Administrative Receiverships - Process

WHO CAN APPLY?

A secured creditor with a valid floating charge over the assets of the company.

THE APPOINTMENT?

An appointment can only be made if the terms of the debenture/security over the assets of the company have been breached.

The terms of the debenture are specific to each company, but generally if formal demand for repayment of a loan is made, and repayment is not possible, the secured creditor will be entitled to appoint an Administrative Receiver.

Prior to an appointment, the floating charge holder is likely to ask an Accountant or Insolvency Practitioner "IP" to investigate the company's affairs and report whether Administrative Receivership is the best route for the charge holder to recover or fully secure its funds.

If receivership is appropriate an Administrative Receiver will be appointed preferably with the company's consent. The appointment is by way of a written request to the proposed Administrative Receiver and acceptance by the proposed Administrative Receiver, in accordance with the Insolvency Act 1986.

DURING RECEIVERSHIP

The directors powers over the assets of the company subject to the bank s charge cease. The Administrative Receiver has wide ranging powers to deal with these assets to achieve repayment of the chargeholder s debt. In effect this usually means that control of the business is in the hands of the Administrative Receiver.

The Administrative Receiver will quickly review the company s financial position and make a decision as to whether trading should continue to protect the value of the company s assets. If cash flow is tight, it may be appropriate to sell off surplus assets to cover trading costs. A sale as a going concern generally generates more money than selling off the assets on a piecemeal basis. Also the Receiver will want to see if jobs can be safeguarded through a going concern sale.

The Receiver also has the responsibility to investigate the conduct of the directors of the company and report to the Secretary of State. For further information, read Director's Responsibilities- disqualification.

The Administrative Receiver has a duty to pay preferential creditors from floating charge assets but cannot make a distribution to unsecured creditors.

The Administrative Receiver must convene a meeting of the company's creditors within 3 months of appointment, unless liquidation intervenes, and report on the steps they have taken to recover funds for the floating charge holder.

CONCLUSION

If there are surplus funds after paying out the secured creditors and the preferential creditors (See Schedule 4 IA1986), steps need to be taken to place the company into liquidation.

As an alternative to liquidation, it is possible that the company can be handed back to the shareholders, but this is rare and complex.

 

The Next Step

The options for a financially distressed business need to be very carefully considered. Simply forward your details on our Contact Form and we will contact you. Alternatively ring us on our FREEPHONE ADVICE LINE 0800 781 0990.

There is  free debt help and advice available through a variety of debt charities. For more information, we recommend you visit https://www.moneyadviceservice.org.uk/en/tools/debt-advice-locator Alternatively if you are a business owner, self-employed or in a partnership, we recommend you visit https://www.businessdebtline.org/.

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