These questions and answers will give more detailed background to the Administrative Receivership technique. If you have any further general or specific questions email us or complete the contact form.
Q: How does it happen?
A: Receivership can happen very quickly once the bank loses faith in the directors. The best policy is to work with the bank and produce a survival plan having taken professional and expert advice.
Q: But the bank can’t just appoint a receiver can they?
A: Yes – read the terms of the debenture closely – you will be surprised how little power you have to prevent it. In truth the bank will generally have exhausted all possible avenues to help to try to preserve the business. If the directors are manifestly not up to the job or will not listen, will not take professional advice, they will lose patience quickly.
Q: Can we stop them?
A: Not normally. However if you talk to an experienced turnaround practitioner they can often persuade the bank that their involvement will lead to a review of viability followed by a professional recovery plan and the bank will usually give time for this to happen (within strict financial constraints)
Q: How can we avoid receivership?
A: Follow the guidance on this site. Discuss the problems with your key people. What caused them and how you can get round them. Build a plan for survival. Discuss this clearly with the bank. If in doubt about the correct route speak to a turnaround practitioner or a quality insolvency practitioner who lists rescue and recovery as a specialty. Be warned most are still looking for liquidations and receiverships (undertakers)
If the bank wants to put investigating accountants in; wait until you have a built workable plan and then sell this HARD – to the investigating accountant.
Above all demonstrate a professional and determined approach to saving a viable business – procrastinate at your peril – the bank will not wait for that silver lining.
Q: What does the receiver do?
A: See the guide to receivership
Q: I have heard that receivership is a rescue procedure – please explain?
A: Many insolvency practitioners describe selling the business or its assets to a third party out of receivership as a rescue technique. Although some part of the activity may remain I cannot understand how the loss of almost all creditors’ monies, jobs and all shareholders’ funds, followed by the liquidation of the company, can be described as a rescue!
Q: What happens if the receiver does not get the banks money back in full?
A: He/she may rely upon the banks other securities. Obviously if the directors, shareholders or even a third party has signed a personal guarantee to pay money to the bank in the event of a failure to recover its loans, then the receiver pursues this as if it were an asset of the company. The receiver may also look at the possibility of legal actions against the officers of the company or debtors or creditors to recover funds
Q: What happens to my personal guarantees in receivership?
A: Unless the receiver recovers all loans due the bank after his/her fees (and any payments due to preferential creditors) then your PG will crystallise. In other words the receiver may seek to recover money from you.
Q: What happens to the employees?
A: This is a complex question that cannot be answered without a great deal of information. If the business is sold in a reasonable time then their employment rights can be continued with the new owners (under TUPE). If the receiver makes them redundant straight away they can claim for payments from the government (subject to a maximum amount). Again this is a complex question – email us if you want more detail.