A receiver is the agent of the company under section 257(3). Section 281 of the Companies Act 1997 nonetheless makes the receiver personally liable in four situations.
Section 281(1) — the three heads of liability
(a) on a contract entered into by the receiver in the exercise of any of the receiver’s powers; and
(b) for payment of wages or salary that, during the receivership, accrue under a contract of employment relating to the property in receivership entered into before the appointment, where notice of termination of the contract is not lawfully given within 14 days after the date of appointment; and
(c) for payment of remuneration under any contract with a director of the company where the receiver has expressly confirmed the contract.
A receiver appointed over a trading business must decide, within 14 days, whether to keep the workforce. Employment contracts not lawfully terminated within that window generate wages for which the receiver is personally liable for the rest of the receivership.
“Lawfully given” means in accordance with the contract and the Employment Act (Chapter 373) — the notice periods in that Act cannot be shortened by the receivership. Under section 281(3) the Court may, on the receiver’s application, extend the 14-day period on such terms as it thinks fit — but under section 281(4) the application must be made before the period expires. There is no relief afterwards.
Paragraph (c) is easier: liability for a director’s remuneration arises only where the receiver has expressly confirmed the contract. Silence is safety.
The terms of a contract under subsection (1)(a) may exclude or limit the personal liability of a receiver — other than a receiver appointed by the Court.
So a receiver appointed under a debenture routinely signs new supply contracts “without personal liability”. A Court-appointed receiver cannot. Note also that paragraphs (b) and (c) are not excludable by contract in this way — subsection (2) reaches only paragraph (a).
Sections 281(5) to (8) — rent and occupation
(5) Subject to subsection (7), a receiver is personally liable, to the extent specified in subsection (6), for rent and any other payments becoming due under an agreement subsisting at the date of appointment relating to the use, possession, or occupation by the company of property in receivership.
(6) That liability is limited to the portion of the rent or other payments accruing in the period beginning 14 days after the date of appointment and ending on — (a) the date the receivership ends, or (b) the date the company ceases to use, possess, or occupy the property, whichever is earlier.
The receiver gets a fortnight to work out whether the premises are needed. Vacate within 14 days and there is no personal liability; stay, and the rent accrues personally from day 15 until the company leaves or the receivership ends.
Under section 281(7) the Court may, on the receiver’s application, limit the liability further or excuse the receiver from it altogether.
Section 281(8) preserves the receiver’s position on everything else: nothing in subsections (5) or (6) (a) is to be taken as an adoption of the agreement by the receiver, or (b) renders the receiver liable to perform any other obligation under it. Paying rent for the period of occupation does not make the receiver the tenant, and does not import repairing covenants or the balance of the term.
Sections 281(9) and (10) — the indemnity
(9) A receiver is entitled to an indemnity out of the property in receivership in respect of personal liability under this section.
(10) Nothing in this section (a) limits any other right of indemnity a receiver may have; (b) limits the liability of a receiver on a contract entered into without authority; or (c) confers a right to an indemnity in respect of liability on a contract entered into without authority.
Acting without authority — section 281(10)(b) and (c). A receiver who contracts beyond the powers conferred by the security document or the Court order is personally liable and has no indemnity, even though the counterparty may be protected by section 266.
Breach of the duty on sale — section 270(b) provides that a receiver is not entitled to compensation or indemnity from the property in receivership or the company for liability arising from breach of the section 269 duty to obtain the best price reasonably obtainable.
And an indemnity out of the property is only as good as the property. Where realisations are exhausted by preferential claims and the appointor’s debt, the indemnity is worth nothing — which is why receivers negotiate a separate indemnity from the appointing chargeholder.
Section 282 — relief from liability
(1) The Court may relieve a person who has acted as a receiver from all or any personal liability incurred in the course of the receivership where satisfied that —
(a) the liability was incurred solely by reason of a defect in the appointment, or in the deed, agreement or Court order by or under which the receiver was appointed; and
(b) the receiver acted honestly and reasonably and ought, in the circumstances, to be excused.
(2) Relief may be granted on such terms and conditions as the Court thinks fit.
(3) The person in whose interests the receiver was appointed is liable, subject to such terms and conditions as the Court thinks fit, to the extent to which the receiver is relieved.
(4) The Court may give such directions as it thinks fit for the purposes of subsection (3).
Subsection (3) is the important one. Where a receiver is relieved, the burden shifts to the appointor — which is right in principle, since it was the appointor’s defective security or defective appointment that created the problem.
Note the two limbs of subsection (1) are cumulative and narrow. Relief is available only where the liability arose solely from a defect in the appointment. A receiver who acted honestly and reasonably but simply made a bad commercial decision gets no relief under section 282 — the remedy there is a section 283(1) direction obtained in advance, which under section 283(6) is a defence to a later claim.
Section 289 — essential services
An “essential service” means (a) the retail supply of electricity; (b) the supply of water; or (c) telecommunications services — defined in subsection (2) as the conveyance from one device to another, by line, radio frequency or other medium, of any sign, signal, impulse, writing, image, sound, instruction, information or intelligence of any nature.
Notwithstanding the provisions of any other Act or any contract, a supplier of an essential service shall not — (a) refuse to supply the service to a receiver or to the owner of property in receivership by reason of the company’s default in paying charges due for a period before the appointment; or (b) make it a condition of further supply that those pre-appointment charges be paid.
Without this section a utility could hold a receivership to ransom. It does not give the receiver free electricity: charges for supply after the appointment are payable, and a contract the receiver enters into for continued supply falls squarely within the personal liability in section 281(1)(a). The equivalent protection in a liquidation is in section 323.
Sources
- Companies Act 1997 — ss 257, 266, 269, 270, 279, 281–283, 289, 323
- Employment Act (Chapter 373)
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.