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A company goes into receivership when it can’t meet its commitments to a secured creditor who has security over the company’s assets. The creditor appoints a receiver who is generally a professional insolvency practitioner to sell those assets or manage them so as to maximise the creditor’s recovery.
Receivership v Administration
Receivership is quite different from administration. Voluntary administration in NZ is a process designed to benefit all creditors (we are not saying it achieves that objective) whereas receivership considers first the best possible outcome for the secured creditor. Neither take any real account of the interests of shareholders.
Creditors with a significant security can choose between appointing a receiver or supporting an administration. Receivership and voluntary administration can co-exist but the receiver has effective control of the company, if the main assets are subject to the security.
Voluntary administration is a new process that has not been widely adopted in New Zealand, as can be seen from the following table:
Appointments of External Administrators - NZ
What does it mean to you as a shareholder?
It is not good news. Generally by the time a receiver is appointed, the company is insolvent or not far from it. There is little, if any, value left in shares. Treat with extreme scepticism any statements your company makes to the contrary.
As with administration, if the company emerges from receivership and is resuscitated (often by “backing into” the corporate shell a new business or another business and raising new capital) existing shareholdings are savagely diluted. If the company ends up in liquidation, the chance of any distribution to shareholders is remote.
Remember who your directors and executives were and resolve to avoid in future any companies they may be involved in.
Receiverships explained by the NZ Companies Office
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