What is the Difference Between Liquidation and Receivership?

 

In a liquidation, the powers of the directors to control the company are passed to a liquidator.  The liquidator has a statutory obligation under the Companies Act to realise the assets of the company for the benefit of all of its creditors, subject to certain priorities which are laid down in the Companies Act and the Personal Property Securities Act.  It is unusual for a company to survive liquidation.  Although the liquidator may decide to trade on for a short term in an endeavour to achieve a sale of part or all of the business, unless all creditors are repaid in full the liquidation of company cannot be reversed.

 

A receivership on the other hand may be a short term event.  The receiver is appointed by a secured lender to the company, frequently a bank.  His task is to realise sufficient assets to repay the secured lender before he is released.  The receiver will still take over the powers of managing the business assets during the term of the receivership.  But if, after the receiver has realised assets to repay his appointor, there is still a trading business remaining, it will be returned into the hands of the directors.

 

If the receiver is released, but there is no trading business remaining, a liquidator may be appointed by the shareholders or on the petition of a creditor.  Unlike the receiver, the liquidator has a statutory obligation to review the affairs of the business and events leading up to his appointment.