Administrative receivership is a process that may be instigated by a lender to recover debt in the event that the company has breached the terms of the contract. Administrative receivership can only be used when the lender holds a floating charge over the assets and when the company has breached the terms of their contract. The aim of administrative receivership is for the lender to recover the money owed to them, but how does the process work? Let’s find out.
How Does Administrative Receivership Work?
If a creditor has grounds to impose administrative receivership onto a company i.e they hold a floating charge and have evidence that the terms of the contract have been breached, they may appoint an administrative receiver to recover the debt. The receiver, who is usually an insolvency practitioner takes control of the company’s assets that are covered by the floating charge. Their aim is to recover the money that is owed to the lender by selling the assets, which in the most severe of cases may involve selling the company itself on a going concern basis. A company can only enter into receivership if it has a secured debt of £750 or more, on a debenture created before 15th September 2003.
What Is The Difference Between Receivership And Administration?
One of the most common questions that is asked when talking about administrative receivership is ‘what is the difference between receivership and administration?’. The main difference between the two is that administrative receivership is not aimed at protecting the company like an administration is, but rather is aimed at recovering debts for secured creditors. Administrative receivership does not prioritise the interests of directors and shareholders, and puts the receiver in control. That’s why, when a director recognises that their company is facing financial difficulty they should consult professional insolvency advice as soon as possible. This will provide them with business rescue options, such as administration. Allowing the situation to escalate could result in action being taken against the company through the likes of administrative receivership which debilitates the powers of directors.
What Powers Does The Receiver Have?
Once appointed to control the assets held by a floating charge, the receiver has certain powers in an administrative receivership. These include:
- Looking into the business’ current finances in order to assess its prospects and decide how to proceed with the sale of the assets. This will be done without needing to consult with directors.
- The ability to take possession of assets and put them up for sale as required
- The right to dismiss employees or directors if this is deemed necessary
- The ability to investigate the conduct of directors
- Prioritising repayments to preferential creditors above other parties
- Depending on the terms of the floating charge, the receiver may sometimes have the ability to sell the company if this works in the interests of creditors
In short, the receiver has extensive powers to recover the debt owed, as guided under the Law of Property Act and any fixed charge provisions written into the debenture itself.
If your company is struggling to pay its debts to a lender, it’s important to consult the advice of a licensed insolvency practitioner as soon as possible. They will be able to talk you through options for recovering your business, or for closing your business down correctly. You do not want the problem to escalate to a point where you as a director lose your powers through an administrative receivership. Don’t hesitate to get in touch with our experienced team of insolvency professionals today for confidential advice.