Administrative Receivership

What is Receivership? - administrative Receivership (or 'receivership'), is the process under which a manager or 'Receiver' (typically an insolvency practitioner), is appointed by a holder of debentures secured by a floating charge, to realise the whole (or substantial whole) of the assets of the company. In most circumstances, it is the secured creditors, such as banks, who will hold the floating charge over the company, in the form of what security of perishable assets. The main purpose of the receiver is to realise the secured assets for to charge holder and return any excess proceeds go back to the company.

Companies in Receivership - in theory, the company could continue trading. In practice, most companies in receivership will fall into liquidation following the realisation of the assets. Whether or not charges are fixed or floating is very important during the process of administrative receivership and the liquidation of the company because it dictates the competing claims of creditors against charges of the company. A floating charge is a charge upon a class of assets which in the normal course of business would be expected to change from time to time. It is generally agreed that the company should be free to dispose of his assets in the normal course of business - up to that moment the charge “floating".

Appointment of the Administrative Receiver - there are two types of receivers. The first is An 'Administrative Receiver' and the second is 'other receivers'. The powers of other receivers' are governed by the lore of property act 1925 s.109, as well as common law. Before the introduction of the Enterprise Act in 2002 , the process of Administrative Receivership, competed with Administration because creditors were all out to veto the appointment of an administrator they did not like. Following the introduction of the act, most of companies are protected to limited extent in that they are now generally entered into administration as their primary remedy. Most creditors can only appoint an Administrator and not an Administrative Receiver. There are however six categories of creditors who are allowed to appoint an administrative receiver if they wish:-

• Public-private partnerships

• Capital market creditors

• Utilities

• Project financed creditors

• Financial markets creditors

• Registered social landlords

The Functions of the Administrative Receiver - an administrative receiver can only be appointed if they're power has been expressly written into the security instrument agreed between the company and the creditor. They have the same statutory power as an Administrator. Those main powers are as follows:-

• Take control and possession of the assets of the company;
• Ensure the company's main day-to-day business can carry on;
• Issue cheques and generally make payments in the name of the company;
• Employee relevant staff such as solicitors and other specialists to assist the insolvency practitioner;
• In addition, there are allowed to dismiss existing members of staff such as employees;
• Sell the assets of the company in order to raise cash to repay the creditor s.43 (1);
• Borrow any monies using the assets of the company as a form of security;
• Create or sell a subsidiary of the company;
• Present a petition for winding up the company to the court;
• Execute any practical actions in order to realise the property of the company.

Receivers are not obliged to, or have no legal duty, to take instructions from the owners or controllers of the company. In particular because the IP is acting on behalf of the debenture holders interests they are acting within their rights to potentially withhold information from the company. They are obliged to report back to creditors on the on-going progress to state of the receivership and to file proper accounts to the Creditors' Committee.

The End of Receivership - the receivership ends when the companies floating assets have been realised and payments from those have been returned to the preferential creditors. As mentioned previously, any additional funds will be returned to the company. At the end of the receivership, a number of things will happen; The company may be returned to the company directors or shareholders of the company who may choose to carry it on as a going concern. Alternatively, if the company has run out of cash or credit and can no longer carry out on, it may either be put into Administration, beWound Up or go into a CVA. If the Administrative Receiver chooses to leave, they must give at least seven days written notice to the creditors' committee or the liquidator of their intentions to resign their position. They can only be removed by an application to the order of the court.