This is when a licensed insolvency practitioner is appointed by a creditor, usually a bank, holding a debenture over the assets of a company that was created before 15 September 2003, and takes control of the company. The administrative receiver (sometimes abbreviated to receiver) decides whether to continue the business and attempt to achieve a going concern sale or shut it down. The receiver will realise the assets covered by the debenture under which they were appointed, and will account to the debenture holder and any preferential creditors (usually employees for unpaid wages, holiday pay etc.) for these funds after deducting his fees. Any balance of funds is returned to the company.
Directors can also ask for a receiver to be appointed, for instance to avoid the risk of wrongful trading. Administrative receivership is only available for limited companies and LLPs, and not partnerships.
Law of Property Act Receiver
LPA receivership is not a formal insolvency procedure and so should not be confused with administrative receivership. The statutory powers of the LPA receiver are limited to those set out in section 109 of the Land Property Act (LPA). Other powers are delegated to the LPA receiver by the mortgagee by virtue of section 109(2) of the LPA. While LPA receivers are commonly appointed where the borrower has failed to repay a loan, it can also occur where there have been other breaches of the loan, for example, a breach of the loan-to-value covenant. The fixed charge receiver is usually given extensive powers to run the business at the property and to divert the business income to the lender. The receivers primary function is to ensure payment of the debt owed to the mortgagee, usually by way of sale of the charged property. The process is not for the benefit of creditors as a whole and there is no statutory moratorium during this process.
- From a creditor perspective a receivership is extremely advantageous because it allows them to take control of secured assets and enables the process of recovering debts owed.
- From the perspective of a director receivership offers almost no advantages, as control of the company is lost and the business is essentially handed over to the receiver appointed by the debenture holder. The procedure can begin rapidly and without much warning.
- In most cases all of the assets are liquidated and are often sold at a discount to book value to speed up the debt recovery process.
Specific advice should be obtained before taking action, or refraining from taking action, on any of the issues covered above.
For further information, please contact one of our Partners who will be able to assist you.