In a captivating scene that unfolded in early October 2023,  reported in an article published online by the Daily Mail,  groups of employees dressed in their work attire gathered outside the family court building at Sydney CBD to show support to their employer during a court hearing. At the centre of this family law matter is the employer, a Husband entangled in a property settlement with his former Wife. At the hearing, the Husband’s lawyer commented that the Husband was determined to ensure the company's survival and the continued employment of its staff. Whereas the Wife intends to remove the Husband who currently controls the company and replace him with a receiver. While due to confidentiality and privacy reasons, the details of these cases remain unknown, the Daily Mail’s article prompted New South Lawyers’ Family Lawyers to provide their thoughts on the intricacies of appointing a receiver in family law matters, in this post.

Appointing a receiver in Family Law matters

Generally, a party to a court proceedings for property settlement by application to the Court, or the Court by its own volition, can appoint a receiver. Receivers are appointed in family law matters when it is essential to conserve, preserve, protect, and administer an asset of the relationship. A receiver may be appointed in a court matter where one spouse does not have control or access to the dealings or records of a business but requires updated and current finance information relevant to the business, to ascertain the status of the business and to build their case.

A receiver may be appointed in circumstances where the party with control of the business deliberately withholds relevant information and/or fails to comply with their duties of disclosure, despite repeated requests for disclosure. The Court in such circumstances may appoint a receiver for assistance with preservation, documentation, and information gathering that are relevant to advance the court proceedings.

Also, a receiver can be appointed when a party who is in control of assets of the relationship including business entities, deliberately breaches Court orders by refraining from making payments for child support, spousal maintenance or order such payments as ordered by the Court.   In such cases, the court may appoint a receiver to administer, control and manage the assets of the business to ensure distribution of funds to the other party. The receiver in such cases is appointed over the personal assets of the non-compliant party.

Another instance in family law property settlement proceedings when a court can appoint a receiver is when there are reasonable grounds to believe that a party with ultimate control of a business is deliberately swindling funds, misappropriation of assets or engaging in business activities that will defeat the other parties’ claim. The Court may appoint a receiver to control the affairs of the business to ensure a fair outcome. Subject to the facts of the case, it may be necessary to join the receiver as a party to the proceeding.

In certain situations, the court may assign a receiver to assume control of an asset, such as a company, and to prevent its disposal. Rule 11.49 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (The Family Law Rules) provides the relevant guidelines for considering receiver appointments and outlines the receiver's power.

In family law matters disputes can emerge concerning the company's management or asset handling. In such cases, the appointment of a receiver may be necessary.

What is their role in a Family Law property settlement? 

A receiver can be very useful in property settlement proceedings. The appointment of a receiver plays a pivotal role in maintaining the company's assets and inherently preserving the assets of the relationship. In certain family law matters, the appointment of a receiver may be required to benefit one or both parties involved.

One of the main reasons for the appointment of a receiver is to preserve and dispose of assets, in accordance with court orders. Another primary objective of the receiver is to facilitate the repayment of debts to creditors by selling the company's assets.

Returning to the above example, the Wife was adamant in preventing the sale of the company’s properties and placed an injunction on one of the company’s properties to ensure it did not sell. The purpose of this injunction was to ensure that the property would be included in the overall asset pool. However, this action can have broader implications beyond the Husband and Wife who are parties to the proceedings and may affect cash flow in the business.

Legal professionals in family law often advise clients to communicate openly with their ex-partners about gifts expectations. This ensures that both parties are on the same page regarding the amount spent on gifts for the children or on behalf of the children, preventing misunderstandings and potential disputes that could arise from unmet expectations.

The impact of appointing a receiver in Family Law: A conclusion

There are some benefits to the appointment of a receiver as it is likely to safeguard a company's assets from depletion and inherently the asset pool. This serves as a potential advantage for all parties involved in the legal proceedings since it allows for the preservation of assets in accordance with court orders. Also, having a receiver may guarantee the protection and maintenance of assets throughout the duration of family law proceedings. Further, if there are existing payment orders, such as spousal maintenance or partial property settlement orders in favor of a party, the appointment of a receiver can facilitate the identification of the  assets and liabilities, that could be potentially used as a source of funds to enforce payments under the orders in favor of the applicant party.

The primary drawback of an appointed receiver is the loss of control by the parties over the company. Additionally, the fate of the employees may become uncertain since a party to the proceedings no longer holds authority and control. However, this will depend on the terms of reference and scope of works of the receiver and the parameters within which the Court Order allows the receiver to operate. The receiver's impact extends beyond just the parties, affecting various stakeholders, secured creditors, and the company's employees.

Another issue with the appointment of a receiver is that their fees may be significant and such fees are likely to come out of the asset pool, thereby diminishing the value of the net asset available for distribution.

New South Lawyers have acted in cases that involved exploring the option of appointing a receiver over a company that is ultimately controlled by the other party,  to protect and maintain the parties’ assets and/or enforce financial orders. Our experienced lawyers are committed to providing solutions to common and complex property settlement matters. .

New South Lawyers’ communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication.

To find out more, chat with a member of New South Lawyers' Family Law Team today.