Receivership and Breach of Duty: A Case Study of ABC Computers

This report provides a detailed analysis of receivership, focusing on a hypothetical case involving ABC Computers Pty Ltd. It begins by defining receivership and outlining the duties of a receiver, including asset management and debt repayment. The core of the report examines a scenario where Gary Norman, the receiver, faces a decision regarding the sale of outdated software. The report explores the issue of whether selling the software to Crazy Computers Pty Ltd before its obsolescence, despite other offers, constitutes a breach of duty. The analysis considers the rights of creditors, the importance of maximizing asset value, and the potential consequences of delaying the sale. The conclusion supports Gary Norman's decision, arguing it was necessary to fulfill his obligations and avoid further financial losses. The report references relevant literature to support its arguments and provides a comprehensive overview of the legal and practical considerations in receivership situations.

Receivership – Hypothetical
Question

Table of Contents
INTRODUCTION...........................................................................................................................1
Issue : Breach of duty by Garry as a receiver of ABC Computers Pty Ltd................................1
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
Receivership can be described as a form of management which is all about appointing a
receiver who can take several steps in order to acquire the secured properties of an entity. After
that he or she has to sell out such property so as to pay off the secured debt of cited
entity(Chappell, 2015). His duty starts at the beginning of the liquidation process of a company
or it can be said that receivers are those persons who initiates the process of liquidation.
Receivers can be appointed through the statute as well as through private sector.
Issue : Breach of duty by Garry as a receiver of ABC Computers Pty Ltd
A receiver who takes control over any property of an entity due to enforcement of any
security. They take possession of entity's properties and then they sale out such properties in
order to pay off the debts of cited entity(von Furstenberg, 2012). As secured creditors are to be
paid in preference to those who are unsecured.
Liability of controller
A receiver acts as an authorised person who acts as an agent of the entity who work out
through assisting it in payment of its debts. Receiver have to accomplish certain duties which
includes :
 He has the duty to close unprofitable business entities
 He requires to take crucial steps in order to maximize the value of the company.
 A receiver needs to secure the assets of company so that they can be protected against
accidental situations.
 Realization of assets of an entity to pay off the liabilities of an entity.
 Management of financial transactions.
Parties of Receivership
There are many parties who are involved in the process of receivership which are ; The
creditor or court if appointed by the competent authority, liquidator and company(borrower).
Appointment of Receiver
Receiver can be appointed through various process, as they can be appointed through the
court or they can also be appointed through any creditor(Gianviti and et. al. 2010). The different
process of appointment are mentioned below :
 Appointment through court : There are very limited powers in the hands of court as
competent authority give control to court for its appointment.
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1. Investigation has been done by ASIC against the person which leads to a breach.
2. After this prosecution is begins
3. Now civil proceeding will be start against the person.
 Appointment of Receiver Privately : A receiver can also be appointed by secured
creditors. Such appointment is made under fixed and floating charges(Upchurch, 2016).
Fixed security interest is made on the assets of an entity(Hinson, Morris and O'Neil,
2013). On the other hand floating charges has been assigned on those assets which have
been used by an enterprise during the course of its business.
A receiver is actually appointed through an agreement between company and its
creditors(Wilkerson, 2011). In which it has been mentioned that the person who is appointed as
liquidator will take over the assets of organisation and he will sale out such assets in order to pay
out the debts through the proceedings of sale.
Powers of Liquidator
A liquidator have different powers some of them are implied and others are the statutory
powers which are mentioned below :
 A liquidator can control over the property of an entity.
 In order to get proceedings for repayment he can sale out or hire any asset for such
payment.
 He can borrow money by securing property.
 Further he can also run the business. He can also take any other step which is appropriate.
Termination
A liquidator can gets terminated when he secured assets are sold and secured liabilities
has been paid off(McCrimmon, 2015). After that receiver will get his remuneration and then
remaining assets will be handed over to the company.
Rights of Creditors
 Creditors can sell out assets of an entity.
 They can appoint a receiver in order to sale the properties of cited Entity.
 Secured creditors have the preferential right of payment.
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 They can apply to the competent authority for the appointment of receiver or
liquidators.
Relationship between receivership and administration
There is certain relationship between receivership and administration. Even if an entity is
in receivership still it can appoint a liquidator or an administrator. A receiver can only be
appointed after the consent of the administrator or in case leave is obtained through the
competent authority. A liquidator is always appointed after the receivership but in case of
appointment of receiver then the liquidators powers ceases and he cant process the further
activities(Reisman, Kaplan and Gonzalez, 2016). A liquidator have the right to validate the
appointment of receiver through a detailed analysis over the requirements.
In the given case Gary Norman was appointed as a liquidator of ABC Computers Pty Ltd.
They have entered into an agreement to pay off the liabilities of Credit Easy Banking
Corporation Ltd. Issue was regarding an asset of company which is a software which was going
to be outdated as per the recent market analysis. Because of this issue Gary Norman wants to sale
this asset in the open market before it gets obsolete so that he can repay the liabilities of cited
entity. There were almost 50000 copies of such software the stock has been valued at $3 million.
He gets an offer from the distributor of ABC Computer Pty Ltd and cited entity have offered $1
million. He also got some offers from other buyers but they are willing to purchase such software
after 6 months. On the other hand Crazy Computers Pty Ltd wants to purchase these software
immediately. Hence Gary sold them to Crazy Computers.
CONCLUSION
As per the above mentioned concepts and rights it can be concluded that Gary Norman
have the right to dispose off the assets for the payment of liabilities. As the software were going
to be obsolete very soon hence he cant wait for six months. So it cannot be regarded as breach of
contract.
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REFERENCES
Books and Journals
Chappell, D. (2015). Construction contracts: Questions and answers. Routledge.
Gianviti, F., and et. al. (2010). A European mechanism for sovereign debt crisis resolution: a
proposal (Vol. 9). Brussels: Bruegel.
Hinson, K. M., Morris, J. E., & O'Neil, D. (2013). Professional Liability. SMUL Rev. 66. 1055.
McCrimmon, M. (2015). A New Species of College Student: The'First-Year'with Advanced
Standing. In 131st Annual MLA Convention. J. Sargeant Reynolds Community College.
Reisman, N. R., Kaplan, G. F., & Gonzalez, S. M. (2016). The American Legal System. In
International Textbook of Aesthetic Surgery (pp. 89-113). Springer Berlin Heidelberg.
Upchurch, R. K. (2016). A Call to Alms: Ælfric's Condemnation of Hoarding in Catholic Homily
II. 7. JEGP, Journal of English and Germanic Philology. 115(4). 413-441.
von Furstenberg, G. M. (2012). Comment on “Are the government-sponsored enterprises (GSEs)
justified?”. Housing Policy Debate. 22(2). 141-147.
Wilkerson, J. A. (2011). In Whose Shoes: Third-Party Standing and Binding Arbitration Clauses
in Securities Fraud Receiverships. JL Econ. & Pol'y. 8, 45.
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