A receiver is appointed by a secured creditor to recover a secured debt. Section 279 of the Companies Act 1997 interrupts that in one important case.
Section 279(1) — when the section applies
(a) a floating charge; or
(b) a fixed or specific charge that conferred a floating security at the time it was created.
It does not apply to a fixed charge. A receiver appointed under a mortgage over land, or a fixed charge over specific plant, applies the proceeds to the secured debt. Preferential creditors have no claim on those proceeds in a receivership.
It does not apply where the company was already in liquidation when the receiver was appointed. In that case the Schedule 9 order is applied by the liquidator instead, and Schedule 9 section 7(b) gives preferential claims priority over floating charge assets directly.
Paragraph (b) is the anti-avoidance rule. A charge that crystallises — converting from floating to fixed on default or on notice — is still caught, because the test is what the charge conferred at the time it was created. The same words appear in Schedule 9 section 7: “floating charge” includes a charge that conferred a floating security at the time of its creation but has since become a fixed or specific charge. Crystallising a debenture on the eve of appointment does not defeat the employees.
Section 279(2) — the order of application
(a) firstly, to reimburse the receiver for his expenses and remuneration; and
(b) secondly, to pay preferential claims to the extent and in the order of priority specified in Schedule 9 (except sections 1 and 7(b)),
before paying any claim of the person entitled to the security.
Section 1 of Schedule 9 is excluded because it deals with the liquidator’s fees, the costs of the person who applied for the liquidation order, and the expenses of a liquidation committee. None of those exists in a receivership. Section 279(2)(a) substitutes the receiver’s own expenses and remuneration in that first place.
Section 7(b) is excluded because it is the provision that gives preferential claims priority over floating charge assets in a liquidation. In a receivership section 279(2) itself does that work, so section 7(b) would be redundant. Section 7(a) still applies — claims within each class rank equally and abate in equal proportions if the assets are insufficient.
Under section 279(3), in applying Schedule 9: references to a liquidator are read as references to a receiver; references to the commencement of the liquidation are read as references to the appointment of the receiver; and references to a company being put into or being in liquidation are read as references to receivership.
What the preferential claims are
| Order | Claim | Source |
|---|---|---|
| 1 | The receiver’s expenses and remuneration | s 279(2)(a) |
| 2 | Wages or salary of an employee for services rendered during the four months preceding the appointment — whether earned by commission, time or piece work | Sch 9 s 2(a) |
| Workers’ compensation accrued before the appointment | Sch 9 s 2(b) | |
| Annual leave and long service leave becoming payable on termination of employment before or by reason of the receivership | Sch 9 s 2(c) | |
| Amounts deducted from wages to satisfy an employee’s obligations | Sch 9 s 2(d) | |
| Amounts that are preferential claims under section 313(2) | Sch 9 s 2(e) | |
| Superannuation contributions, mandatory and voluntary, employee and employer, made or which should have been made under the Superannuation (General Provisions) Act 2000 | Sch 9 s 2(f) | |
| 3 | The costs of a compromise referred to in section 248(c) | Sch 9 s 3 |
| 4 | Municipal and local rates due at the appointment and having become due and payable within the preceding one year | Sch 9 s 4(a) |
| Assessed income tax (or income tax and social services contribution) assessed before the appointment, not exceeding one year’s assessment | Sch 9 s 4(b) | |
| Repayment of statutory advances for land improvement, development or settlement, or the aid or encouragement of mining | Sch 9 s 4(c) | |
| 5 | The appointing chargeholder’s secured debt | s 279(2) |
The total sum given priority under section 2(a), (b), (c) or (d) shall not, in the case of any one employee, exceed K20,000.00, or such greater amount as may be prescribed at the commencement of the liquidation.
An employee owed more than the cap is preferential up to K20,000 and an ordinary unsecured creditor for the balance — which in most receiverships means nothing. Note that the cap does not apply to section 2(e) or to the superannuation contributions in section 2(f).
Under Schedule 9 section 13, remuneration for a period of annual leave, long service leave, or absence through sickness or other good cause is treated as wages in respect of services rendered during that period — so paid leave inside the four-month window counts.
Where wages, salary, annual leave or long service leave have been paid to an employee out of money advanced by some person for that purpose, the person who advanced the money has the same right of priority as the employee would have had.
This matters in practice. A bank that funds a payroll immediately before appointing a receiver steps into the employees’ preferential position for the amount advanced — it does not lose priority by having paid the workers.
Section 280 — when a liquidation follows
(1) A receiver may be appointed or continue to act and exercise all the powers of a receiver in respect of property of a company that is being wound up or has been put into liquidation, unless the Court orders otherwise.
(2) Such a receiver may act as the agent of the company only (a) with the approval of the Court, or (b) with the written consent of the liquidator.
(3) A receiver who cannot act as the company’s agent does not, by reason only of that fact, become the agent of the appointor.
(4) A debt or liability incurred by the company through the acts of a receiver acting as its agent under subsection (2) is not a cost, charge, or expense of the liquidation.
Section 279(1) excludes a receiver appointed while the company was already in liquidation. So the order of events changes who applies Schedule 9 and out of which fund:
- Receiver first, liquidation later — section 279 governs the receiver’s realisations of floating charge assets, and the receiver pays preferential claims out of them.
- Liquidation first, receiver later — section 279 does not apply to that receiver, and the liquidator applies Schedule 9, including section 7(b), which gives preferential claims priority over floating charge assets and, under section 8, makes what is paid out of those assets an unsecured debt owed by the company to the secured party.
Either way the employees come ahead of the floating chargeholder. What changes is who does the paying, and whose costs come off the top — the receiver’s under section 279(2)(a), or the liquidator’s under Schedule 9 section 1.
Subsection (4) protects the liquidation estate: the receiver’s trading debts are not liquidation expenses, so they do not rank ahead of creditors in the liquidation. The receiver’s recourse is the section 281(9) indemnity out of the property in receivership.
Sources
- Companies Act 1997 — ss 248, 254, 279, 280, 281, 313, 360; Schedule 9
The Superannuation (General Provisions) Act 2000, referred to in Schedule 9 section 2(f), is not currently available on PacLII and is cited here without a link.
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.