B. The Objectives of Receivership Law

• Author: Roderick J. Wood
• Profession: Faculty of Law. University of Alberta
• Pages: 467-469

Contenidos

• 1) Replacing Inefficient Management.
• 2) Enforcement of the Secured Party’s Security Interest.
• 3) Facilitating Going-Concern Sales of the Business.

Page 467

1) Replacing Inefficient Management

Secured creditors take security on the debtor’s assets for a number of reasons. They do so in order to ensure that their claims will have priority over those of other creditors once the debtor’s assets are disposed of and the proceeds are available for distribution among the creditors. However, this is not the only advantage of obtaining a security interest in the debt-or’s assets. A security interest prevents the debtor from selling or disposing of the collateral outside the ordinary course of business without the authorization of the secured creditor. A security interest also gives the secured creditor the right to enforce the security interest in the event of a default by the debtor. This permits a secured creditor to enforce the secur-

Page 468

ity interest through seizure and sale of the collateral, and this right is not affected by a bankruptcy of the debtor.

In addition to these rights, a secured creditor who takes a security interest in all of the debtor’s present and after-acquired assets may be able to exercise a special kind of control right through the appointment of a receiver. The appointment of a receiver terminates the managerial powers of the current managers of the business, and the receiver will take over the operation of the business. Receivership proceedings therefore provide a means by which a secured creditor can quickly move to replace the managers of a financially distressed business with more competent management. This is particularly important if the managers are acting fraudulently or if they are engaging in more risky ventures in the hope that their gamble will pay off and lift the firm out of the financial crisis that it faces.

A secured creditor does not obtain a direct right to take control or manage the business through the appointment of a receiver. Rather, the control right merely gives the secured creditor the right to remove the existing managers and substitute a receiver in their place. If the secured creditor attempts to go further and to give directions to the receiver, the secured creditor risks becoming liable for any negligent acts or omissions of the receiver.⁴³

2) Enforcement of the Secured Party’s Security Interest

A secured creditor who has taken a security interest in the entire...