What is receivership?

What is Receivership?

in What is receivership?

Receivership, also known as administrative receivership, is a legally sanctioned procedure where a lender, like a bank, appoints a receiver. The primary role of this receiver is to "receive" and liquidate the company's assets to repay the lender. This process is particularly beneficial to creditors as it aids in the recovery of defaulted funds. The introduction of a receivership simplifies the lender's task of securing owed funds in cases of borrower default. Receivership should not be confused with administration.The Historical Context of Receivership Receiverships are now very rare, with only 1-2 appointments each year. This is due to the Enterprise Act 2002 which promoted company rescue and saving struggling businesses. A receiver can only be appointed by a holder of a qualifying floating charge that was created before September 2003, making this procedure now an uncommon event.Why a Company Would Go into Receivership A company might go into receivership if it has borrowed against a business plan that has not worked and is suffering from cashflow problems. The bank will review the account if it sees signs that the directors are losing control. The bank will typically take some or all of the following steps:Ask for a reduction in its exposure and for new capital to be introduced by shareholders. Demand formal repayment of the loans without notice. Request a new business plan from the directors, along with regular reporting. Ask for investigating accountants to look at the business to ascertain if it is viable and if the bank's exposure is sufficiently covered.If the investigating accountant (an IP) thinks the company is at serious risk of failure and the bank may lose money, they will usually recommend that the bank appoint a receiver. The bank may also require the directors to "request the bank to appoint a receiver," which is often a face-saving measure.The Receiver's Role and Powers A receiver has a duty to collect the bank's debts only; they are not generally concerned with the other unsecured creditors or shareholders' exposure. They will quickly ascertain what the prospects for the business are and decide whether to sell some or all of the assets or the business as a whole. They may wish to get rid of assets and staff as soon as possible and may remove directors and employees without impunity. The receiver must pay the preferential debts first from any floating charge collections. They must conform to the tight rules and regulations governing receivership and report to the Department for Business & Trade. The receiver may also look at the possibility of legal actions against the officers of the company or debtors to recover funds. 

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What is Receivership?

Property in receivership – LPA receivers explained

in What is receivership?

I have heard that receivers can be appointed over property... What is property receivership and how does it work? We get asked questions related to property or LPA receivership by a number of enquirers.So who is a property receiver? How can a property go into receivership? A Fixed Charge Receiver or an LPA receiver (acting under the Law of Property Act 1925) are the more precise terms. A fixed charge receiver is normally appointed by a lender who has a mortgage or charge or other security over a tangible asset most normally a property or property portfolio. They have the power to sell property and collect rent. They will have financial control over the day to day running of the property to ensure that the debt is paid. The receiver need not be an insolvency practitioner and is more normally a specialist surveyor. How is the receiver appointed? They can be appointed very quickly and inexpensively. The lender can simply use an appointment document (reflecting the conditions of the loan) after the borrower has failed to pay on demand, or at the end of a fixed term, the monies due. In the event that the lender's security contains a floating charge over the asset or a substantial part then the floating charge element needs to be excluded from the appointment. In the case of a floating charge an appointment of an administrative receiver or an administrator is the requisite option and they must be a licensed insolvency practitioner. A fixed-charge receiver, unlike an administrator does not have the statutory powers to summons, investigate and demand information from directors and other relevant parties. What does the receiver do? Under the Law of Property Act 1925 they have the power to sell the property and collect rent on behalf of the lender. For more technical details of the powers of an LPA receiver please refer to the relevant page on the insolvency services website Duties and Liabilities of the LPA Receiver The receiver has a primary duty to the lender but they need to take into account the interests of debt guarantors and other third parties. The appointment notice needs to be filed at companies house. What if the company is already insolvent? Once a business is in a formal insolvency situation, such as administration or the grant of a moratorium pending the preparation of a CVA or IVA, this will restrict the appointment of a fixed charge receiver. This is because consent will be required of the insolvency practitioner or the court.

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Property in receivership – LPA receivers explained