Receivership is a procedure whereby a creditor can enforce security against a company’s assets, in an effort to obtain repayment of the secured debt. Common Law has long recognized the concept of a receiver. Following the development of the floating charge creditors were effectively able to take security over a company’s entire business by means of a floating charge over the undertaking.
Security documents generally contained very wide powers of appointment such that, on default, the creditor could take over the business immediately and without the input of any court. A receiver appointed to the entire business became known as a receiver and manager. The receiver and manager would typically have extensive powers over the business, including the power to sell it at a time and on terms that suited the appointing creditor.
A receiver is appointed primarily to enforce the security of the debenture holder who appoints him. As a result, his duties to the company are limited, even though he acts as its agent. He owes no duty in law to the company, but he does owe the same duties in equity to the company as does the chargee, under the security which he was appointed, and to anyone else interested in the equity of redemption.
This is an important point when dealing with the sale of property. It means that the receiver and manager will owe a duty in equity to any subsequent encumbrance and also any surety for the company’s obligations. The receiver and manager owe no separate duty of care to ordinary creditors whose position is protected by the duty owed to the company.
In every common law jurisdiction, the ability to appoint a receiver and manager is a very powerful remedy for secured creditors; unfortunately, this is not the case, currently in Cyprus.
In our opinion, the current legislation is overdue for some significant changes. Receivers and managers appointed by secured creditors, when attempting to sell charged property, in almost every case, are frustrated by subsequent charging orders (“Memos”) registered against land and buildings, effectively presenting the receiver and manager with a real problem in being able to provide a clear title to the purchaser.
In our opinion, it is inconceivable, for Memo creditors to be able to “stand in the way” of the receiver and manager when realising charged property. Unfortunately, current legislation allows them to do so and this must change.
We at CRI will lobby Parliament to make immediate changes to current legislation and would be willing to challenge in courts this unfair and prejudicial treatment of secured creditors’ rights to enforce their security.
Over the years, our Licensed Insolvency Practitioners, acted as receivers and managers for secured creditors in banking and other corporate sectors.