What is a receivership?

A receivership occurs upon the appointment of an independent person (the receiver) to gather
in and realise the assets of an entity, for the purpose of remitting those funds to (in most
cases) the secured creditor who appointed the receiver in the first instance.

The most common form of receivership is where a security holder (a finance company or a
bank) appoints a receiver to secure and sell assets (in most cases of a company), to discharge
the debt owing to the security holder.

The appointment of a receiver is not limited to companies, as a receiver can also be appointed
over the assets of individuals and trusts as well.

A receiver may also be appointed when assets are in dispute in legal proceedings. In these
circumstances, a receiver is appointed by the court to secure and realise assets, and distribute
the funds they receive in accordance with the orders of the court.

How is a receivership different to a liquidation?

The primary difference between a receivership and a liquidation is that the liquidator’s powers are determined by the Corporations Act.

The powers of the receiver are determined by the document giving rise to their appointment, and also the security documents under which they are appointed.

In the case of a court appointed receiver, the powers of that receiver will be determined by the orders of the court.

A receiver’s role is only to deal with the assets that are subject to their appointment, and / or, the security interests of those parties who have appointed the receiver in the first instance.

In some circumstances, a receiver may be appointed to deal with only specific assets of an entity, and not the entirety of the asset holdings of the entity.

Further to the above, if sufficient funds have been recovered to pay back the debt of the security holder, a receiver will retire.

In the case of a liquidation, the liquidator will realise all of the assets of the company, and distribute the funds received in accordance with the provisions of the Corporations Act.

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