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ight to appoint a receiver. The receiver would then collect the assets, realize and
distribute them to the debenture holders. 9
Consequently, the unsecured creditor would not benefit from the mechanism unless
the debenture holder surrendered the assets to the company for the benefit of the
general creditors. The unsecured creditors often find themselves at a disadvantage
because once a receiver is appointed, there is a possibility he or she would expedite
the processes to dispose the assets, pay the debenture holder and discharge the duty.
In doing so, the receiver has, in most cases, deprived unsecured creditors of the
opportunity to maximize the amount paid to them. This is because when a receiver
rushes in to realize the property, it also prevents the company with high potential to
survive from being saved.
In some instances, even if the company is sold eventually, it may attract a higher
value than if it is dismantled and sold in pieces. The unsecured creditors in this
circumstance do not have any legal redress. They could not make use of the court-
appointed receiver because it has been shown that court had no power to permit the
appointment of a receiver to manage the affairs of the company when the company is
in financial difficulties. 10 The right to do so is only conferred on the debenture
holders whose security is at risk.
The court rejected an application by the unsecured creditor in Bond Brewing
Holdings Ltd v National Australia Bank Ltd 11 to appoint a receiver. The bank in the
case had lent on an unsecured basis and was concerned that the company was
disposing of its assets to the prejudice of the applicant. The judge has to be cautious
in appointing a receiver since it empowers the receiver to deal with the property
without company‘s consent. A receivership in this context is equivalent to the
invasion of the company‘s privacy and has long lasting effect, although the process
9 Ibid.
10 Bond Brewing Holdings Ltd v National Australia Bank Ltd (1990) 1 ACSR 445.
11 (1990) 1 ACSR 445 at 456-458.
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