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power to do so is an archaic equitable remedy which a creditor exercised in order to
safeguard his or her interests. 3 Initially, the creditor would have to apply to the court
in order to appoint a receiver and later begin to include such right in contracts. The
appointment of a receiver gained popularity at the same time floating charge
obtained legal recognition in the latter part of the nineteenth century. 4
A receiver owes his or her duty to the debenture holder who makes the appointment,
as seen from the judgment of Evershed M.R in Re B Johnson & Co (Builders) Ltd. 5
However, it is acknowledged the company and other creditors also have an interest
in relating to the realization of the company‘s assets. In Downsview Nominees Ltd v
First City Corporation Ltd, 6 in an appeal from New Zealand, the Privy Council
reiterated the findings of Evershed M.R in Re B Johnson & Co (Builders) Ltd 7 and
held the receiver breach his duty if he abuses the powers conferred in the debenture
to preserve and realize the assets. The receiver in the case was appointed not for the
purpose of preserving and realizing assets held under the debenture but to prevent the
plaintiff from enforcing the second debenture. Further, in the absence of mala fides
and fraud, the company cannot complain even though the receiver‘s action put the
company or other creditors in a disadvantaged position.
A receivership is used to enforce a charge holder‘s right which means assets subject
to the debenture will not be available to unsecured creditors. 8 The usual scenario is at
the twilight of financial difficulties, a debenture holder would exercise his or her
3 Bond Brewing Holdings Ltd v National Australia Bank Ltd (1990) 1 ACSR 445 at 456.
4 Krishnan Arjunan and Low Chee Keong Lipton & Herzberg’s Understanding Company Law in
Malaysia (LBS Information Services, NSW,1995) at 412.
5 [1955] 2 All ER 775, Evershed M.R at 780 stated ―…not with any duties to carry on the business of
the company, in the best interests of the company, but in order to realise, for the debenture holders
or mortgagees, the security which they had got; and only for that limited purpose is he given the
power of management.‖
6 [1993] 1 NZLR 513 at 522-524.
7 [1955] 2 All ER 775.
8 Eilis Ferran ―Floating Charges-The Nature of the Security‖ (1988) 47 CLJ 213 at 216.
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