Liquidations Companies Act 1996

Receivership Act Remember this is NOT liquidation

LAW: Purpose:

S240-316 Companies Act 1996 To wind up the company (it is dead)

Receivership Act 1993 To realise assets or manage the business of a company for the benefit of the security holders Assets ‘as is, where is’ – buyers assumes all the risk – the receiver does not provide any warranties or representations about the asset

HOW: Special resolution by shareholders (75%) s 241

BoD – as prescribed by the Constitution s241

Court Order s241

Resolution passed at creditors water shed meeting s241

Can’t pay their debts as they fall due

Liabilities greater than their assets

(solvence test applied to a particular secured creditor usually)

WHO CAN BE: LIQUIDATOR:

If by a court order – can be the official assignee

Can be a private person

Statutory Bars (who can’t be a liquidator)

RECIEVER:

A receiver is a person or person appointed by the Court or under a Deed of Agreement

A receiver is an agent of the company and acts in the name of the company

Statutory bars (who can’t be a receiver)

APPOINTMENT: QUALIFICATIONS:

Must be confirmed by Creditors s243

Must confirm the appointment in writing s282

No special qualifications

Usually appointed by a secured creditor s6

HC under general or inherent jurisdiction

Trustees under a finance security trust deed

Must be confirm the appointment in writing with all the relevant details s8

No special qualifications

INTERIM LIQUIDATORS: If the assets are at risk (risk of sale, removal from the country, destruction or of value) – then the Court has the powers to appoint an interim liquidator to take care of the asset(s)

Liquidations Companies Act 1996

Receivership Act Remember this is NOT

liquidation POWERS Can get any information they need

(same powers as auditors) – criminal penalties apply for non-compliance Recover any debts owed To disown any onerous property s269 Voidable transactions s293 (any gifts or transactions can be clawed back up to 3 months prior to liquidation) Undervalued property s297 (this means they can revalue!) Pooling of assets between 2 interlinked companies s271 The whole point is to turn all the assets into cash to pay creditors. Essential services such as gass, electricity, water and phone must be provided to the liquidator even if the bill has not been paid s275 – the costs are expensed by the liquidator at the end

Get any information they need in relation to the property Maintain and repair the asset Keep accounting records Insure the property Inspect any documents relevant to the property To recover the money owed and leave: even if it means selling the asset Duty to obtain the best price at sale – Maximum because; - Of tax payable to the government - Is achieved so there is some

money for the employees, preferential creditors and unsecured creditors

- Is achieved thereby reducing the amount director/shareholders will have to pay under personal guarantee.

MONEY ASPECT: Creditors: pari passu principle – all the creditors of the same class are ranked equally

- Creditors must supply details of

all the debts that they are owed by a specified date

Demand and recover income of the property in receivership

CORRESPONDENCE: Every communication must state- <<company name>>> in liquidation s259

Every communication must state- <<company name>>> in receivership

DUTY OF CARE Reasonable care and skill Can become personally liable s284 S286 only allows the court to ban a liquidator from acting if there has been a persistent or serious failure to comply with their duties.

Reasonable care and skill Can become personally liable s32 Application to the Court can be made to take action against a receiver for negligence or a lack of reasonable care or standard. S34, 35, 37

Liquidations Companies Act 1996

Receivership Act Remember this is NOT

liquidation DUTIES

1. NOTIFICATIONS

S255 public notice is given (Gazette and one other public newspaper) - To the registrar of

companies within 10 days of appointment

- Contact details of the liquidator must be in the advertisement

- Penalties apply for non- compliance

S18, 19, 21, 22 & 28 of the Act - General duties , duties when

selling property, in relation to money, accounting records, to notify if suspected offences by directors or against other Acts

- Public notice (Gazette and one other public newspaper)

- Notice to the debtor company

- Penalties apply for non- compliance

2. Reporting - Call a meeting within 10 days s243-245

- 25 days after appointment must state how they will manage the liquidation

- 6 monthly reports - Final report at the end

- Initial report within 2 months of appointment

- 6 monthly reports during receivership

- Final report at the end within 7 days

EFFECT:

1. DIRECTORS

Remain in power – but their duties are limited - Make a statutory

declaration of all the assets and liabilities of the company

- Must be supported by written evidence

- Look at the personal liability of directors and seek repayment if necessary s300

Compelled to report any wrong doing by a director s258

Remain in power but their duties are limited to the rest of the business that is not affect the role and duties of the receiver - Must still comply with the

Companies Act Compelled to report any wrong doing by a director

2. Employees Terminates all contracts of all employees The appointment of the liquidator is notice (14 days unless stated otherwise

Generally does not interfere with employees