The receiver is entitled to an indemnity against liabilities incurred by him properly. This ranks as the first charge on the assets subject to the cost of realisation and to the receivers’ costs, charges and expenses, including remuneration. Creditors of the receiver are entitled by subrogation to be paid out of assets in priority to pre-appointment creditors. The receiver is liable in respect of pre-appointment contracts to the extent he adopts them.
A receiver appointed by court is allowed proper remuneration and allowances payable from the assets. The nature and amount of remuneration are determined before a court officer when the receiver passes his accounts. He is not entitled to remuneration unless he is accounted for all payments and receipts.
Traditionally, a commission was based on the gross receipts at a rate of 2 to 5%. Alternatives in modern times are based on time costings and more modern measures of cost incurred. In some cases, a statutory rate applies.
A receiver appointed by courts must account for monies received. Persons interested in the assets are entitled to have accounts made out. The court may fix the receiver’s obligations to account before a court officer. Accounts must be verified. At the approved nine, they are vouched and passed before the Examiner. An Examiner’s certificate when filed is binding on the party unless discharged or varied by on foot of application to court.
Parties with an interest in the assets may attend the passing of the receiver’s accounts. The validity of allowances and expenditures may be challenged. If a receiver defaults in accounting, he may be required to attend by court to show cause for his failure. Directions may be given including discharge of the receiver and appointment of a substitute, as well as directions for cost. Alternatively, the receiver’s remuneration might be disallowed in subsequent accounts, and he may be charged with interest in respect of sums in default.
A receiver who fails to pay balances into court may be liable for contempt of court. His security maybe enforced for failure of compliance.
Unless the receivership was for a temporary time, a receiver appointed by court is to be discharged by order. Discharge will be allowed where the appointment is no longer necessary or has been completed. Discharge will not be permitted if it would prejudice creditor parties to the action, but they may be obliged to bring their own action for a receiver instead.
An order appointing a receiver may be discharged if it has been shown to be improperly obtained. The receiver may be discharged by reason of default in passing his accounts, failures to perform and failures to account for unpaid balances. Misconduct may justify discharge.
On default by the receiver, sureties may be liable to pay sums assured. If the sum a penal sum, they may be relieved in equity on condition that they pay sums due and other sums which the receiver is properly accountable. They may be obliged to pay for costs of the proceedings necessarily arising by reason of the receiver’s default.
A receiver may be appointed as an manager over a business. The appointment will be for a limited time. It may be subject to extension.
A receiver may be appointed over a business of a deceased person pending the appointment of legal representatives. A receiver may be appointed to preserve a business or assets pending litigation or realisation on sale.
Most commonly, a manager is appointed at the application of encumbrances such as debenture holders who hold security over the entire goodwill and assets of a business. The appointment may be made for the realisation of the security by a sale as a going concern. The jurisdiction is limited in this case to assets over which the security extends.
Debenture holders of companies for public purposes are not entitled to sale. Accordingly, a manager may not be appointed. This will also be so if the relevant powers are conferred by public authorities on certain persons to manage the business.
A receiver may be appointed on the application of a co-owner, if he has been excluded by his fellow co-owner. Under modern practice, wider jurisdiction is available for appointment by a co-owner. The appointment takes the conduct of the business out of the hands of those who previously managed it and vests it in the manager.
The receiver manager is an officer of court. He may take possession by order of court. Generally, he is in the nature of the custodian or caretaker on behalf of the owner. His appointment does not terminate trade contracts. Formerly, appointment in a debenture holder’s action dismissed the employees as it changed the legal personality of the employer.
The manager has power to employ and dismiss, provide payment of current expenses and enter into fresh contracts in the usual course of business. He should not enter speculative dealings or any dealing where he may have a conflict of interest.
He must preserve the businesses’ assets and goodwill. This may require that he does not default on contracts entered before appointment, even if by themselves they are disadvantageous.
A manager may be authorised to borrow money when this is necessary for the proper conduct of the business. He may be authorised to give a charge on assets. Generally, this will require a consent of court. A receiver appointed on behalf of secured creditors does not have power to charge assets in favour of unsecured creditors to give them priority.
A manager is entitled to indemnity out of the assets in respect of expenses and liabilities properly incurred in his duty. If he makes default in paying monies into court or if the expenses have not been properly incurred, the expenses may be disallowed. He is entitled to an indemnity out of assets. It is limited to those under the control of the court.
If receiver manager incurs expenses without the sanction of the court, creditors of the receiver and manager are entitled to be subrogated to him in respect of rights of indemnity he may have against assets unless it is shown that he did not intend to pledge his credit and that they did not rely on it.
The remuneration of a manager is treated in the same way as remuneration of the receiver. The same rules apply to the discharge.