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Michael Murray’s on-going commentary on issues in corporate and personal insolvency law and related policy and law reform, in Australia and internationally. Given the scope of insolvency, this extends to business, consumer and professional conduct, and ethics, governance and regulation, criminal, tax, environmental and administrative law, and the courts and government.

 

So you don’t want to conduct liquidations or administrations, you just want to do receiverships?

The new insolvency law commencing 1 March 2017 allows a practitioner to be registered solely for the purpose of being appointed receiver, although the practitioner must be formally registered as a liquidator, subject to conditions.

The Explanatory Memorandum to the Insolvency Law Reform Bill 2015 [9.98] explains that a practitioner

“would be able to apply for restricted registration. This will provide flexibility in the system to increase the number of participants in limited sections of the market. For example, an applicant may seek registration as a corporate insolvency practitioner restricted to performing receiverships only”.

The same application process applies as for being registered as a liquidator, with the applicant appearing for interview before a three person committee. The industry representative on the committee – the liquidator chosen by ARITA – would need to have had a good background in receiverships in what the law requires to be their minimum 5 years experience.

Cutting through the formal words of the law (the committee may decide that the applicant’s registration is to be subject to any conditions specified by the committee … and must give the committee’s reasons for imposing the condition), it seems that the committee can recommend that the person be registered as a liquidator but on condition that only receivership appointments are taken.

The liquidator would then be registered as a liquidator on the new Register of Liquidators with their restriction stated.

At any stage, under s 20-40, the receiver can apply for removal of the condition, and that then goes back through the committee process.

Qualifications and experience

As to qualifications and experience, s 20-1 of the Corporations Rules prescribes at least 3 years full-time study in commercial law and accounting and the completion of at least 2 academic course units in personal and corporate insolvency. Section 20-1(d) imposes a requirement that “if the applicant wishes to be registered to practise only as a receiver, and receiver and manager—the applicant has, during the 5 years immediately preceding the day on which the application is made, been engaged in at least 4000 hours of relevant employment at [a] senior level”.

Section 20-1(e) continues, saying that the applicant must have

“demonstrated the capacity to perform satisfactorily the functions and duties of a registered liquidator” and section 20-1(f) provides that “the applicant is able to satisfy any conditions to be imposed … if the applicant is registered as a liquidator”.

For the purposes of section 20-1(2)(d), relevant employment means employment that:

(a)  involves assisting a registered liquidator in the performance of his or her duties as receiver and receiver and manager; and

(b)  involves providing advice in relation to receivership or receivership and management; and

(c)  provides exposure to the external administration of companies and processes (including bankruptcy) under the Bankruptcy Act 1966.

The registration is therefore still as a liquidator, and the law remains that a receiver must be a registered liquidator.

Comment

The drafting of some of these provisions is suspect but this in effect provides that the applicant must have had their 4000 hours assisting a liquidator in the performance of their duties when appointed as receiver or receiver and manager; providing advice in relation to that receivership or that receivership and management; and that work must have provided “exposure” to the external administration of companies and personal insolvencies.

It could of course be that a person who applies to be a registered liquidator is told that their experience in inadequate and that should they wish, their appointment would be restricted to receiverships.

Receiverships

There was concern expressed that allowing a practitioner to work only as a receiver would offer a limited perspective on their role. Receiverships are now in name not regarded as external administrations at all: see note to section 5-15. There are new separate provisions concerning annual returns (s 422A) and end of control returns (s 422B), and proposed other new reporting requirements to ASIC (s 434H) with regulations to set out the obligations of a controller of property to give information, provide reports and to produce documents to ASIC.

Perhaps that concern is overstated. Many practitioners conduct receiverships alone in any event, and the experience and qualifications are broadly in terms of what is required of a registered liquidator.

The techniques of administration and of assessing the merits of and carrying on business are similar in both administrations, as are those required for investigation.

There are the major differences.  A liquidator’s prime obligation is to the general creditors, and — to the extent that a surplus is likely to be available — to the members, whereas the receiver’s prime obligation is to the security-holder, notwithstanding other duties the receiver may have as agent of the company. Questions of independence are less relevant to a receiver.  A liquidator has limited power to carry on the business of the company; a receiver usually has extensive powers. In a liquidation the powers of directors normally cease, but in a receivership they only cease to the extent that their powers are excluded by the powers given to the receiver. The liquidator is generally accountable to creditors and subject to various statutory controls; but less so a receiver; although when a liquidator is appointed, the liquidator is able to assert some statutory control over the receiver.  Receivers’ remuneration is generally a matter between them and their appointing secured creditor; liquidators’ remuneration comes under close creditor and court oversight.

Secured creditors may appoint voluntary administrators or may choose to have a receivership running in parallel with an administration.

Despite the differences, and the difference in focus, receiverships usually intersect with many other forms of administration and hence they provide a practitioner with a broad perspective on external administrations generally.  In relation to personal insolvency, circumstances may arise where a director of the company goes bankrupt, and he or she loses their authority in the receivership in favour of the trustee in bankruptcy; and if the director is the or a shareholder, the trustee may in fact come to own part or all of the company.

Limits on a court’s powers

Being registered subject to a condition of only taking on receiverships would preclude the possibility for a company’s receiver to consent to being appointed as its liquidator. While there can be the potential or reality of a conflict in such cases, and the receiver is a company officer  in terms of s 532, there can be merit in joint appointments.  A court can at present give leave under s 532(2) for a receiver to be appointed liquidator. 

However new s 532(8) will provide that

“a person must not consent to be appointed, and must not act, as liquidator of a company that is being wound up by order of the Court if the person is not entitled to act as such a liquidator in accordance with the current conditions (if any) imposed on the person”.

This appears to prevent a court giving leave under s 532(2) to permit a receiver being appointed liquidator to a company which the court orders to be wound up.  In its terms the provision is confined only to “a company that is being wound up by order of the Court”.  The drafting is unclear.   

As to court appointed receivers, they are not officers of the company and are not restricted from being appointed as liquidator by s 532 per se, unless their interests are different and potentially conflicting: Re Banksia Securities (No 2) [2015] NSWSC 1449. But again, if a practitioner acting as a court appointed receiver were restricted by their registration conditions to receiverships, then the court could not appoint them liquidator.  

There may be regulations and guidance yet to issue in relation to those practitioners who seek conditional registration as receivers.

 

 

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