Practical tips to reduce the costs of receiverships to improve outcomes


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Practical tips to reduce the costs of receiverships to improve outcomes

Appointing a receiver is very different to appointing a liquidator or administrator.  Receiverships are useful and become necessary in circumstances when all other options are unsuccessful, and confidence has been lost in a borrower’s ability to meet their obligations.  There are also different consequences for creditors of the company and other related parties in a receivership.

Receivers are usually appointed by a secured creditor, which is often a bank or other financier that has a charge over the company’s assets, but it can sometimes be a court.  The key responsibility is simply to sell the charged assets in order to repay what is owed to the secured creditor and then to pay any surplus back to the borrower.

dVT Group is often asked by financiers for advice on realisation strategies for distressed business assets, to maximise value and to manage its impact on other key stakeholders such as employees, other financiers, suppliers and landlords.

We have successfully managed over 50 receiverships (valued at over $250 million) across all business types and locations in Australia.  One of our main objectives is to improve the outcome for key stakeholders by reducing the costs of the receivership, as explained below.

Why don’t financiers do receivership themselves?

Given that receivership costs can be difficult to control, why don’t financiers simply undertake the receivership process themselves?

Financiers have a receivership-like option of taking possession of distressed assets, known as being ‘Mortgagee in Possession’ (MIP).  However, for anything other than simple assets, financiers usually do not appoint themselves as MIP because:

  • Internal MIP costs cannot be recovered. Receivers can recoup the receivership cost from the security property.
  • MIPs can only control the security property; they do not have the same powers as receivers to bind the mortgagor.
  • Generally, financiers simply do not have the necessary time and resources to manage a distressed business and assets. This is a particular concern for non-bank lenders who have limited workout staff resources.
  • Better risk management – utilising an external professional to undertake a specialised service.
  • A receiver generally will have a better understanding of ‘duty of care’ and ‘market value’ obligations when realising assets of a mortgagor.
  • If required, a receiver can manage the mortgagor and related litigation.

Actions to reduce the costs of receivership and improve outcomes

 dVT Group recommends to financiers and other key stakeholders the following practical tips to reduce the costs of receivership and improve outcomes:

  • Choice of receiver: Select a receiver that specialises in distressed businesses and assets of the type and scale being appointed to. Receivers are like lawyers and other professionals that have experience and expertise in a range of certain industries or asset classes. dVT Group’s specialisations include retail, manufacturing, property and construction, financial services, professional services and transport.   Specialists in an industry will have extensive networks, intellectual property, knowledge, skills, experience and an appreciation for the industry that can be accessed to achieve positive impacts both on better outcomes and the cost to stakeholders.
  • Point of contact: The financier should identify who the receiver reports to, how often they report and the format. dVT recommends avoiding lengthy formal reports, preferring to update the financier regularly under an agreed email format detailing the key issues. Typically, the financier gives dVT Group the delegation to directly deal with day to day issues. This reduces time and cost and can improve engagement by other stakeholders.
  • Speed of implementation: Generally, it’s better for a lender to act quickly when serious problems are identified. Delays in decision making and obtaining credit approvals for additional funding will increase costs. Significant delays can be the difference between a surplus or loss to the financier.
  • Focus on key workstreams: The receiver’s focus should be directed to the key lines of preservation and recovery, avoiding processes and workstreams that don’t add value. The financier should regularly monitor the progress on workstreams. For example, on a distressed property development, the key workstreams are generally:
    • – Securing the site from damage, deterioration and workplace health and safety risk.
    • – Negotiating with the existing builder or securing a new builder to recommence works.
      (Retain an experienced builder on a fixed price basis and avoid cost-plus arrangements).
      –    Getting the development completed and titles registered to facilitate presales settlements.
    • – Managing the sale process.
  • Work with the borrower: Can the borrower and their staff assist with management aspects of the business to lower costs? In most cases, dVT Group retains the services of key employees that have knowledge of the business, as their cost is lower than equivalent resources provided by the receiver and other professionals.
  • Negotiate fees: A fixed monthly retainer is often considered, as it satisfies the concerns of key stakeholders regarding costs. (This generally occurs after the risks, costs and work-program of the receivership have been reasonably determined).

dVT Group’s opinion on receivership

In our opinion, receivership is a process that often reduces value and is only required in circumstances where confidence has been lost in the borrower, or the borrower is otherwise negatively impacting the value of the security. Accordingly, dVT Group encourages and assists borrowers to work with financiers to avoid receivership.

However, if there is no alternative to receivership, dVT Group works hard to identify opportunities to lower cost and improve outcomes for key stakeholders. This includes working in a co-operative way with the borrower.  If the borrower is uncooperative, dVT is fully equipped and experienced to bring the necessary full force (as a last resort) to maximise the financier’s position.

In dVT’ s experience, financiers can fall into subtle traps with subsequent problems that could have been avoided by tapping into dVT Group’s broad and deep experience gained over 30 years. We welcome the opportunity to help financiers in this regard.

If you would like further information on receivership models and pricing, please contact either Riad Tayeh, Antony Resnick or Mark Robinson of dVT Group or send an email to mail@dvtgroup.com.au.

dVT Group is a business advisory firm that specialises in business turnaround, insolvency (both corporate and personal), business valuations and business strategy support.

July 2020