Receivership is one of the various ways available to secured creditors to enforce a charge in order to recover amounts outstanding under a facility loan agreement in the event of default in payment. It is used as a debt recovery tool. Typically, the process of receivership begins with the appointment of a receiver either under a charge instrument that confers on a charge holder the power to appoint a receiver or by the Bankruptcy Division of the Supreme Court.

Appointment of a receiver

The role of the receiver is to take possession and control of the property of the company in accordance with the terms of the order issued by the Bankruptcy Division of the Supreme Court (‘Bankruptcy Division’) or the charge instrument under which the receiver was appointed.

A person appointed as receiver may act as both a receiver and manager unless the instrument appointing him excludes appointment as manager. Where a receiver is also appointed as a manager, he has wider powers in the sense that he has power to carry on the business of the company.

Pursuant to section 186 of the Insolvency Act 2009, the Bankruptcy Division has jurisdiction to appoint a receiver where it is satisfied that (a) the company has failed to pay a debt due to the charge holder or has otherwise failed to meet any obligation to the charge, of that any principal money borrowed by the company or interest is in arrears for more than 21 days; (b) the company proposes to sell or otherwise dispose of the secured property in breach of the terms of any charge instrument; or (c) it is necessary to do so to ensure the preservation of the secured property for the benefit of the charge.

It is apposite to note that in the case of Samfat M D S & Anor v Banyan Resorts Ltd & Ors 2024 SCJ 11, the Court observed that there is a distinct regime for the appointment of a receiver under section 186 of the Insolvency (Appointment of receiver by Court) and section 178 of the Companies Act (Prejudiced shareholder). Under the Insolvency Act, a receiver is appointed when one of the criteria set down in section 186 is satisfied, whereas under the Companies Act, the test is whether the Court finds that it is just and equitable for a receiver to be appointed on the basis that the affairs of the company are conducted in such a manner that it is unfairly prejudicial to the shareholders. The Court concluded that it can determine the appointment of a receiver either where it is just and equitable to do so pursuant to section 178 of the Companies Act 2001 or where the criteria set out in section 186 of the Insolvency Act 2009 have been established.

Powers of a receiver

The Insolvency Act 2009 is the primary legislation governing receivership under Mauritius law. Receivers have broad powers in relation to the assets over which they are appointed, conferred by law. Additional powers may be provided by the relevant security document or by court order. However, receivers do not generally displace the directors of the company, who may continue to manage the assets of the company other than those over which the receiver is appointed. Subject to the terms of the charge instrument, a receiver/manager may, inter alia, exercise his powers to:

enter into possession and take control of property of the company;
lease, let on hire or dispose of property of the company;
inspect, at any reasonable time, books or documents that relate to the property in receivership and that are in the possession or under the control of the company;
make calls on the shareholders of the company in respect of uncalled capital that is charged under the instrument by or under which the receiver was appointed and enforce payment of calls;
execute any document, bring or defend any proceedings or do any other act or thing in the name of and on behalf of the company;
appoint an agent to do any business that the receiver is unable to do, or that it is unreasonable to expect the receiver to do, in person;
engage or discharge employees on behalf of the company; and
make or defend an application for the winding up of the company.

The receiver/manager must exercise his powers in good faith and he must also take into consideration the interests of the company; the persons claiming interests in the property in receivership through the company, the unsecured creditors of the company and the sureties who may be called upon to fulfil obligations of the company.

Duties of a receiver

A privately appointed receiver’s duties include taking possession of the assets over which the company has granted a security upon and attempting to repay the secured creditor either by profitably managing the assets or by selling them, or by doing both. However, in doing this, the receiver is not usually acting as the agent of the secured creditor. Subject to the charge instrument, the receiver will be the agent of the company although his role is to act primarily in the interests of the creditor or creditors on whose behalf he was appointed. In exercising his power of sale in respect of the property in receivership, the receiver owes a duty to the company to obtain the best price reasonably obtainable at the time of sale.

Conversely, a receiver appointed by the Bankruptcy Division is an officer of the court. This does not imply that the receiver is an agent or employee of the Bankruptcy Division but rather that the receiver must act impartially and adhere to the standards expected of a judicial officer. The role of a receiver appointed by the Bankruptcy Division is to assume the safe keeping and protection of the company’s property for the benefit of the parties interested in it. The Bankruptcy Division retains the right to review and control the receiver’s conduct.

Liabilities of a receiver

If a receiver fails to fulfil his obligations or breaches his duties, he can be held personally liable. A privately appointed receiver is personally liable for contracts entered into by him upon receivership in exercise of his powers, unless the terms of the contract expressly exclude or limit the personal liability of the receiver.

However, the statutory personal liability imposed on a receiver appointed by the Bankruptcy Division cannot be excluded inasmuch as such a receiver is neither the agent of the company nor the creditor but of the Bankruptcy Division.

A receiver is entitled to an indemnity out of the property in receivership in respect of his personal liability incurred. In addition, the Bankruptcy Division may relieve a person who has acted as a receiver from any personal liability incurred in the course of the receivership where it is satisfied that:

the liability was incurred solely by reason of a defect in the appointment of the receiver or in the instrument or order of the Bankruptcy Division by or under which the receiver was appointed; and
the receiver acted honestly and reasonably and ought, in the circumstances, to be excused.

Termination of receivership

A secured creditor may remove a receiver in accordance with the terms as may be provided in a security agreement. Receivership may also be terminated by the Bankruptcy Division where the purpose of the receivership has been satisfied so far as possible or where circumstances no longer justify the continuation of the receivership.

No later than 10 days after a receivership ceases, the receiver must send or deliver to the Registrar of Companies, and the director of insolvency, a notice in writing that the receivership has ceased.

Conclusion

Though there exist several mechanisms to enforce a security, one of the preferred options of creditors under a charge instrument to enforce their security, remains receivership. Receivership is a quicker and more flexible tool which allows lenders to efficiently realise the assets and recover their debts without putting an end to the existence of the company.