Receivership is a legal process in which a suitably qualified person, the receiver, acts as a custodian to safeguard a company’s assets should the company find itself in financial difficulty. Receivership occurs when one or more of the company’s secured creditors, who holds security over some or all of the company’s assets, appoints a receiver to take control over those company’s assets. There is no requirement for a court to approve the appointment of a receiver, however, in special circumstances, a court may do so.

One distinguishing feature of receivership is that a company may continue to trade while directors remain in office, however, their roles are limited. The directors remain liable to perform their statutory liabilities, such as the filing of annual returns and will retain power over any assets which are not the subject of the receiver's appointment. This is in stark contrast to companies facing liquidation or in administration.

Receivership also allows a company the opportunity to submit a proposal to creditors rather than going into liquidation. Another key difference is that being in receivership doesn’t necessarily indicate that a company is close to winding up in the near future. That company may indeed survive and succeed once the receivership comes to an end.

What are the causes of receivership?

There are numerous factors that may cause a company to go into receivership. Some of these factors are:

A company that defaults on loan repayments to secured lenders or cannot meet their debts,
Inadequate resources to cover the costs of making the business viable,
Poor or improper financial management,
Lack of expertise and commercial acumen in business operations and practices,
Unresolved disputes between shareholders or directors of the company, and
On-going losses and failure to improve trading performance.

What is the role and responsibility of a receiver?

A receiver may have the responsibility of extending their role in managing the company, in order to provide a company with the opportunity to restructure and avoid liquidation. An appointed receiver can carry on the company, or close it down, or sell it off.

The receiver’s main task is to realise sufficient funds to repay the secured creditor. It is interesting to note that a receiver does not owe any general duty of care to the shareholders. Here are some examples of what the role entails:

Managing a company’s assets, obligations, and its restructuring,
Assisting a company back into recovery,
Protecting threatened property and assets during legal proceedings,
Returning a company to a profitable state,
Reviewing a company’s practices and overseeing that it’s complying with government standards,
Collecting and selling charged assets to repay what is owed to secured creditors, and
Reporting any possible offences or irregular matters that may cause ASIC to investigate the conduct of anyone involved with the company’s management or control.

Who is a creditor?

There are generally two types of creditors; a secured creditor or an unsecured creditor.

A secured creditor is someone who holds security over the company’s assets. The appointed receiver will collect and sell the company’s assets to repay what is owed to secured creditor.

An unsecured creditor is a creditor who does not hold a security interest in the company’s assets and who does not have their debt associated with a particular asset. Unfortunately, a receiver may not be able to assist an unsecured creditor to recover its debt. This is because secured creditors are afforded priority in terms of repayment. If the company survives receivership, it will either continue to operate or will have leftover funds to distribute to unsecured creditors.

How can Sharrock Pitman Legal help?

If you are a secured creditor who is owed money by a company or your company is facing financial difficulty and you wish to discuss receivership or explore other options, we have legal practitioners who specialise in and can assist in corporate insolvency and commercial litigation. Please contact us on 1300 205 506 or by email at litigation@sharrockpitman.com.au.

The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

Liability limited by a scheme approved under Professional Standards Legislation.

Written by a member of our Legal Team

For further information contact

Caroline Callegari

Caroline Callegari is an Associate Principal and leads our Disputes & Litigation team. She has an advisory and advocacy practice in the following areas: Commercial Litigation, corporate and personal disputes, debt recovery and, insolvency and bankruptcy matters. Caroline can be contacted on (03) 8561 3324.

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However, in this article we will set out the factors that influence how long it will take to obtain a Grant of Probate and to administer an estate in Victoria.

The basics

First things first: what is a Grant of Probate? A Grant of Probate is effectively a document issued by the Supreme Court of Victoria which formally authorises an executor to manage the estate of a deceased person in accordance with their Will. Without Probate, the asset holders (say a bank or share registry) cannot be satisfied as who has the correct authority to receive the deceased's assets and may refuse to pay out.

Sometimes, for smaller estates or if assets are mostly jointly owned with a surviving spouse, asset holders might agree to release payment without requiring a Grant of Probate. This is usually on the basis that the person who receives payment promises to repay (or Indemnify) the asset holder if it turns out they paid to the wrong person.

If there is no Will, then you cannot obtain a Grant of Probate. Instead you obtain Letters of Administration. This is effectively the same, in terms of authorising someone to administer the estate, and would usually be obtained by the person who is the closest next-of-kin to the deceased.

“A Grant of Probate is effectively a document issued by the Supreme Court of Victoria which formally authorises an executor to manage the estate of a deceased person in accordance with their Will.”

Timeframes for Probate in Victoria

In order to obtain a Grant of Probate, the Supreme Court needs to be given information about the assets and liabilities of the estate, the deceased person, the witnesses to the Will, the executors and the Will itself. An advertisement of your intention to apply for Probate must also be published on the Supreme Court website for at least 14 days prior to any application being lodged.

Often, making enquires to obtain all the necessary information can take a number of weeks. Also, you will need the Death Certificate for the application for Grant of Probate and possibly for making proper enquires regarding the assets and liabilities. Waiting for the Death Certificate to issue can therefore add a few more weeks to the process. Overall, if you have your application for Grant of Probate lodged within 1 to 2 months from the date of death, you are making timely progress.

The Court itself usually does not take long to process the application (maybe another 1 to 2 weeks) and this is completed using the electronic Supreme Court filing system. This means you do not have to go to a Court hearing. The timeframe for processing applications for Letters of Administration is even less, given that there is no Will document for the Court to consider. There is also a general discretion for the Court to raise a 'Requisition' asking for more information before they review the application - this can sometimes delay matters.

“Overall, if you have your application for Grant of Probate lodged within 1 to 2 months from the date of death, you are making timely progress.”

So, here we are a few months after death and you finally have a Grant of Probate or Letters of Administration. It is important to remember that this is the start of the estate administration and not the end. For a very simple estate, you might only need a further month or so to cash the assets and pay them to the correct beneficiaries. However, it can often be more complex than that. Factors that determine the timeframe to administer the estate include:-

Some assets will take time to cash or transfer. For example, if selling a property, final settlement might be 60/90/120 days from the day of sale.
There is a 6 month period for challenges to be brought against the estate and executors must wait until this period expires before distributing the estate, if there is any risk that a disgruntled family member might come forward.
There might need to be final tax returns for the deceased or for the estate. Failing to wait for the ATO to process these could leave the executor personally liable for a tax bill.

You might need to advertise for creditors to come forward and wait for a period of months while this advertising timeframe expires. This protects the executor if they are unsure of all of the deceased's financial dealings and creditors.
It might not always be a good time to immediately cash estate assets. For example, the shares just took a nose-dive, do you still sell regardless of available price?

There is a general rule that executors have an 'executor's year' to complete the estate administration. This means that you should be aiming to have the estate finalised and distributed within 12 months from the date of death.

Liability limited by a scheme approved under Professional Standards Legislation.

Need help with Probate?

Our expert legal team is ready to take your call!

Mitchell is the Managing Principal of Sharrock Pitman Legal. He is an Accredited Specialist in Commercial Law (accredited by the Law Institute of Victoria). He also deals with areas of Employment Law, Wills & Estate Planning and Probate and can answer all your questions related to probate.

For further information, contact Mitchell on his direct line:

DIRECT LINE:

(03) 8561 3318

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What is Receivership?

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