06 Sep Appointment of a receiver or manager of the property of a company
Appointment of a receiver or a manager of the property of a company
by George Coucounis
“It is a contractual right and is not subject to validation by the Court or approval or acceptance by the Registrar of Companies “
The security afforded to a company creditor by a debenture of floating charge on the assets of a company proves its worthiness when the company does not meet its obligations and the creditor exercises the right to appoint a receiver/administrator. The floating charge becomes fixed and is attached to the assets of the company which the receiver/administrator collects into his possession with the aim of liquidating them to the interest of the debenture-holder to satisfy the company’s debt. The appointment of a receiver/administrator is made on the basis of the terms of the debenture, is a contractual right of the secured creditor and is not subject to validation by the Court or approval or acceptance by the Registrar of Companies. Relevant is the provision of article 97 (1) of the Companies Law, Chapter 113, which states that if any person obtains an order for the appointment of a receiver or manager of the property of a company, or appoints such a receiver or manager under any powers contain in any instrument, he shall, within seven days from the date of the order or of the appointment under the said powers, give notice of the fact to the Registrar of Companies, and the Registrar shall, on payment of such fee specified, enter the fact in the register of charges.
The submission of a notice for the appointment of a receiver or administrator of a company and its registration in the register of charges of the Registrar of Companies, as emphasized by the District Court of Limassol in its judgement issued on 25.7.2022, aims at the formal completion of his appointment act and is made to give the necessary publicity and enforceability to third parties. The existence of a company liquidator does not legally preclude the appointment of a receiver/administrator under the debenture of the floating charge, just as it can happen before a winding-up order has been made. In fact, the issuance of a liquidation order itself, as the Court states, constitutes the event that crystallizes the floating charge. The receiver/administrator appointed by the creditor has limited powers and acts only as the representative of the creditor who appointed him and cannot also act as the representative of the company in liquidation or other creditors, unless is authorized by the liquidator.
The Court was dealing with an application of a receiver/administrator seeking an order that his appointment was valid and legal, as well as an order ordering the Registrar of Companies to deliver to him documents confirming his appointment. The creditor who appointed him sent the proper notices of his appointment under section 97 (1) within the prescribed period, but the Registrar returned the relevant forms to him, informing him that the requested services were rejected because the companies were under liquidation. The Registrar relied on Article 220 of Cap.113 which provides that when a winding-up order has been made or a provisionally liquidator has been appointed, no action or proceeding shall be proceeded with or commenced against the company, except by leave of the Court and subject to such terms as the Court may impose.
The finding of the Court was that it had before it not an action for ascertainment of substantive rights, but a corporate application by an applicant purporting to be appointed under a debenture of floating charge and a request for directions in relation to his duties. The completion of his appointment is disputed as the formal part of the appointment process was not completed, due to the possibly incorrect interpretation of the Law by the Registrar of Companies, who returned the notifications to the creditor as not accepted. The Court recognized that the remedies sought by the applicant were premature to be considered as it preceded the completion of his appointment process which could not be circumvented. The applicant could bring an action to seek any remedies under contract law. However, he is entitled to file an application only if the process of his appointment is completed and exercises corporate duties.
The Court concluded that it does not validate the appointment of receiver/ administrator made on the basis of a debenture of floating charge and no such validation can be sought in the context of the application. A more appropriate remedy for the resolution of such civil rights-defining disputes would be an action, so that the relevant evidence bearing on the contractual rights can be fully presented and evaluated. Therefore, it could not issue any of the orders requested by the applicant and rejected his application.