Receivership is a remedy available to secured creditors to recover amounts outstanding under a secured loan in the event the company defaults on its loan payments. The appointed Receiver has the power to sell some assets of the insolvent company, or the company itself as a going concern, or, in some situations, manage the company to recover the amount due to the creditor and then hand the company back to its owners.
Receivership under Nigerian law is primarily governed by the following legislation:
- Companies and Allied Matters Act, 2020, (CAMA).
- Real estate laws such as the Property and Conveyancing Law;
- The Conveyancing Act 1881;
- Mortgage and Property Law; and,
- Mortgage Institutions Act, may also apply.
Hence, this article will examine the concept of a receiver, the appointment of a receiver, the mode of appointment of a receiver, the powers, duties, and liabilities of a receiver under CAMA.
a. WHO IS A RECEIVER?
Although the CAMA did not define who is a Receiver, Section 868 of CAMA stipulates that a Receiver includes a Manager.
A Receiver was judicially defined in the case of UWAKWE & ORS V. ODOGWU & ORS  LPELR-3446(SC) as
"an impartial person appointed by the court to manage, collect and receive pending the proceedings, rents, issues and profits of land or personal estate which seems unreasonable to the court that either party should collect or receive or for the same to be distributed amongst the persons entitled."
Thus, a Receiver is a person appointed to assist in the realization of a company's security.
It is pertinent to note that a receiver is distinct and separate from a Receiver and Manager. A receiver is a person appointed to exercise fiduciary duties only in respect to a specific asset or series of assets while a Receiver/Manager is a person appointed to act as a receiver while simultaneously managing the Company's undertaking and business.
b. WHO CAN BE APPOINTED A RECEIVER?
Section 550 of CAMA provides that all persons except the following can be appointed as a receiver:
- an infant ;
- any person found by a competent court to be of unsound mind ;
- a body corporate ;
- an undischarged bankrupt, unless he is given leave to act as a receiver or manager of the property or undertaking of the company by the Court by which he was adjudged bankrupt ;
- a director or auditor of the company; and
- any person convicted of any offence involving fraud, dishonesty, official corruption, or moral turpitude
c. HOW CAN A RECEIVER BE APPOINTED? (Section 552 and 553 of CAMA)
A Receiver can be appointed in the following ways:
- Appointment by Agreement (Section 553 of CAMA)
This is the most common way of appointing a receiver. It is usually through an express provision in the security agreement between the parties. Thus, a Receiver may be appointed under an enabling power in the debenture by the debenture holder.
Furthermore, Section 554 of CAMA, provides that a Receiver appointed out of court may apply to the court for direction about the performance of his function when the need arises.
- Appointment by the Court(Section 552 of CAMA)
In the absence of a provision for the appointment of a Receiver, a debenture holder or trustee may still apply to the court for such an appointment. The general ground upon which such application is granted is the protection or preservation of the property or corporate entity, for the benefit of persons with a vested interest in it.
d. POWERS OF A RECEIVER AND A RECEIVER/MANAGER?
Section 556 of CAMA provides that a person appointed as a receiver of any property of a company shall, subject to the rights of prior encumbrances, take possession of and protect the property, receive rents and profits and discharge all out-goings in respect thereof and realise the security for the benefit of those on whose behalf he is appointed.
However, where a person is solely appointed as a receiver, he/she does not have the power to carry on any business or undertaking. These powers granted by CAMA are in addition to any other powers conferred on the trustee of the debenture trust deed or on behalf of the debenture holders by the debenture instrument and may be altered or altogether excluded by the debenture instrument.
e. LIABILITIES OF A RECEIVER( Section 557)
Section 557 of CAMA provides that a receiver or manager of any property or undertaking of a company is personally liable on any contract entered into by him except in so far as the contract otherwise expressly provides.
Contracts entered into by a receiver or manager in the proper performance of his functions, such receiver or manager is, subject to the rights of any prior encumbrance, entitled to an indemnity in respect of liability thereon out of the property over which he has been appointed to act as a receiver or manager.
A receiver or manager appointed out of Court under a power contained in any instrument is also entitled, as regards contracts entered into by him with the express or implied authority of those appointing him, to an indemnity in respect of liability thereon from those appointing him to the extent to which he is unable to recover.
Receivership is a potent debt recovery option with certain advantages. One of the advantages of Receivership is Flexibility. It enables the receiver to deal with a Company's assets and liabilities on behalf of the Company without transferring ownership to him. Thus, it needs not lead to the sale of the charged asset.
Where a receiver is also appointed as a manager, he may manage the charged asset until the debt is realised after which the asset reverts to the debtor. No doubt receivership (in appropriate circumstances) is a positive for debtors and creditors alike and should be a preferred option for both.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.