Nobody votes on a receiver’s appointment and no meeting of creditors reviews their conduct. Sections 283 to 288 of the Companies Act 1997 supply the oversight instead.
Section 283(1) — directions
The Court may, on the application of a receiver, (a) give directions in relation to any matter arising in connection with the performance of the functions of the receiver; and (b) revoke or vary any such directions.
Under section 283(6) it is a defence to a claim against a receiver in relation to any act or omission that the receiver acted or omitted to act in accordance with a direction given under subsection (1).
But under section 283(7), the Court may order — on the application of anyone listed in subsection (3) — that by reason of the circumstances in which a direction was obtained, the receiver is not entitled to that protection. A direction obtained on incomplete or misleading material protects nobody.
Directions are worth seeking before doing anything contentious: selling to a connected party, abandoning a claim, choosing between competing offers, or continuing to trade the business. Note that only the receiver may apply under subsection (1) — the wider list in subsection (3) applies to subsection (2).
Section 283(2) — remuneration and validity
(a) in respect of any period, review or fix the remuneration of a receiver at a level which is reasonable in the circumstances; and
(b) to the extent that an amount retained by a receiver as remuneration is found to be unreasonable, order the receiver to refund it; and
(c) declare whether or not a receiver was validly appointed in respect of any property, or validly entered into possession or assumed control of any property.
(a) the receiver; (b) the company; (c) a creditor of the company; (d) a person claiming, through the company, an interest in the property in receivership; (e) the board of directors — or, where the company is in liquidation, the board at the time the liquidator was appointed; (f) a liquidator; (g) the Registrar.
A receiver’s appointment depends on a valid charge and a genuine event of default. Where either is doubtful, section 283(2)(c) gives a direct route to a declaration — and a company or a competing chargeholder should use it early rather than allow assets to be sold and argue about it afterwards.
Under section 283(4), these powers are in addition to any other powers of the Court under this Act, any other Act, or its inherent jurisdiction, and may be exercised whether or not the receiver has ceased to act when the application is made. Under subsection (5) the Court may revoke or vary an order made under subsection (2).
Section 284 — terminating or limiting a receivership
The Court may (a) order that a receiver shall cease to act as from a specified date, and prohibit the appointment of any other receiver in respect of the property in receivership; or (b) order that a receiver shall, from a specified date, act only in respect of specified assets.
Only where the Court is satisfied that (a) the purpose of the receivership has been satisfied so far as possible; or (b) circumstances no longer justify its continuation.
Only the company or a liquidator of the company may apply under section 284(2). A creditor cannot.
Unless the Court orders otherwise, a copy of the application must be served on the receiver not less than seven days before the hearing, and the receiver may appear and be heard (s 284(4)). Orders may be made on such terms as the Court thinks fit (s 284(5)).
Under section 284(6) the Court may also prohibit the appointor from taking possession or assuming control of the property — otherwise a chargeholder whose receiver was removed could simply enter into possession as mortgagee, which under section 254 falls outside Part XVII altogether. But under subsection (7), except as provided by subsection (6), an order does not affect a security or charge over the property: the debt and the security survive.
Subsection (8) allows the Court to rescind or amend an order on the application of anyone who applied for it or is affected by it.
Sections 285 and 286 — orders to enforce duties
A failure by a receiver to comply with a relevant duty arising (a) under the deed, agreement or Court order by or under which the receiver was appointed; (b) under this or any other Act or rule of law or the rules of any court; or (c) under any order or direction of a court other than an order to comply made under section 286.
The Registrar; a receiver; a person seeking appointment as a receiver; the company; a person with an interest in the property in receivership; a creditor; a guarantor of an obligation of the company; or a liquidator. A receiver may also apply in relation to a failure to comply by another receiver of the same company’s property.
No application may be made unless notice of the failure to comply has been served on the receiver not less than seven days before the date of the application, and, as at the date of the application, there is a continuing failure to comply.
A receiver who fixes the problem within the seven days defeats the application. That is the point: the section exists to secure compliance, not to punish.
(4) Where satisfied there is or has been a failure to comply, the Court may (a) relieve the receiver of the duty, wholly or in part; or (b) order the receiver to comply to the extent specified — without prejudice to any other remedy for breach of duty.
(5) Where a person fails to comply with an order under (4)(b), or is or becomes disqualified under section 256, the Court may (a) remove the receiver from office, or (b) order that the person may be appointed and act, or continue to act, notwithstanding section 256.
(6) Where it is shown that a person is unfit to act as a receiver by reason of (a) persistent failures to comply, or (b) the seriousness of a failure to comply, the Court shall make a prohibition order for a period not exceeding five years.
Under section 286(7), a person subject to a prohibition order shall not act as a receiver in any current or other receivership, or as a liquidator in any current or other liquidation. It is a professional disqualification, not merely a removal from one appointment.
Note the word shall in subsection (6). Once unfitness is shown, the order is mandatory; the discretion is as to length. Under subsection (8) the Court may extend time for compliance, impose terms, and make ancillary orders; under subsection (9) a certified copy of every prohibition order must be submitted to the Registrar within one month by the applicant, and the Registrar keeps it on a public register indexed by the receiver’s name.
Section 287 — the evidence provisions
(1) That within the preceding five years, while the person was acting as a receiver or liquidator, the Court has made two or more orders to comply — under section 286, under section 334 (the liquidator equivalent), or one or more under each.
(2) That within the preceding five years, two or more applications for such orders were made — under section 286, under section 334, or one or more under each — and in each case the person complied after the application and before the hearing.
Subsection (2) is the more striking. A practitioner who repeatedly waits to be sued before doing what the Act requires builds a record of persistent failures to comply, even though every application was resolved without an order. Receivership and liquidation defaults are counted together.
Section 288 — protecting the property on removal
On making an order that removes, or has the effect of removing, a receiver from office, the Court may make such orders as it thinks fit (a) for preserving property in receivership; and (b) requiring the receiver to make available to any person specified in the order any information and documents in the receiver’s possession or control.
This complements section 261(6) and (7), under which a person vacating office must assist their successor where practicable and the successor may seek orders to facilitate their duties. A removed receiver has little incentive to cooperate; sections 288 and 261(7) supply the compulsion.
Sources
- Companies Act 1997 — ss 254, 256, 261, 283–288, 334
Before relying on anything here, read the current text of the Companies Act 1997 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.