Legal issues with receiverships

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Created: Friday, January 27 2012 10:50

Receivership is a process which allows for the orderly taking possession and work-out of property or assets held by a lending institution as security for loans advanced to a borrower.

A Receiver is a professional insolvency practitioner (e.g. accountant) or property expert appointed by a lending institution over certain property or assets.

A Receiver may be appointed by a lending institution over a company, in order to take control of the business and assets of a company with a view to ensuring the repayment of the debt owed by the borrower to the lending institution, either through receiving income or realising the value of the business and assets of the company. The most common form of corporate receivership is that of a receiver-manager appointed by a lending institution that holds a Debenture (that is, a comprehensive security document over all of the business and assets of the company).

The Receiver’s role is, generally speaking, to realise the assets of the company so that the lending institution’s debt is repaid as quickly as possible, and also to manage the company in such a way so as to salvage the company for the ultimate benefit of both the company and the lending institution. For example, a number of hotels and other trading businesses have entered into receivership in the past number of years and continue to trade in the normal course.

A Receiver may also be appointed over a specific property asset owned by an individual or company. This can be viewed as an “asset receivership”. In such a situation, a Receiver is appointed over a specific property under the terms of the Mortgage Deed over that property. Alternatively, a lending institution may make an appointment under the Land and Conveyancing Reform Act, 2009 if the Mortgage Deed was entered into after the commencement date of that legislation, i.e. 1st December 2009. If the Mortgage Deed was entered into before that date, the since repealed Conveyancing Act 1881 may be relevant.

In a recent High Court case, the Judge upheld the validity of an appointment and granted an injunction to a Receiver directing the borrower not to obstruct the work of the Receiver.

The powers of Receivers are largely determined by the terms of the specific Mortgage Deed or Debenture entered into by the borrower and the lending institution. A properly drafted Debenture will normally grant the Receiver the power to manage all aspects of the business and assets of the company, and also to dispose of the assets including any property.

A Mortgage Deed will usually give an asset receiver the power to take possession of the property, collect any rents and ultimately to sell the property.