Personal Liability I
A receiver of the assets of a company is personally liable on any contract entered in the performance of his functions. This is the default position, whether the contract is entered in the name of the company or on his own behalf. Both the receiver and the company may be liable on the contract. This default position applies unless the contract provides that the receiver shall not be personally liable on the contract.
Where the receiver is personally liable, he entitled to an indemnity out of the assets of the company. The personal liability does not limit any right of indemnity which the receiver may otherwise have. It does not limit the receiver’s liability on contracts entered without authority.
The receiver is not immunised from breach of his duty by reason of the fact that he acts as agent or attorney. A receiver is not entitled to be indemnified by the company for any liability that he may incur because of breach of his duty to the debenture holder. The terms of liability may be limited by debenture deed or the appointment. There may be a specific indemnity from the debenture holder in relation to third party claims.
Personal Liability II
Where a receiver of a company’s assets has been appointed or purported to be appointed, and it is subsequently discovered that the charge under which he was appointed was not effective, then the court may on application of the receiver order that he be relieved wholly or on such terms as the court shall think fit, from personal liability.
The court order may exonerate the receiver in respect of anything done or omitted to be done in relation to the asset, which, if such assets were effectively included in the charge, would have been properly done by him. If such an order is made, the person by whom the receiver is appointed is personally liable for everything for which, but for the order, such receiver would have been liable.
Duty of Care I
Receivers are liable for the proper performance of their obligations. They must perform their obligations in the same manner as an equivalent competent professional.
Although the receiver is an agent for the company, his primary duties are owed to the debenture holder or mortgagee who has appointed him. He generally has no obligation to trade or to keep the company trading, even if he has the power to do so.
The receiver can act in the debenture holders exclusive interests. Because of this limitation, the equivalent England and Wales and Northern Ireland provisions were revised to provide for the appointment of an administrator instead of a receiver. The administrators under a floating charge have wider obligations to the company as a whole.
Duty of Care II
The duties traditionally owed by the receiver to the company/ mortgagor were minimal. There was an obligation to act in good faith. The company/ mortgagor and other persons having an interest in the property after the debenture holder/ mortgagee were owed this broad duty.
The modern approach has been to extend the duty of the receiver beyond a bare duty of good faith to a limited duty of care, which requires that he have regard to the interests of other interested parties. However, this does not fundamentally change the primary duty of the receiver, to realise the asset for the benefit of the debenture holder/ mortgagee.
A receiver is not obliged to carry on the company’s business at the debenture holder’s expense. The receiver’s duties to lower ranking security holders, guarantors or unsecured creditors probably requires little more, that he does not act recklessly or unnecessarily damage their interests.
There may be cases where a failure to trade would breach the duty of care owed to later mortgagees and the company itself. However, in other cases, re-commencing trade may breach the duty owed to the debenture holder.
Duties on Sale I
The Companies Act provides that a receiver, in selling the company’s assets, must exercise all reasonable care to obtain the best price reasonably obtainable for the property at the time of sale. The traditional common law position applied an obligation to act in good faith. However, later cases extended the common law duty towards a general duty of care, reflecting the modern law of negligence.
The 2014 Act confirms the receiver’s obligation to exercise all reasonable care to obtain the best price reasonably obtainable for the secured assets at the time of sale. The receiver may sell at whatever time suits in the context of his duties to realise the assets. He need not wait until the market rises. However, he must take due care to obtain the best price available at that time.
It is possible that the courts may modify this position where there are grounds for believing that the market prices may increase in the short-to-medium term. Nonetheless, the courts would be reluctant to second guess the market and the receiver’s judgment made in good faith.The duty of a receiver to obtain the best price reasonably obtainable for the property at the time is confirmed by the Companies Act, 2014.
Duties on Sale II
A receiver must not sell a non-cash asset above a certain value by private contract, to a person who is, or who, within 3 years prior to the date of appointment of the receiver, has been, an officer of the company unless he gives the following prior notice.
The receiver must give at least 14 days’ prior notice of his intention to do so, to all creditors of the company who are known to the receiver or who have been intimated to the receiver. An officer includes a director, a de facto and a shadow director. Non-cash assets have the same meaning in this context, as in the case of transfers to and from companies by directors.
Receivers of a company’s assets are subject to requirements under the Companies Acts, which do not apply to receivers in the case of mortgages and charges granted by individuals. Some of the duties of a liquidator are applied to a corporate receiver. There are obligations to make returns to the Companies Registration Office. There are obligations to pay preferential creditors to a defined extent, from floating charge proceeds
If a company is being wound up, a receiver (as well as the liquidator) may take action against directors and other former controllers of the company for fraudulent or reckless trading. Likewise, the receiver may take action against directors and other persons who have run the company, for wrongdoing and breach of duty. The receiver has the power to compromise claims.
The receiver has obligations equivalent to a liquidator with regard to having directors and secretaries restricted. Where is appears to a receiver that offences have been committed, this must be reported to the Director of Public Prosecutions.
The receiver is invariably constituted as an agent of the company. The purpose is to make the company responsible for his acts and omissions to the greatest extent possible. There are statutory provisions which deem the receiver to be an agent of the chargor.
Under the Companies Act, a receiver who enters contracts for the company after the appointment is personally liable unless the contract otherwise provides. The receiver is entitled to be indemnified out of the secured assets, in relation to contracts entered in the course of the receivership.
In the case of pre- receivership contracts, the receiver may disclaim or novate them. In effect, he may cause the company to breach the contract. The other party’s remedies are against the company only, which is usually poor consolation, given that all of the company’s assets may have been charged.
An agent who expressly discloses that he is such is not usually personally liable on the engagement or transaction concerned. However, this is unlikely to apply to statutory obligations. As a matter of public policy, statutory obligations are usually binding on all persons, including a receiver. He cannot shield his liability by acting as agent.
Certain schemes of legislation in the public interest, including planning and environmental legislation, are in terms that apply to the person in actual occupation or control of the property. In this case, the receiver may not hive off personal responsibility on the basis that he is an agent only.
The receiver is subject to tort and criminal liability in according with ordinary principles of law. The receiver has no immunity as such from general legal liability. Broadly similar considerations as apply to directors in acting in relation to the company, apply to receivers.
Duty to Account
The receiver must account to the debenture holder and to other persons entitled to the proceeds of the sale of the secured assets, in accordance with the rules on priorities. Preferential creditors enjoy a significant element of priority in respect of floating charge proceeds.
The receiver must keep an account of monies paid and received. He must keep the money, and assets separate from his own. He holds the assets and proceeds as fiduciary / quasi-trustee and is obliged to account for it personally.
On completion of the receivership, the receiver must render an account of his receipts and distributions. He can be required by the court to provide a full account and explanation of the performance of his functions.
The court has a general jurisdiction to give directions to a receiver about the exercise of his powers. The receiver may apply for a court order in relation to the scope and extent of his responsibilities and powers, in the event of uncertainty.
The court may on foot of an application, make an order against a receiver who is in default in relation to the delivery of returns, accounts or other documents. The default includes a failure to render accounts to the debenture holder or to account to a liquidator or another.
Where the default continues 14 days after a notice is given, the CRO, a creditor, a member or liquidator may make an application to the court for an order requiring the receiver to perform the duty in question. The costs may be ordered to be borne by the receiver.
Where an appointment of a corporate receiver is found to be invalid, the High Court has jurisdiction to relieve him from personal liability. The appointing party may be held liable.
The court may require the receiver to give an account of his expenses and remuneration. Generally, the receiver is paid from the proceeds of realisation of the receivership. On the application of a creditor, the company or a liquidator, the court may review the remuneration of a receiver. It may vary the amount provided for in the debenture.
References and Sources
Companies Act 2014 (Irish Statute Book)
Companies Act 2014: An Annotation (2015) Conroy
Law of Companies 4th Ed. (2016) Courtney
Keane on Company Law 5th Ed. (2016) Hutchinson
Other Irish Sources
Tables of Origins & Destinations Companies Act 2014 (2016) Bloomsbury
Introduction to Irish Company Law 4th Ed. (2015) Callanan
Bloomsbury’s Guide to the Companies Act 2015 Courtney & Ors
Company Law in Ireland 2nd Ed. (2015) Thuillier
Pre-2014 Legislation Editions
Modern Irish Company Law 2nd Ed. (2001) Ellis
Cases & Materials Company Law 2nd Ed. (1998) Forde
Company Law 4th Ed. (2008) Forde & Kennedy
Corporations & Partnerships in Ireland (2010) Lynch-Fannon & Cuddihy
Companies Acts 1963-2012 (2012) MacCann & Courtney
Constitutional Rights of Companies (2007) O’Neill
Court Applications Under the Companies Act (2013) Samad
Company Law – Nutshell 3rd Ed. (2013) McConville
Questions & Answers on Company Law (2008) McGrath, N & Murphy
Make That Grade Irish Company Law 5th Ed. (2015) Murphy
Company Law BELR Series (2015) O’Mahony
Companies Act 2006 (UK) (Legilsation.gov.uk)
Statute books Blackstone’s statutes on company law (OUP)
Gower Principles of Modern Company Law 10th Ed. (2016) P. and S. Worthington
Company Law in Context 2nd Ed. (2012) D Kershaw
Company Law (9th Ed.) OUP (2016) J Lowry and A Dignam
Cases and Materials in Company law 11th Ed (2016) Sealy and Worthington
UK Practitioners Services
Tolley’s Company Law Handbook
Gore-Browne on Companies
Palmer’s Company Law