If a company is having trouble paying its debts on time, its directors, shareholders, creditors (those who are owed money) or the Court can put the company's business under the control of an outside person who can be:
· An Administrator;
· A Receiver or a Receiver and Manager
(also known as a Controller or a Managing Controller); or
· A Liquidator.
This leaflet, from the Insolvency Practitioners' Association of Australia ("IPAA") and the Australian Securities Commission ("ASC"), is a general guide only and creditors should seek their own advice about specific circumstances. This leaflet outlines:
· The rights and duties of Administrators, Receivers, Liquidators and Creditors; and
· The role of the ASC and the Court.
Administrator's Rights and Obligations
An Administrator is appointed by a company's directors, a Liquidator or a Provisional Liquidator or by a creditor holding security over the whole or substantially the whole of the assets of the company.
The Administrator is an agent of the company, with all the powers of the company and its directors. The powers of the directors and company officers are suspended while a company is under external administration.
The Administrator is required to hold a first meeting of creditors within 5 days of appointment. The main purpose of this meeting is to allow creditors to approve the appointment of the Administrator, or vote to replace the Administrator.
The initial period for an administration may run for 28 days. The Administrator will take control of the company and its assets, impose a freeze (moratorium) on all unsecured creditors and certain secured creditors, and investigate the company's situation.
At the end of the initial period, the Administrator will report back to creditors at a meeting about what is in their best interests. Creditors are then able to decide the company's future at this meeting. They can:
· End the external administration;
· Approve a Deed of Arrangement through which the company will pay all or part of its debts; or
· Wind up the company
Receiver's or Receiver and Manager's Rights and Obligations
A Receiver is appointed by a secured creditor or in special circumstances by the Court. (A secured creditor is someone to whom the company has given a "charge" (such as a mortgage) over all or part of its assets in return for money. Anyone can see if a charge exists by checking company records at an ASC Business Centre). The Receiver must collect and look after the company assets over which the secured creditor has a charge, and obtain money for them. The money will:
· First pay certain priority claims, including employee entitlements (such as wages, superannuation contributions and leave payments);
· Secondly, pay the secured creditor; and
· Thirdly, if there are any funds left over, pay the company or its Liquidator if one has been appointed.
The Receiver owes no duty to unsecured creditors other than a general duty of care.
The Receiver must report to the ASC on any matter which may be irregular and which could cause the ASC to look into the conduct of anyone involved with the company's management or control.
The Receiver is usually paid from the money raised by selling the company's assets. The charge documents should authorise such payments. It is usual for a Receiver to be paid according to a guide to rates published by the IPAA.
Liquidator's Rights and Obligations
A Liquidator may be appointed by the Court following an application, usually from creditors, to wind up the company. Or the company's directors may resolve to wind up the company and call a meeting of creditors to appoint a Liquidator under a creditors' voluntary winding up. The Liquidator's duty is to all the company's creditors.
The Liquidator must:
1. Collect, preserve and obtain money for the company's assets (including any surplus arising from a receivership);
2. Pay the cost of winding up and certain priority claims including employee entitlements;
3. Enquire into the conduct of the company's affairs and report to the ASC;
4. Distribute available funds to creditors; and
5. Complete the winding up, and apply for de-registration of the company if appropriate.
A Liquidator need not spend time and money (except for lodging documents and reports as required under the Corporations Law) unless there are enough assets from which to pay for his/her costs and expenses. However, creditors may agree to cover a Liquidator for costs and expenses if they believe the Liquidator can recover further assets for their benefit. If there are insufficient assets, the Liquidator remains unpaid unless covered by the creditors. The Liquidator is paid at a rate set by the creditors, the Committee of Inspection or by the Court.
A secured creditor holds a charge over a part or all of the company's assets. The rights of the secured creditor are set out in a document called a "mortgage debenture document". (You can obtain a copy from any ASC Business Centre). One right is the power to appoint a Receiver when the company fails to meet its obligations under the debenture. This right exists even if the company is being wound up.
Unsecured creditors have no legal right to obtain payment from a Receiver. They should deal with the Liquidator if there is one. If there is no Liquidator, unsecured creditors should deal with the company. If unsecured creditors are not paid, they may apply to the Court to wind up the company. A Liquidator would then be appointed.
Unsecured creditors (eg. employees, suppliers) have a number of rights when a company is being wound up. These include the right to:
1. Share in any available funds after priority payments and secured creditors have been paid;
2. Choose the Liquidator unless one is appointed by the Court;
3. Attend and vote at meetings of creditors on various matters, including the fixing of the Liquidator's remuneration;
4. Take part in the appointment of a Committee of Inspection; and
5. Receive information about the winding up of the company including the sale of its assets and the way in which the proceeds are distributed.
In limited circumstances, a creditor may sue a director for the company's losses if the company kept trading while unable to pay its debts on time.
A Committee of Inspection has a number of duties and powers, including approving the Liquidator's remuneration and advising or consulting with the Liquidator on various matters.
At the first meeting of creditors required to be held within 5 days of appointment of an Administrator, creditors may approve the Administrator's appointment or vote to replace the Administrator at this meeting. Once there is an Administrator, debts which arose beforehand cannot be paid until the creditors have decided whether the company will continue in business, execute a Deed of Arrangement or be wound up.
Unsecured creditors should attend meetings called by the Liquidator or Administrator. This is the best chance to ask questions and learn about the company's affairs. Creditors may also obtain a copy of the Receiver's or Liquidator's six monthly statement of receipts and payments from any ASC Business Centre.
The Role of the ASIC
The ASIC may investigate complaints against companies, their officers and professionals registered with the ASC.
The ASIC may look into matters concerning an Administrator, Receiver or Liquidator. However, the ASIC will usually not become involved in matters of commercial judgement. Creditors should attempt to resolve such matters with the Administrator, Receiver or Liquidator concerned and only come to the ASIC if this fails.
The Role of the Court
The Court will decide on matters referred to it by Administrators, Receivers, Liquidators, creditors, the ASC or other parties, and make any orders it thinks fit. Such matters include:
· An application to have questions decided on powers exercised in a winding up;
· An application to hold up or prevent the winding up; and
· An appeal from a person who has a complaint about any act, omission or decision of an Administrator, Receiver or Liquidator.
Creditors should attempt to resolve such matters with the Administrator, Receiver or Liquidator concerned and only go to Court if this fails.