News and Resources > Receivership/Administration/Liquidation. What’s the difference and how does it affect creditors?

Receivership/Administration/Liquidation. What’s the difference and how does it affect creditors?

The appointment of an insolvency practitioner to a debtor usually strikes fear into the hearts of creditors, as it is considered to mark the death of the company with zero return on any outstanding debts.  It is true that the appointment of an insolvency practitioner is a real indication that the debtor company is in serious financial trouble.  However, as an insolvency specialist it is surprising how many of our clients do not realise that there are some significant differences between liquidations, voluntary administrations and receiverships, and the way that they affect creditors of a financially unstable company.

RECEIVERSHIP – IT’S ALL ABOUT THE BANK

The fundamental distinction between receivership and other forms of external administration is that receivers are usually appointed by a secured creditor (such as a bank) for the purpose of ensuring that the secured creditor gets paid.  Therefore, a receiver acts only for the benefit of the secured creditor for whom it was appointed and not all creditors (although they are subject to specific duties).

In most instances a receiver will be appointed under the provisions of a security instrument (such as a fixed and floating charge), which specifies the powers of the receiver.  Usually, a court order is not required for the appointment of a receiver.

Depending on the nature of the security, a receiver may be appointed to simply realise and sell the secured assets, or to also take control of the company from the directors and carry on the business in the name of the insolvent company (as receiver and manager).

While receivership is obviously not a good sign for unsecured creditors, it is not necessarily terminal for the company.

At a practical level however, it is not unusual for an administrator or a liquidator to be subsequently appointed to represent the interests of unsecured creditors while the company is in receivership.

VOLUNTARY ADMINISTRATION – MAYBE IT CAN BE SAVED

When a company is placed into administration it is either insolvent or on the brink of insolvency.

Administrators are usually appointed by a resolution of the company’s directors, although they may also be appointed by a liquidator, secured creditor or the Court.

On a practical level, there are usually two likely outcomes1 of a volountary administration which are:

1: strike a deal for the company to enter into a deed of company arrangement (“DOCA”); or
2: liquidation

1There is a third outcome – giving control back to the directors.  However, this outcome rarely occurs in practice.

The fate of the company is ultimately decided by the creditors at a meeting which is convened approximately 26 days after the administrator’s appointment.

The decision of whether the company goes into liquidation or enters into a DOCA is determined by a majority vote of the creditors (based on both number and majority value holding) at this meeting.

A DOCA is, in simple terms, a flexible form of insolvency administration.  It may involve the company continuing to trade, the directors or other related parties contributing funds or releasing claims, company debts being refinanced and/or assets of the company being sold.

The primary purpose of entering into a DOCA is to achieve a higher return for the company’s creditors than they would receive in a liquidation.

LIQUIDATION – IT’S DEAD

Once a company has been placed in liquidation (voluntarily or by order of the Court) the prognosis is usually fatal.

The role of a liquidator in its purest form is to:
1. realise all of the company’s assets (turn them into cash); and
2. distribute these funds among the company’s creditors.

Once the liquidator has collected the funds, it will distribute those funds to the company’s creditors in the order of priority prescribed by the Corporations Act 2001 (Cth) (subject, of course, to secured interests).  The usual outcome is that creditors receive only partial payment of the debt owed to them by the company.

After all of the funds have been distributed among the company’s creditors and the affairs of the company are finalised, the liquidator will deregister the company with ASIC.

FAQ’S – WHAT ABOUT THE CREDITOR’S RIGHTS?

Just because a company is under external administration (in whatever form that may be) it doesn’t necessarily mean that creditors have no rights or options.

The rights and remedies that creditors may have vary substantially depending on whether the company is in liquidation, voluntary administration or receivership.

The following contains the answers to frequently asked questions about creditors’ rights, remedies and obligations in each of the forms of administration:

RETENTION OF TITLE

Q: CAN I RECOVER MY GOODS FROM THE COMPANY WHICH ARE COVERED BY A RETENTION OF TITLE CLAUSE IN THE AGREEMENT?

Receivership: Yes, provided that the creditors’ rights are not compromised by the security.

Administration: No, unless:
• the goods are perishable; or
• you have commenced enforcing your rights prior to administration; or
• the  administrator has consented.

An administrator must not sell  goods subject to retention of title claims without a creditor’s consent or they must account to the creditor for the sale of those goods.

Liquidation: Yes

REGISTERING CAVEAT

Q: CAN I REGISTER A CAVEAT AGAINST THE COMPANY’S REAL PROPERTY WHICH IS CHARGED UNDER THE AGREEMENT?

Receivership: Yes

Administration: Yes, but not without the:
• administrator’s consent; or
• leave of the Court.

Liquidation: Yes

COMMENCING OR CONTINUING LEGAL PROCEEDINGS

Q: CAN I COMMENCE OR CONTINUE RECOVERY PROCEEDINGS FOR THE DEBT OWED BY THE COMPANY?

Receivership: Yes

Administration: Yes, but not without the:
• administrator’s consent; or
• leave of the Court.

Liquidation: Yes

RECOVERY AGAINST GUARANTORS

Q: CAN I TAKE ACTION TO RECOVER THE DEBT OWED BY THE COMPANY FROM THE GUARANTORS?

Receivership: Yes

Administration: No, you cannot commence recovery action against a director or close relative of the director under a guarantee while the company is in administration, except with leave of the court.

Liquidation: Yes

PREFERENCE CLAIMS

Q: CAN I BE PURSUED FOR ANY (ALLEGED) PREFERENTIAL PAYMENTS RECEIVED FROM THE COMPANY (USUALLY PAYMENTS RECEIVED 6 MONTHS PRIOR TO APPOINTMENT)?

Receivership: No

Administration: No

Liquidation: Yes, a liquidator can seek repayment of preference payments from creditors.

INSOLVENT TRADING

Q: CAN DIRECTORS BE PURSUED FOR INSOLVENT TRADING?

Receivership: No

Administration: No

Liquidation: Yes

The above information should help creditors to understand their basic rights and options, but for specific advice on individual cases speak to an insolvency specialist to determine your true chance of recovery. A specialised knowledge of the intricate differences between receivership, administration and liquidation, together with an appropriately drafted credit agreement and guarantee could produce a recovery result when you might otherwise think all is lost.

Contact us – We are here to help
If you need legal advice or representation of specialist commercial lawyers concerning a case involving your business, please contact our team at Results Legal on 1300 757 534 or use our contact form to send us a message.

email us for a consultation

Call us 1300 757 534

Robert Shepley promoted to Principal at Results Legal.

Robert Shelpley - Special counsel at Results Legal, wearing a suit and smiling at the camera.

Results Legal proudly announces the promotion of Special Counsel Robert Shepley to Principal, effective January 1st, 2024.

Head of the firm’s commercial division, Rob is a seasoned corporate and commercial lawyer with a special interest in business transactions and commercial contracts.

“Promoting Rob to Principal was a natural progression given the expertise, leadership and experience he has brought to our firm since joining Results Legal as Special Counsel,” said Managing Director Karl Hill.

Since joining Results Legal in 2023, Rob has been a key contributor to the expansion of its Commercial division, bolstering the firm’s commercial and corporate law expertise

2024 Hill Family Scholarship Award Winner Announced

2024 Hill Family Scholarship Award Winner Announced

A dedicated student from Mackay State High School was today announced as the recipient of the 2024 Hill Family Scholarship. Valued at $5,000, the scholarship provides vital financial support to one deserving student embarking on their tertiary education journey in law, accounting, or commerce.

Year 12 student Ned Gething from Sunnyside (Mackay) won the scholarship thanks to his leadership qualities, academic achievements and commitment to pursuing a career in law.

“Access to the Hill Family Scholarship means I can place a greater focus on my studies, rather than worrying about where the money for textbooks or costs of living away

Beyond Legal Practice: Results Legal’s Approach for Exceptional Client Service

Beyond Legal Practice: Results Legal's Approach for Exceptional Client Service
In a recent video, Results Legal Managing Director, Karl Hill, shared insights into the firm’s philosophy and approach to commercial litigation. With 15 years of national service across diverse industries, Results Legal aims to redefine the legal landscape by prioritising client needs and delivering exceptional outcomes.

Results Legal was born out of a desire to refocus on clients and their business decisions.

A key emphasis in the Results Legal way is providing clarity and certainty.  Hill highlights the challenge of making business decisions when legal costs are unpredictable. While outcomes can’t always be guaranteed, Results Legal commits to offering clients

Results Legal: New Brand Explained [Video]

Professional Advisors

We recently celebrated our 15-year milestone with the launch of a new brand and website.

This short video provides context to our new brand and the meaning behind our new byline ‘We stand for you.’

It reflects the fact we work as one team to deliver not only great results, but also a great experience for our clients.

While we are a leading commercial litigation, insolvency and debt recovery firm, the way we do things is different.

We apply a client centric approach, backed by a commitment to delivering strategic clarity, fee transparency and pragmatic, commercial advice.


2023 Hill Family Scholarship Winner Announced

2023 Hill Family Scholarship Winner Announced

In what our MD Karl Hill said was one of his favourite moments of the year, he and his wife Sarah returned to their alma mater to present the Hill Family Scholarship.

Karl and his wife Sarah established the $5000 scholarship in 2021 to assist students hoping to study law, accounting or commerce with expenses such as accommodation, textbooks, day to day living and travel costs.


Celebrating Our Principal Promotions

Celebrating Our Principal Promotions

We at Results Legal live by the ‘work hard, play hard’ mantra. So when two of our graduate intake lawyers were promoted to Principal (in 6 ½ years – a exceptional achievement), we thought it was well worth gathering the team and our Brisbane-based clients for a celebration!


Announcing Our 2022 Associate Promotions

Announcing Our 2022 Associate Promotions

We are pleased to announce the recent promotion of Charlotte Evans and Kate Molkentin to Associates.

Over the course of last financial year, Charlotte and Kate achieved outstanding results for their clients and contributed to the continued growth of the firm.


Results Legal Founds Scholarship Program to Support Regional QLD Students

Results Legal Founds Scholarship Program to Support Regional QLD Students

Results Legal Managing Director, Karl Hill and his wife Sarah Hill announce the first recipient winner of the Hill Family Scholarship Program.  

As former students at Mackay State High School, Karl and Sarah Hill were delighted to return to award recipient winner, Pushti Shah with her scholarship certificate. 


82 years on, the ‘wives special equity’ law is still a valuable case to call on

82 years on, the ‘wives special equity’ law is still a valuable case to call on

On 15 September 2021, the District Court of New South Wales handed down a judgment in Hume Plasterboards v Best Interiors[1] which reaffirmed the ‘wives’ special equity’, otherwise known as the Yerkey v Jones[2] defence. Even though the ‘wife’ (or de facto partner) of the company’s director signed a guarantee, the successful use of the defence meant that she was not liable for the debt incurred.


Loading...