What happens in the first seven days after a receiver is appointed

A receiver is appointed by a secured creditor over the assets its security covers, not over the whole company. Control of those assets leaves the directors, but the directors stay in office. Inside the first week the appointment is lodged with ASIC and becomes public, and the directors have 10 business days to give the receiver a report on the company's activities and property.

What the receiver controls, and what is still yours

A receiver is not a liquidator and a receivership is not a winding up. A receiver is appointed by a secured creditor under a security interest that gives it the right to appoint one, or by a court, and the appointment reaches only the assets that security covers. ASIC's own guidance puts the consequence plainly: the receiver's principal duty is to the secured creditor, and control of the secured assets — which often includes the company's business — is taken away from the directors.

What it does not take away is your office. The directors continue to hold office, and their powers depend on the powers of the receiver. Where the security covers all or most of the company's assets, ASIC's description is that the receiver effectively has control; where it does not, directors may retain residual control over whatever sits outside it. That residue is worth identifying on day one, because almost everything you can still decide this week lives in it.

You are not the first one this week

Most directors in this position ring their bank first, often the same bank that appointed the receiver, and are told no. The reasons rarely have anything to do with whether the loan would be repaid: the last financials look wrong, a lodgement is late, there is a mark on the credit file, or the word receiver appears in the file and the application quietly stops being read. Those are the things a bank exists to care about. None of them says a word about whether there is equity in the building.

That gap is where HomeSec has been since 2004. We are not here to judge how the company got here, and we have seen it often enough that it does not surprise us — it is one of the reasons we also write about business loans for borrowers with bad credit. What we look at is whether there is enough unused equity in real property and whether the purpose is a genuine business one: not financials, not a credit score, not whether everything is up to date, and no interrogation about the last two years. From a clean, complete scenario funds can be available in as little as 24 hours, and interest can be capitalised for up to six months so there is nothing payable while the business finds its feet.

Back to the week itself, because what you can do in it has a short shelf life.

The first seven days, in the order they happen

1. 1
   The receiver takes control of the secured assets.Usually immediately, and usually before you have read the appointment documents properly. Expect the books, the bank accounts over which the security runs, the premises and the trading operation to be dealt with by somebody else from that day.
2. 2
   The appointment goes on the public record.The party that appointed the receiver must lodge notice with ASIC within 7 days of the appointment, and the receiver lodges their own notice within 14 days. After that it is visible to any supplier, customer or financier who looks the company up.
3. 3
   The staff question is decided, one way or the other.An appointment does not automatically end anybody's employment. If the receiver trades the business on, ongoing employees must be paid for services provided after the appointment date as an expense of the receivership. If it does not trade on, that is a different conversation and it happens quickly.
4. 4
   You are asked for the records, and for the report.Access to the books and records, where any others are held, and a report on the company's activities and property — the ROCAP. ASIC's guidance for directors allows 10 business days in a receivership, which means the work of assembling it is this week's work.
5. 5
   The payout figure becomes the only number that matters.A receivership ends when the secured creditor has been repaid and the receiver's own costs are covered. Ask the receiver or the secured creditor's solicitor for that figure in writing early. It grows every week the receivership runs, so the week you are in now is the cheapest week it will ever be.

Two things are not on that list because they take longer, and knowing that stops you waiting for them. The receiver's own report to ASIC is due within two months of the control day, and any report about possible offences goes in when the receiver forms that opinion rather than on a fixed date. Neither is a milestone you can plan around.

What the directors can still do

More than most people assume in the first few days, and all of it is easier now than in a month's time.

1. 1
   Deal with what the security does not cover.ASIC says it directly: even if a receiver is appointed, you can appoint a voluntary administrator or liquidator to deal with any assets not subject to a security interest. A company can be in receivership and in voluntary administration, in provisional liquidation, or subject to a deed of company arrangement at the same time.
2. 2
   Get the report right rather than fast.The ROCAP is the document the receiver, and later anyone reviewing the receivership, works from. Assets the receiver does not know about are assets nobody realises are outside the security. Directors must not obstruct a receiver, and an incomplete report is read as obstruction more often than as haste.
3. 3
   Have the solvency question answered by somebody registered to answer it.ASIC's advice is to get competent accounting and legal advice as early as possible, and that a suitably qualified registered liquidator can conduct a solvency review. A receivership over part of the business tells you nothing about whether the company as a whole is solvent, and that is the question everything else turns on.
4. 4
   Look at your own exposures separately from the company's.A guarantee you have given is a separate contract and survives the receivership: what happens when a personal guarantee is called in is its own question. So is any director penalty the ATO has issued. None of these is paused by the appointment.
5. 5
   Work out what the property could release, and how fast.If the payout figure is reachable, the receivership has an end. How a business gets out of receivership sets out how that is done, who is paid and in what order — this page does not repeat it.

One thing not to do: resign. It does not remove a liability that attached while you held office, it does not stop anything already in train, and it takes away your standing to act for the company in the one week that standing is worth most.

How a receivership actually ends

Usually by sale. The receiver realises enough of the secured assets to repay the secured creditor and cover the receivership's own liabilities, then resigns or is discharged by the secured creditor, and full control of the company and whatever is left goes back to the directors — unless another external administrator has been appointed in the meantime. The receiver's duty on a sale is to take reasonable care to sell for not less than market value, which is a real duty and still not the price you would have achieved yourself with time and a choice of buyers.

The other way is that the figure is simply paid. Nothing requires the money to come from selling the company's assets. If the secured creditor's debt and the receiver's costs are satisfied from another source, there is nothing left to recover, and that is the route the receivership page deals with. The order in which money comes out matters too: where assets are subject to a circulating security interest, the receiver's costs are paid first, then certain priority claims including employee entitlements, and the secured creditor after that.

When borrowing is not the answer here

This is the situation where that sentence needs saying most, because the pressure to act is enormous and the security on offer is usually a home.

ASIC's instruction to a director of an insolvent company is four words long: do not incur further debt. Borrowing is consistent with that in one case — where the loan clears the secured debt in full, the receivership ends, and the business underneath it is genuinely viable. It is not consistent with it where the company is losing money every month and the receivership is simply the most visible part of that. More debt secured on the family's property keeps a loss running and puts the house alongside the company; the call to make there is to a registered liquidator about small business restructuring or a winding up, not to a lender.

It is also the wrong instrument in three narrower cases. If the payout figure exceeds what the equity can support, no amount of structuring changes that — the arithmetic is the answer and we will tell you so on the first call. If a winding-up application has already been filed against the company, or a liquidator has been appointed, the receivership is no longer the whole problem and the sequence matters more than the money. And if the figure is below $20,000 we do not lend to it at all; registering security over a property to clear an amount that size is the wrong tool. The Small Business Debt Helpline on 1800 413 828 is free, independent and confidential, and it is a reasonable first call in any of those three.

This page explains what ASIC's published guidance says a receivership does and what the directors' obligations are in it. It is general information, not legal or insolvency advice: what to do in your circumstances is a question for a registered liquidator, an insolvency lawyer or ASIC itself, and ASIC's own guidance on receivership is the primary source. If you need to know whether a company has an external administrator appointed, you can check its status on the public register.

Reviewed by Paul Stone, Joint Chief Executive