What is receivership?

 

Receivership is a legal tool that can be used by banks and other financial institutions when a business is in trouble. After the Enterprise Act 2002, it is only available on securities created before 15th September 2003.

For securities created before this date, administrative receivership remains part of a range of options available to the courts and to lenders when they see a business in financial difficulty.

Receivership is distinct from administration and liquidation, although all three relate to businesses in difficulty.

If you would like advice regarding receivership, call us on 0800 1777 162 now.

How it happens

A business is ‘placed in receivership’ by its lenders, usually banks or other creditors, who have a charge over most of the company’s assets.

They will have decided that they would like an administrative receiver to come in to act in their best interests and to recover the money that they are owed by the company.

Any lender with a ‘floating charge’ can initiate receivership when a company breaks the terms of its borrowing agreement. The circumstances when this may happen are usually defined within the terms of that charge.

In such circumstances the lender may then appoint an administrative receiver (always a licenced insolvency practitioner) to recover any money owed.

The administrative receiver

The administrative receiver is extremely powerful. Once appointed they effectively take over the management of the company’s business from its directors. The driving force behind all their decisions is to secure enough capital to pay for the receivership itself, to settle preferential debts and to repay the charge holder who appointed them.

For securities granted after 15th September 2003, and for most other businesses in difficulty, the process of court appointed administration has largely replaced administrative receivership. The process and outcomes of administration is quite different, all be it that it often arises in similar circumstances when a business is in trouble and is struggling to pay its debts.

You can learn more about company administration by visiting our pages on the subject.

Receivership and administration provide technical legal outcomes to complex financial situations. As such all businesses in trouble are advised to seek early legal advice from an experienced insolvency law solicitor.

If you would like to obtain legal advice on receivership or advice about the options for a solvent or an insolvent company, we can put you in touch with a local specialist insolvency solicitor free of charge. Please call us on 0800 1777 162 or complete the web form above to speak to an advisor.

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