Receivers & Managers: A 101

Where a company has charged its properties to another company or bank via a debenture or any other instrument creating a charge, most commonly as security for the repayment of a debt, the parties may also agree that the instrument holder has the power to appoint a receiver or a receiver and manager in certain circumstances. For instance, a default on the repayment of the debt. 

The distinction between a receiver and a receiver and manager is perhaps best encapsulated in the 1880 English case of Re Manchester & Metford Railway (1880) 14 Ch D 645, wherein Jessel MR clarified that a ‘receiver’ means a person who merely takes the income and pays necessary outgoings, whereas a ‘receiver and manager’ has all the powers of a receiver and additionally, has the authority to carry on the trade or business of the company. 

This article seeks to give you a brief oversight on the law relating to receivers and receivers and managers in Malaysia. However, for the purposes of this article only, we will generally use the abbreviation “R&M” to refer to both ‘receivers’ and ‘receivers and managers’.

Qualification to Act as an R&M

The basic qualifications for a person to be appointed as an R&M are the same qualifications for a person to be appointed as a liquidator and/or interim liquidator, i.e. that person is:

• An approved liquidator;
• Not indebted to a related company in an amount exceeding RM25,000.00;
• Not an partner, employer, employee of the company, or the partner or employee of an employee of an officer of the company;
• Not bankrupt; and
• Not convicted of an offence involving fraud or dishonesty punishable on conviction by imprisonment of 3 months or more.

In addition to the above, the following persons are also disqualified from acting as R&Ms:

• A corporation;
• A mortgagee of any of the company’s property;
• An auditor of the company; and
• An officer of the company or any corporation which is a mortgagee of the company’s property.

Appointment of R&M

An R&M must be appointed either by the Court, or under an instrument, although the latter is much more common than the former. However, keep in mind that the instrument must either confer on the instrument holder the power to appoint an R&M, or it must be any instrument that creates a charge in respect of property and undertaking of a company that also confers on the charge holder the power to appoint an R&M.

The Court may appoint an R&M, but only on the application of an interested party (ie: a shareholder or creditor) or a debenture holder. An appointment of an R&M by way of Court Order is typically exercised to preserve and safeguard the company’s assets from being dissipated. 

Powers of an R&M

After being appointed, an R&M shall have all the powers and authorities expressly or impliedly conferred by the instrument or by the Order of Court (whichever applicable), by or under which they were appointed. They also have all the powers specified in the Sixth Schedule of the Companies Act, 2016, although any/all of these powers can be specifically excluded by the instrument or by the Order of Court (whichever applicable) appointing the R&M. 

In general, an R&M (but always depending on whether they are a ‘receiver’ or a ‘receiver and manager’) will have the power to take possession and control of the company’s property, to lease, let on hire, or dispose of the company’s property, to obtain insurance, borrow money, make improvements to the property, or sell the company’s property. R&Ms also have the power to carry on the company’s business, to bring or defend any proceedings in the company’s name and on behalf of the company, to inspect the company’s books, and to execute any document on behalf of the company. 

Therefore, we can see that an R&M generally has ‘control’ of the company over which they are appointed, though these powers are always limited to the instrument or Court order appointing them and/or the Companies Act, 2016. 

Even after a company has had winding up proceedings commenced against it, the R&M may continue to act as an R&M and as an agent of the company. A receiver may continue to act as a receiver and exercise all the powers of a receiver, but only in respect of the property or assets secured under the debenture appointing on the receiver. On the other hand, a receiver and manager may continue to act as a receiver and manager for the purpose of carrying on the company’s business, provided that they obtain the liquidator or the Court’s consent.

Duties of an R&M 

Upon being appointed, an R&M must send a notice informing her appointment as an R&M to the company. Upon receiving this notice, the company must submit a ‘Statement of Affairs’ within the next 14 days. This Statement of Affairs must state such details as the particulars of the company’s assets, debts and liabilities, the creditors’ names, address, and the securities held by them, and any such other information required by the Companies Commission of Malaysia. 

Upon receipt of the Statement of Affairs, the R&M then has 30 days to do the following:

• Lodge a copy of the Statement of Affairs with the Companies Commission of Malaysia, together with any comments that the R&M thinks fit to make on the statement;  
• Send a copy of the R&M’s comments on the Statement of Affairs to both the company (or if the R&M has no comments, to send a notice to the company informing the company of the same); and
• If the R&M is appointed by or on behalf of debenture holders, send a copy of the Statement of Affairs and the R&M’s comments to the debenture holders’ representative (or if the R&M has no comments, to send a notice to the debenture holders’ representative informing her of the same).

Additionally, the R&M must also ensure that the account of receipts and payments is prepared every 6 months from the date the R&M was appointed, and also that the same is lodged with the Companies Commission of Malaysia within 30 days from the expiry of each 6-month period.

If an R&M is appointed, or possession is taken, on behalf of any debenture holders secured by a floating charge, then the R&M must ensure that all liabilities that rank in priority to the debenture holders are met. These payments that take priority include the costs, expenses, remuneration, or indemnity of the R&M, all wages, salaries, contributions, and other remuneration owing to employees.

Potential Liabilities of An R&M

Unless otherwise provided for in the instrument appointing them, any R&M entering into possession of any assets of a company to enforce a charge shall be liable for debts incurred by them in the course of the receivership or possession, for services rendered, goods purchased, or property (whether hired, leased, used or occupied).

Furthermore, unless otherwise provided for in the instrument appointing them, R&Ms are also personally liable for any contract entered into by them in the exercise of their powers.

That being said, the R&M can include clauses in any contracts they enter into in their capacity as the R&M to exclude or limit their personal liability.

Conclusion

The Companies Act, 2016, has provided greater clarity on the law pertaining to receivers and receivers and managers as compared to its predecessor legislation, the Companies Act, 1965. One of the biggest changes would include specifying an R&M’s powers such as those listed in the Sixth Schedule of the 2016 Act. 

The overhaul is a welcome change, and it will be interesting to see how some areas relating to receivers and receivers and managers will be further clarified through case law.