People do not always see eye to eye – it is human nature. Inevitably, disputes arise within the context of business – between directors and shareholders – and these disputes can cripple an otherwise viable business and operations into the dire situation of facing insolvency.
A resolution mechanism that we have been involved in over the years is to be engaged as a Court Appointed Receiver & Manager. As the name suggests, the court appoints the Receiver & Manager on the application of the disputing stakeholders. There is no need for the existence of any security, which is ordinarily the case when a Receiver & Manager is appointed without the necessity to apply to the Courts. The purpose of a Court appointment is for the existing officeholders is to typically relinquish all or some of their powers so they can focus on and address the impasse at play. The Receiver & Manager then carries out its function subject to the Court orders (which can be wide-ranging or quite narrow).
The advantage of such an appointment is that the Court orders set out the role and function of the Receiver & Manager. This means that the Receiver & Manager carries out that function after due consideration has been given by stakeholders and the proposed Receiver & Manager (i.e. the parties communicate on what powers the appointee would need).
If circumstances arise that are not captured by the framework of the Court orders, a variation can be sought to cater to the unforeseen issues.
Our role, from previous engagements in respect to carrying on a trading business, has been to:
- Enter into and take possession of the assets of the company
- Carry on the business of the company with the same rights and powers of the board of the directors as the Receiver & Manager considers appropriate, consistent with the objectives of the company
- Receive debts, rents, profits and moneys receivable in respect of the business
- Discharge rents, wages, salaries and other current expenses of the business
- Manage and do all things reasonably necessary for the proper administration of the business
The stakeholders then work through their impasse, which can take a significant period of time, and whilst it is not the Receiver & Manager’s primary role to act as the peacemaker, we often become involved in the dispute resolution process.
On example of such an appointment we conducted involved a dispute that arose between two families that were in business together. Several disputes had arisen regarding the strategic direction of the business and the entitlement of each respective family to the spoils of their rapid success.
The court orders set out our role, which in general terms was to carry on the business which, however by nature of some of the dispute issues, involved:
- detailed examination of the trading history of the company
- an audit of stock holdings and the company’s Perth and east coast operations
- complex intellectual property issues
- an application to the Therapeutic Goods Administration in relation to certain medical claims made in relation to the company’s products
- settlement of alleged fraud in respect of the execution of a deed, which involved the engagement of a forensic handwriting expert
From the points above, you can get a feeling for how involved the Receiver & Manager may need to become in the operations of the business in order to carry out their obligations under the Court orders.
The process usually involves periodic reporting to the Court and stakeholders about the progress of the appointment. The Receiver & Manager also communicates with stakeholders on an ongoing ‘as needs’ basis too in relation to day-to-day issues.
A Court appointed Receiver & Manager appointment can be a useful way to address an ongoing dispute so that the assets of an ordinarily viable business can be protected.
If you have any clients that run into a disagreement that places the business at risk, please get in touch with us and we can talk further about this possible option.
About the author
Greg Quin is a Director at HLB Mann Judd Insolvency WA and has been with the team for 10 years. Greg oversees the daily operations of the many insolvency appointments managed by the HLB Insolvency team and looks after the operations of the practice.
If you have any queries about insolvency matters, please feel free to contact Greg on 08 9215 7900, 0402 943 091 or via email to gquin@hlbinsol.com.au.
