A debenture holder can appoint a receiver under the express power in his debenture, or he can apply to the Courts. Under Section 347 the Courts have power to appoint a receiver on the application of the debenture holder or other creditors. A receiver will be appointed by the Courts.
a) If the principal sum becomes due
b) If default is made in the payment of principal or interest
c) If the company is being wound up, or the winding up is imminent
d) If the company is disposing of its undertaking in violation of the terms of the security
e) If there are judgements against the company
f) If the security is in jeopardy, i.e. in danger of loss or serious deterioration in value. The question whether the security is in danger is one of fact in each case.
Although the courts will be willing to appoint a receiver whenever the security of a debenture holder is in jeopardy, they will not do so:
a) If the company is not in fault; and
b) If the assets of the company realised would be insufficient to pay the debenture holders in full.
Notice of Appointment
Section 103 provides that any person obtaining a Court order for the appointment of a receiver or manager, or appointing a receiver or manager under a power contained in the debenture or trust deed must:
a) Give notice of receiver's appointment to the Registrar within seven days after the order of appointment; and
b) If such a person ceases to act as a receiver, he must within seven days give the Registrar notice to that effect.
Section 351(1) imposes an obligation on a receiver so appointed, that he must forthwith give notice of his appointment to the company.
Position of Receiver
A receiver appointed by the Courts, being an officer of the court, is not a mere agent but becomes personally liable on all contracts which he makes. In his capacity as a receiver he takes the custody of the property into his own hands for the benefit of the parties interested in it. Where he sustains any personal losses as a result of performing his duty as a receiver, he is entitled to be indemnified out of the assets of the company to the extent of its assets, and beyond this he has no right of indemnity.
A receiver may borrow money to carry on the business or to preserve the company with the sanction of the Court but not for speculative business. The sum borrowed will rank in priority to the debentures. A receiver appointed by the Courts is not bound by the company's contracts unless he accepts liability by means of a contract of novation.
A receiver appointed by the debenture holders under power in the debenture is their agent, and they are therefore liable on his contracts, unless the document conferring the power to appoint a receiver expressly states that he is to be the agent of the company.
Remuneration of Receiver
The remuneration of a receiver may be by the terms of the debentures or by the debenture holders in accordance with its terms. But a receiver appointed by the Courts has the amount of his remuneration fixed by the Courts. Although a receiver appointed by the debenture holders under power in the debentures has his remuneration fixed by agreement, the Courts may, on the application of the liquidator, fix the amount to be paid by way of remuneration to the receiver. Section 350(1).
Delivery of Accounts
Where a receiver or manager of all (or substantially all) the property of the company is appointed either under the power of the debentures or the Courts on behalf of the holders of debentures secured by a floating charge, the Receiver must send to the company notice of his appointment forthwith, and the company within fourteen days makes out and submits to him (i.e. the Receiver) a statement of its affairs.
Within two months after receiving this statement, the receiver must send to the Registrar and to the Courts (if he was appointed by the Courts) a copy of the statement and any comments he sees fit to make and must send to the Registrar a summary of the statement and of his comments, and must send to the company a copy of his comments, and to the trustees and all debenture holders a copy of the summary. Section 351.
The receiver must also within two months after the end of each year and within two months after he ceases to act as a receiver or manager, send to the Registrar and to the trustees (if any) and the company and the debenture holders any abstract of his receipts and payments during the relevant period.
Contravention of the aforesaid requirements renders the receiver liable to a fine of one hundred shillings for every day during which the default continues.