What is receivership?

In brief

Administrative receivership:

– is usually initiated by your bank.

– takes control of the company away from the directors.

– often leads to a company ceasing to trade.

Administrative receivership is different from administration.

What is administrative receivership?

This course of action is only open to banks or other lenders with whom your company has signed a debenture, usually in return for a substantial credit advance.

Under the terms of the debenture, if the bank is concerned about your ability to repay the loan, it has the right to appoint a receiver. Their role is simply to recover money on behalf of the bank (or other lender), without being concerned about other creditors.

The receiver takes complete control of your business. They can sell assets, remove directors and make staff redundant. Their actions are, however, controlled by strict regulations.

If your company has signed a debenture and you are concerned about your business becoming insolvent, it’s important to take professional advice as soon as possible.

Who benefits from administrative receivership?

Secured, or preferential, creditors will receive some or all of the money that they are owed.

Other creditors could be considered beneficiaries, in that, if your business is out of control, the receivership puts an end to the accumulation of debts that your company cannot pay.

Who can initiate administrative receivership?

The process can only be initiated by a secured creditor with a debenture, usually your bank. They will usually pursue other lines of enquiries first, asking for information and assurances about your ability to repay the debt.

Under the terms of the debenture, they also have the right to appoint investigating accountants, to look into whether your company remains viable. It is usually on their recommendation that receivership is entered into.

Raising capital to avoid administrative receivership

If you are concerned about your firm’s ability to repay its debts on time, but believe the business is fundamentally viable, waiting until a creditor takes serious action is probably leaving matters too late.

Hoping the situation will improve is unlikely to be a successful strategy. Why not talk to our experts at Business Recovery, to explore some of the alternative ways of finding funding.

Our service costs you nothing and we have helped hundreds of companies to secure additional working capital, often from sources they had not previously considered.

At Business Recovery, we have built a network of commercial funding organisations who work with firms like yours. They provide the working capital required to build commercial success. Give us a call now to discover how we can help you.