A company discovered to be bankrupt or insolvent to the point of being unable to pay its debts or continue business operations is a trigger for a chain of events that can could lead to the company being restructured or falling into a winding up procedure, but before this the first step is to enter the company into receivership and management which involves the appointment of a person known as a receiver and/or manager charged with the administration of the company and receiving its income for the satisfaction of priority debts until they have been exhausted.

With the novel Introduction of Administration (which i talked about in an earlier article), it is thus prudent to see what becomes of receivership and management as a lnsolvency tool under the Companies & Allied Matters Act (CAMA)2020, which will be the focus of this article.

Who is disqualified from being appointed as a receiver/manager under CAMA 2020?

The following persons shall not be appointed or act as receivers or managers of any property or undertaking of any company :

(a) an infant ;

(b) any person found by a competent Court to be of unsound mind ;

(c) a body corporate ;

(d) an undischarged bankrupt, unless he is given leave to act as a receiver or manager of the property or undertaking of the company by the Court by which he was adjudged bankrupt ;

(e) a director or auditor of the company ; and

(f ) any person convicted of any offence involving fraud, dishonesty,official corruption or moral turpitude or who is disqualified under section 280 of CAMA 2020.

It should be noted that any appointment made in contravention of the provisions of subsection(1) of the provisions of CAMA regarding qualification to be appointed a receiver, is void and if any of the persons named in paragraphs (c), (d), (e) and (f )acts as a receiver or manager, he commits an offence and is liable to a fine in such amount as the  Corporate Affairs Commission (CAC) shall specify in its regulations, and in the case of a body corporate or, in the case of an individual, to imprisonment for a term not exceeding six months or a fine as the Court deems fit.

– Where any of the persons mentioned in subsection (1) is at the commencement of this Act acting as a receiver or manager, he may be removed by a Court on an application by a person interested in the cause of action. 

What does the act say on the power of the court to appoint a receiver?

Where an application is made to the Court to appoint a receiver on behalf of the debenture holder or other creditors of a company which is being wound up by a court, an official receiver may be appointed.

What does CAMA 2020 say about the appointment of receivers and managers by the court?

-Notwithstanding the provisions of section 233 (1) (d) of CAMA 2020, the court may, on the application of a person interested, appoint a receiver or a receiver and manager of the property or undertaking of a company if the:

(a) principal money borrowed by the company or the interest is in arrears ; or

(b) security or property of the company is in jeopardy.

-A receiver or manager of any property or undertaking of a company appointed by the Court is deemed to be an officer of the Court and not of the company and shall act in accordance with the directions and instructions of the Court.

What does CAMA 2020 say about receivers and managers appointed out of court?

A receiver or manager of any property or undertaking of a company appointed out of Court under a power contained in any instrument is, subject to section 554 of this Act, deemed to be an agent of the person or persons on whose behalf he is appointed and, if appointed manager of the whole or any part of the undertaking of a company, he is deemed to stand in a fiduciary relationship to the company and observe the utmost good faith towards it in any transaction with it or on its behalf.

– Such a manager:-

(a) shall act at all times in what he believes to be the best interests of the company as a whole so as to preserve its assets, further its business, and promote the purposes for which it was formed, and in such manner as a faithful, diligent, careful and ordinarily skillful manager would act in the circumstances ; 

(b) in considering whether a particular transaction or course of action is in the best interest of the company as a whole, may have regard to the interests of the employees, as well as the members of the company, and, when appointed by, or as a representative of, a special class of members or creditors may give special, but not exclusive, consideration to the interests of that class.

-Nothing contained in the articles, or in any contract, or in any resolution of a company, shall relieve any manager from the duty to act in accordance with the relevant provisions of CAMA or relieve him from any liability incurred as a result of any breach of such duty.

What are the duties and powers of receivers and managers under the act?

A person appointed as a receiver of any property of a company shall, subject to the rights of prior encumbrances, take possession of and protect the property, receive rents and profits and discharge all out-goings in respect thereof and realise the security for the benefit of those on whose behalf he is appointed, but unless he is an appointed manager, he does not have power to carry on any business or undertaking.

– A person appointed manager of the whole or any part of the undertaking of a company shall manage the same with a view to the realisation of the security of those on whose behalf he is appointed.

-Without prejudice to subsection (1) or (2) of the relevant section of CAMA 2020, where a receiver or manager is appointed for the whole or substantially the whole of a company’s property, the powers conferred on him by the debentures by virtue of which he was appointed are deemed to include (except they are inconsistent with any of the provisions of those debentures) the powers specified in the Eleventh Schedule to this Act.

– From the date of appointment of a receiver or manager, the powers of the directors or liquidators in a members’ voluntary winding-up to deal with the property or undertaking over which he is appointed, shall cease, unless the receiver or manager is discharged or the security is realised.

– If, on the appointment of a receiver or manager, the company is being wound up under the provision relating to creditors’ voluntary winding up, or the property concerned is in the hands of some other officer of the court, the liquidator or officer shall not be bound to relinquish control of such property to the receiver or manager except under the order of the Court.

What does the act say on the liabilities of receivers and managers in contracts?

-A receiver or manager of any property or undertaking of a company is personally liable on any contract entered into by him except in so far as the contract otherwise expressly provides.

– As regards contracts entered into by a receiver or manager in  of the proper performance of his functions, such receiver or manager is, subject to the rights of any prior encumbrance, entitled to an indemnity in respect of liability thereon out of the property over which he has been appointed to act as a receiver or manager.

-A receiver or manager appointed out of court under a power contained in any instrument is also entitled, as regards contracts entered into by him with the express or implied authority of those appointing him, to an indemnity in respect of liability thereon from those appointing him to the extent to which he is unable to recover in accordance with the relevant provisions of CAMA 2020.

What does CAMA 2020 say on the power of the court to fix remuneration on the application of liquidators?

– The Court may, on the application of the company or the liquidator by order fix the amount to be paid by way of remuneration to any person who, under the powers contained in any instrument, has been appointed as a receiver or manager of the property of the company.

– The powers of the Court under subsection (1) shall, where no previous order is made under that subsection:

(a) extend to fixing the remuneration for any period before the making of the order or the application ;

(b) be exercisable notwithstanding that the receiver or manager has died or ceased to act before the making of the order or the application ;

(c) extend, where the receiver or manager has been paid or has retained as his remuneration for any period before the making of the order any amount in excess of that so fixed for that period, to requiring him or his personal representatives to account for the excess or such part as may be specified in the order :

• a) Provided that the power conferred by this paragraph shall not be exercised as respects any period before the making of the application for the order unless,in the opinion of the Court there are special circumstances making it proper for the power to be exercised.

– The Court may, on an application made by the company, liquidator or by the receiver or manager, vary or amend an order made under the relevant section of CAMA.

– This section applies whether the receiver or manager has been appointed before or after the commencement of this Act.