A guide for employees
Your employer has gone into receivership - what does this mean for you?
If you work as an employee for a company that has been placed in receivership you will understandably want to know about your employment status.
This guide has been prepared to give employees some general information about receiverships. However we must point out that this guide is necessarily of a general nature and may simplify the circumstances of the receivership that affects you.
Receiverships Generally
A receivership typically occurs when a company defaults on the terms of a secured loan. In practical terms that means that the company is unable to pay interest or principal that is due. Receivers are appointed by the secured party (often a bank or finance company) to secure the company's assets.
The receivers work for the party that has appointed them (the "appointor"). The receivers will work to return the money owing to the appointor. This may be achieved by selling the business if that is possible, or by selling the assets of the company, or both. The course of action actually taken will be with a view to bringing about the best financial result. While the receivers work for their appointor, they do have a duty of care to the company's other creditors.
Companies in receivership means that the receivers have absolute control over all aspects of the company. The directors' powers over the company are ceased and they nor anyone else other than the receivers have the power to make decisions concerning the company and its assets.
The following are examples of actions that receivers may take immediately after being appointed:
* Securing the premises and taking control of all of the company's assets
* Taking over the company's bank accounts
* Meeting with the board of directors to discuss issues
* Meeting with employees to explain the reasons for the receivers' appointment
* Organising stocktakes of fixed assets and inventory
* Contacting key suppliers and organise services to the receivership company
Your Employment
Under law the receivers have fourteen days from their appointment to confirm or end your employment. Until that decision is made, amounts you earn under the receivership are guaranteed by the receivers.
The receivers will discuss their intentions with you. Please appreciate that it can take some time to determine the extent of the company's financial situation and accordingly what action will be taken. You will be paid by the receivers for any work you are asked to do while decisions are made regarding employment.
If a decision is made to retain your services you may be offered a new employment agreement. The new agreement may provide for reduced notice terms or casual employment to reflect the shorter term nature and uncertainties of the receivership. If you are not offered ongoing employment your existing employment agreement will be ended. In either case you should be provided with a letter detailing the situation.
Amounts Owing To You
Amounts owing to you as an employee at the time of appointment of receivers (e.g. wages/salary, holiday pay) are a preferred debt of the company. This means that you will get paid before unsecured creditors (but not necessarily before other securities). Whether you will receive the any or all of the amounts owing to you at the time receivers are appointed will depend on the amounts recovered under the receivership as well as where your claim ranks against the claims of other creditors. There are also maximum amounts that are treated as preferential. This means that if significant amounts are owed to you, some of that amount may be treated as preferential and some may be treated as unsecured. The receivers will examine the company's records to confirm the amounts that are due to you.
Trading on or Closing the Business
The receivers will normally gather more information about the actual financial position of the company before deciding whether to cease operating the company, or to trade on.
If trading does continue this would normally occur with a view to selling the business and/or the assets.
Receivers are appointed only so long as to achieve a sale of the business and/or the assets. Once the maximum amount of value has been obtained for their appointor the receivers will retire their position. This can range between a few weeks to a number of months, even longer.
You should feel free to contact the receivers with any concerns and queries that you may have.
For general information regarding receiverships please contact us.
The information provided is of a general nature and is not intended to address the circumstances of any particular person or entity. Although we try to provide accurate and timely information, there is no guarantee that this information is accurate as of the date it is received.
No one should act on this information without appropriate professional advice after a thorough review of the particular situation. It is always important to ask your accountant's advice before you take action. It's almost always easier [and cheaper] to structure things properly upfront, as opposed to trying to fix something later.
