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Receivership
Duties of a receiver
• Duty in applying proceeds of sale: proceeds should be used to discharge the debt and any surplus should be paid to the co and not the preferential creditors. Section 440: if the security is a floating charge, the receiver must make a preferential payment before discharging the debt of the creditor who appointed her.
• Receivers’ filing duties: listed at Section 441. Further, Section 446 the DOCE can request to see the receiver’s books.
• Main duty: realise the assets and not get involved with the running of the co (unless appointed as a receiver manager). Ruby Property Company (IRL).
• Duty to provide information to the co: there is no general duty to do this and it will depend on the circumstances: Irish Oil & Coke Mills (IRL). There is a duty of care owed to the co, but the receiver does not have to keep the board informed. Sometimes, in order to ensure that the best price possible is obtained for the assets, it may be appropriate that trading information should be given to the directors after a receiver is appointed.
• Section 439 duty to get price reasonably obtainable: previously a common law duty (Re B Johnson (UK)): when disposing the co’s assets, a receiver is obliged to exercise all reasonable care to obtain the best price reasonably obtainable for the property at the time of the sale. Where a receiver has any doubt as to the method or price, she should obtain the advice of an independent professional expert. This duty is owed to the co and may also be owed to third parties who may be affected by a receiver’s actions e.g. those who have guaranteed the debts of the co as they may need to make up the shortfall between the debt and the amount received for the asset (see below). A receiver who breaches this duty is not entitled to be compensated or indemnified by the co for any liability which she may incur.
Section 439(3) imposes a restriction on the receiver selling a non-cash asset of requisite value to anyone who is an officer of the company within 3 years of the receiver’s appointment. The receiver must evaluate the full and total value of the offer and consider all aspects of the offer:
o Holohan v Friends Provident (IRL): receiver should have sold the property with vacant possession making it more valuable.
o Casey v Intercontinental Bank (IRL): offer of £111,000 accepted as the best price available and subsequently an offer of £190,000 was rejected as the earlier offer was accepted. Receiver was entitled to accept the highest offer at the time and was not obliged to wait for an upturn in the market (followed in Re Bula (IRL)).
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Background
• Examinership in place? If the company is already in examinership, under Section 520(4)(b) a receiver cannot be appointed. Section 437 sets out the powers of a receiver when appointed under the Act and enforced by the ct. This list is usually present in a debenture.
• What is a receiver? The person who receives the debtors’ (i.e. the corporate borrowers’) asset on behalf of the creditor (lender/bank) when the debtor defaults on a secured loan (a loan secured by an asset) and sells these secured assets to pay off the debt (the loan). Receivers are usually practising and qualified accountants although there are no specific qualifications for same in the Act. Section 433 notes that certain persons cannot act as a receiver.
• Other options? There are other options open to a secured creditor when a debtor defaults, for example: wind up the borrower; issue court proceedings to repay the loan; or go into possession of the asset. For the purpose of this chapter, lets presume a receiver has been appointed.
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