Part XVII of the Companies Act 1997 governs receiverships. It is a creditor’s remedy, not a collective insolvency process: a receiver is appointed to realise particular property for a particular person.
Section 254 — the definition
(a) by or under any deed or agreement; or
(b) by the Court in the exercise of a power conferred on it or in the exercise of its inherent jurisdiction,
whether or not the person appointed is empowered to sell any of the property in receivership.
The definition excludes —
(c) a mortgagee who, personally or through an agent, exercises a power (i) to receive income from mortgaged property, (ii) to enter into possession or assume control of it, or (iii) to sell or otherwise alienate it; and
(d) an agent of any such mortgagee.
This is the critical distinction. A chargeholder who enters into possession itself — a mortgagee in possession, or a mortgagee exercising a power of sale — is not a receiver, and Part XVII does not apply to it. The duties in sections 268 to 272, the reporting obligations and the section 279 preferential claims rule apply only where a receiver is appointed.
“Company” includes an overseas company registered on the register.
“Director” includes a person occupying the position by whatever name called, a person in accordance with whose directions a director may be required or is accustomed to act, and a person in accordance with whose directions the board may be required or is accustomed to act — but does not include a receiver. For an overseas company it includes an agent, officer or employee responsible in the country for its business.
“Mortgage” includes a charge on property for securing money or money’s worth. “Mortgagee” includes successors in title but not a receiver.
“Preferential claims” means the claims in Schedule 9 except section 1 of that Schedule.
“Property” includes real and personal property, an estate or interest in either, a debt, any thing in action, and any other right or interest. “Property in receivership” is the property in respect of which the receiver is appointed.
Section 254(2) adds that a reference to the person by whom, or in whose interests, a receiver was appointed includes an assignee of the rights under the deed or agreement. A bank that sells its loan book does not thereby leave the receiver without a principal.
Sections 257 and 258 — appointment
(1) A receiver may be appointed in respect of the property of a company by, or in the exercise of a power conferred by, a deed or agreement to which the company is a party.
(2) The appointment shall be in writing.
(3) A receiver so appointed is the agent of the company unless it is expressly provided otherwise in the deed or agreement or in the instrument of appointment.
The receiver acts in the interests of the appointor but as agent of the company. The company, not the chargeholder, is the contracting party for what the receiver does, and the chargeholder is insulated from liability for the conduct of the receivership.
Agency is not absolute. Under section 280(2), once the company is in liquidation the receiver may act as its agent only with the approval of the Court or the written consent of the liquidator — and section 280(3) makes clear that losing the company’s agency does not turn the receiver into the appointor’s agent instead. Section 281 then imposes personal liability on the receiver for contracts they enter into, agency notwithstanding.
(1) Unless the deed or agreement expressly provides otherwise, a power to appoint a receiver includes power to appoint (a) two or more receivers; (b) a receiver additional to one already in office; or (c) a receiver to succeed one whose office has become vacant.
(2) Two or more receivers may act jointly or severally to the extent that they have the same powers, unless the deed, agreement or Court order expressly provides otherwise.
Section 255 — which receivers Part XVII applies to
Part XVII applies to every receiver appointed after the Act came into force, and — with exceptions — to receivers already in office at that time. For those already holding office, section 256 (except subsections (1)(e) and (2)), section 273, section 279 and parts of section 281 do not apply, and section 278 does not apply to a receivership that had already ended.
Section 263 — executing documents
(1) A receiver may execute in the name and on behalf of the company all documents necessary or incidental to the exercise of the receiver’s powers.
(2) A document signed by a receiver is deemed to have been properly executed for the purposes of section 155.
So a counterparty dealing with a receiver need not look for two directors’ signatures or a company seal. The receiver’s signature alone satisfies the Act’s execution rules.
Section 266 — the validity of a receiver’s acts
(1) No act of a receiver is invalid merely because the receiver was not validly appointed, or is disqualified, or is not authorised to do the act.
(2) No transaction entered into by a receiver is invalid for those reasons unless the person dealing with the receiver has, or ought to have, by reason of his relationship with the receiver or with the appointor, knowledge of the invalid appointment, the disqualification, or the absence of authority.
Section 266 protects those who deal with a receiver in good faith — the same policy as the section 18 assumptions. It does not protect the receiver: an invalidly appointed receiver remains personally liable, subject to the Court’s power under section 282 to grant relief where the liability arose solely by reason of a defect in the appointment and the receiver acted honestly and reasonably.
The exception in subsection (2) is aimed at insiders. A related company, or the appointing chargeholder itself, that buys an asset knowing the appointment was defective cannot rely on the section.
Receiver compared with liquidator
| Receiver | Liquidator | |
|---|---|---|
| Appointed by | A chargeholder in writing, or the Court | Shareholders by special resolution, a chargeholder, or the Court |
| Acts in the interests of | The appointor — s 268(2) | All creditors collectively |
| Controls | Only the property in receivership | The whole company |
| Directors | Remain in office as to other assets | Cease to hold office — s 298 |
| Can attack past transactions | No | Yes — ss 340–347 |
| Ends when | The secured debt is realised or the purpose satisfied | The company is removed from the register |
The two can run in parallel. Under section 280(1) a receiver may be appointed, or continue to act, in respect of property of a company that is being wound up or has been put into liquidation, unless the Court orders otherwise.
Sources
- Companies Act 1997 — ss 18, 155, 254–258, 263, 266, 268–272, 279–282, 298, 340–347, 351; Schedule 9
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.