Receivership Process

All Assets Charges

A fixed and floating charge over all of the present and future assets of the company allows for the creation of a security over (and the appointment of a receiver) over most and in some cases, all of the company’s assets, business, and undertaking.  This can be a very effective form of security as it allows the creditors to sell the company’s business as a going concern, provided that the charge is in sufficiently broad terms.

Charges given to banks and other credit institutions are the most commonly encountered. A receiver may be appointed by a single lender and charge holder, by one representative lender in a syndicate or by a trustee on behalf of a series of debenture holders.

There is no reason, however, why a debenture cannot be granted in favour of any party as security. A debenture, as is the case with any other mortgage or security, may be taken to secure private debt. The lender is required to be regulated only if it conducts regulated business such as banking in the State.


Receiver Manager

The difference between a receiver and so-called “receiver manager” is one of degree.  The traditional receiver, appointed under mortgages of real property by individual and corporates, is limited largely to the receipt of the property income.

A corporate receiver is usually granted more extensive powers. His role is more properly described as that of a receiver-manager.  For ease of reference, the expression “receiver” is used here.

The receiver’s powers are defined in the mortgage or debenture document.  In the case of statutory receivers appointed by the National Asset Management Agency, the supplemental powers set out in that Act apply. The Companies Act 2014 grants similar extensive powers to “all asset” receivers.


Notices and Publicity

Where a receiver has been appointed, every invoice, order for goods and business letter issued by or on behalf of the company or the receiver, being a document in the name of the company, shall contain a statement that a receiver has been appointed. The company name must describe the company as being in receivership, even, it appears, if the receivership does not relate to all or even a significant part of its assets.

Where the company is also being wound up, every such order, invoice, business letter, etc.  shall state both the fact of the winding up and the receivership in respect of the property concerned. Any company website or e-mail is to contain the above statements.

Failure to do so by a company or an officer in default, including liquidators and receivers is a category 4 offence.


Required Information

Where a receiver is appointed over the whole or substantially the whole property of the company by floating charge holders, the receiver is to send notice of his appointment to the company immediately.

The notice to the officers requests details of the company’s assets, liabilities, debts, details of creditors and the securities held by them.  The statement is generally required from the directors and secretary.  It may also be required, if specified by the receiver, from persons involved in the formation of the company, employees capable of giving information as well as former employees and officers within the period of the previous year.

A person making the statement is to be allowed and to be paid by the receiver out of receipts, the costs and expenses incurred in the preparation of the statement.  A person who is obliged to make a statement of affairs, who defaults in so doing, is unless he proves that it was not possible for him to comply, guilty of a category 3 offence. Where a statement of affairs is not submitted to the receiver, the court may, on the application of the receiver or any creditor, make an order compelling compliance.

The receiver shall within two months of the date of the statement, send a copy to the CRO,  the court (where applicable), the company, the trustees of debenture holders; and in so far as he is aware of their addresses, to all debenture holders.  The statement is to include any comments which he makes on it.

The failure to furnish the requisite statement, which must be verified by affidavit, is an offence. On receipt, the receiver must file it with CRO, together with comments.  He must also send it to the trustees of the debenture and the debenture holders, if applicable.


Contents of Statement I

Within 14 days after receipt of the notice, or such longer period as may be allowed by the court or by the receiver, a statement in the prescribed form must be furnished to the receiver in relation to the affairs of the company.   The statement of affairs to be submitted to a receiver is to show at the date of the receiver’s appointment:

  • particulars of the company’s assets, debts and liabilities;
  • names and residences of creditors;
  • securities held by the creditors;
  • the dates when the securities were given;
  • such further information as may be prescribed.

Contents of Statement II

It shall be submitted by and be verified by affidavit of, one or more of persons who at the date of the receiver’s appointment, were directors of the company, or by such other persons as the receiver may require,

  • who have been officers of the company;
  • who have taken part in its formation at any time within a year previous to the appointment;
  • who are in the employment of the company or have been in the employment of the company within the previous year; or
  • who have within the previous year been officers or employees of the company.

Receivers’ Returns to CRO I

A corporate receiver must make certain returns to the Companies Registration Office.  He must publish a notice of his appointment in the CRO, the official Gazette and a daily newspaper circulating in the area where the registered office is situated.  The notice must be given to the company whose officers, within 14 days, must submit a statement of affairs to him in a prescribed form.

Within the seventh month after the date appointment, the receiver must send an abstract in a required form to the CRO in respect of the first six months’ activity.  Further abstracts are required every six months.  The abstract is to include the details of assets taken possession of, estimated value, sale proceeds and receipts and payments during the period.

The receiver is to send to the CRO within 30 days of the expiration of the initial six-month period, and after every subsequent six-month period after appointment, an abstract in the prescribed form showing

  • the assets of the company of which he has taken possession since his appointment;
  • their estimated value and the proceeds of the sale of any such assets since appointment;
  • his receipts and payments during that period or during the period when he acted; and
  • the aggregate amounts of his receipts and payments during all preceding periods since appointment.

Where court appoints the receiver, the abstract is to be furnished to court as well as the above parties.


Receivers’ Returns to CRO II

The requirement, to make a return of an abstract of assets of the company, estimated value, proceeds of sale, receipts and payments applies to all receiverships and not just those where the receiver is appointed in respect of all or substantially all the assets of the company. Failure to do so is a category 4 offence.

Where a receiver ceases to act as such, the abstract shall be accompanied by a statement from the receiver of his opinion as to whether or not the company is solvent.  The Registrar is to furnish the statement to the ODCE.

The above does not limit the receiver’s duties at law and in equity to render accounts to the party who appointed him.  When the CRO becomes aware of the appointment of a receiver, he must notify the OCDE.

A receiver who is in default in respect of any of the above obligations is guilty of a category 4 offence.


DPP / ODCE I

The Director of Corporate Enforcement may require the production of the receiver’s books and records for examination either regarding a particular receivership or all receiverships undertaken by the receiver.  The receiver must furnish the relevant books, answer questions regarding their contents and the conduct of the receivership, and give the ODCE all assistance in the matter as the receiver is reasonably able to give. The request may not be made in respect of a receivership that has concluded more than six years earlier.  Failure to comply with a request is an offence.

If it appears to a receiver in the course of the receivership, that any past or present officer, or member, has been guilty of any offence, the receiver shall report the matter to the Director of Public Prosecutions.  He shall provide such information relating to the matter in question, as the Director may require, and give access to, and facilities for, inspecting and taking copies of the documents, as he may require.


DPP / ODCE II

The report must also be given to the ODCE.  The ODCE may also require information, in relation to the matter.  It may require access to the relevant books and records. Where the Director or ODCE receives a report, and it considers the case is one in which prosecution ought to be instituted, there is an obligation on officers past and present, and agents, other than the defendant to cooperate and give assistance in connection with the prosecution, which he or she is reasonably able to give.

An agent includes bankers, solicitors, auditors, accountants and taxation advisers.  If any such person fails or neglects to give the assistance required, the court may, on the application of the DPP or ODCE, direct that person to comply with those requirements.  Where the application relates to the receiver, the court unless the failure or neglect is due to his not having sufficient company assets to enable him to comply, direct that the costs of the application be borne by the receiver personally.

Where a disciplinary committee or tribunal of a prescribed professional body finds that a receiver has not maintained appropriate records or has reasonable grounds for believing that he has committed a category 1 or 2 offence during the receivership, the professional body shall report the matter, to the ODCE.  Failure to do so is an offence on the part of the body concerned.


Summary Recovery

Receivers are usually authorised to take possession of the secured assets and protect them. Where the company or its directors have wrongfully disposed of company assets, the receiver may take legal action to recover them from third parties.

A receiver may take protective legal action to prevent the assets being removed from the country or to prevent persons who are alleged to hold assets, removing them from the country or reducing their assets below a certain level.

The court may make an order if any property of the company of any kind was disposed of either by transfer, loan, mortgage or in any manner whatsoever whether by act or omission, directly or indirectly and the effect of the disposal is to perpetrate a fraud on the company.

Creditors, members or a receiver may apply to the court for an order.  The order may require a person who appears to have the use, control or possession of the property or the proceeds of the sale to deliver or pay any sum in respect of it to the receiver on such terms as the court shall see fit. This does not apply to a conveyance or transfer which is claimed to be an unfair preference.

In deciding whether it is just and equitable to make an order above, the court shall have regard to the rights of persons who have bona fide and for value acquired an interest in the property concerned.


Application to Court

A receiver may apply to the court for directions about any matter arising in relation to his functions.  Officers, shareholders, and creditors may also apply for directions, in the latter case, where their debts exceed a specified amount.  At least half in number of employees may also make an application.

The court on the application may make an order declaring the rights and obligations of the parties as it sees fit.  The procedure is appropriate for determining the rights and obligations of the parties, in cases of doubt.

If a receiver lacks the relevant powers, then he may incur liability for having acted unlawfully. The person making the appointment may be liable depending on the terms of appointment.  A corporate receiver may apply to the court to be relieved of liability.


Trading and Management I

The receiver will commonly have the power to manage the business of the company pending the realisation of its assets. He may, but need not, necessarily exercise these powers.

Trading may or may not be the better option in terms of ultimately realising the secured assets. It is the receiver’s responsibility to determine whether he will trade or not.  This is unlike the position in the UK where the equivalent insolvency officer (an administrator) has duties to try to save the company.

The receiver has a statutory obligation to the preferential creditors to ensure their priority is not undermined.  If assets are available, they ought not to be unnecessarily dissipated by trading.


Trading and Management II

The receiver’s primary function is not to save the business or to continue trading. On the contrary, the receiver’s primary purpose is to realise the security. Provided he acts in good faith, he is entitled to close the business.

Where a receiver trades, he will likely have to incur personal liability on his contracts.  The receiver is entitled to be indemnified from the company’s assets.  He may also be indemnified by the debenture holders.

A receiver, who commences or continues to perform a pre-receivership contract does not necessarily become personally liable on it. However, he will not be permitted to enforce a contract if he is not prepared to cause the company to undertake its obligations under it. He cannot obtain the benefit of a contract while denying liability.


Realisation of Assets I

The duty of a receiver in selling assets is similar to that of a fixed charge receiver.  A company receiver has a statutory duty to obtain the best price reasonably available at the time of sale.

Selling as mortgagee in possession overrides lower ranking security holders and gives the purchaser title free from them. This does not apply to most sales by a receiver as he is deemed to sell as the agent of the company. Exceptionally, the receiver may be conferred with the mortgagee’s power of sale.

The Supreme Court has decided that a mortgagee (and by analogy a debenture holder) is to act as a reasonable man would in relation to his property. It is entitled to look after his own interests. The receiver does have some duty to later mortgagees and guarantors. This is because guarantors may have to pay less if a greater amount is realised.


Realisation of Assets II

The receiver has no obligation to spend money on repairs to render a property more marketable or to apply for planning permission.  It seems that he may choose the timing of the sale. He may turn the security into monies when he wishes.

The receiver must take reasonable care to obtain the best price in the circumstances. He does not have an unconditional obligation to obtain the best price. A receiver should, however, obtain a valuation and take appropriate advice.

A hive down is a transfer of business assets to a new “clean” company controlled by the company in receivership.  The company is then sold to an outsider. A better price may be available, than for the sale of the property itself as the benefit of the losses (with their tax deduction) may be transferred to the new company in exchange for shares, free of debts.


Accounting for Assets

The proceeds of realisation of the assets in a receivership must be paid in accordance with law and the terms of the debenture.  In respect of the proceeds of floating charged assets, there is a statutory priority for certain parties, details which were set out in other sections. The receiver must account primarily to the debenture holders.

The order of priority of payment of the proceeds of the sale of the floating charge assets are as follows:

  • costs of preserving and realising the assets;
  • receiver’s remuneration and costs of receivership;
  • preferential debts;
  • monies secured by the floating charge (the charge holder);
  • lower ranking security holders;
  • the company.

Preferential Creditors I

The receiver is obliged to pay preferential creditors from the proceeds of floating charge assets. Preferential debts must be paid in priority to other debts and in priority to the charge holder’s debt,  in respect of the proceeds of the floating charge assets. This is so notwithstanding that the company is not at the time in the course of being wound up.

A receiver has a statutory duty to pay preferential creditors in priority to the debenture holder, in the distribution of the floating charge assets. The preferential debts include one year’s arrears of:

  • company income taxes;
  • value added tax;
  • employer’s PRSI.

PAYE and PRSI deducted from employees and not yet paid to Revenue enjoy super preference and are effectively held in trust for the Revenue


Preferential Creditors II

The following are also preferential debts

  • local Authority Rates during the 12 months prior to winding;
  • wages and salaries in the four-month to liquidation to a certain maximum per claimant;
  • accrued holiday, sick pay pension contributions;
  • unfair dismissal rights,
  • awards for damages for work injuries;
  • monies advanced by lenders to pay preferential debts.

Because of the disadvantages of a floating charge, some mortgage debentures attempt to create fixed charges on book debts. This is because accounts receivable are frequently one of the more valuable assets. Some attempts to create fixed charges fail because the borrower is allowed control over the bank account. If the borrower can deal with the account without the lender’s consent, it is likely to be labelled a floating charge and treated accordingly.

The Revenue is entitled to claim priority over a fixed charge over book debts for certain taxes owed. If the charge had been notified to Revenue within a certain period, the Revenue priority is reduced.


References and Sources

Primary References

Companies Act 2014 (Irish Statute Book)

Companies Act 2014: An Annotation (2015) Conroy

Law of Companies 4th Ed.  (2016)   Ch. 21 Courtney

Keane on Company Law 5th Ed. (2016)  Ch 22 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

Shorter Guides

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

UK Sources

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