of a security deed that will allow the debenture holder the right to appoint a receiver is imminent, e.g. a creditors compromise is going to be proposed.