Frequently Asked Questions

Receivership is a legal process whereby a receiver is appointed by an interest holder such as a bank or other lender. The receiver then "receives" any of the assets of the company that it can liquidate in order to pay back the lender.

A receiver can only be appointed by a holder of a qualifying interest and then appointed by the Courts.

Receivership is a bankruptcy alternative that places a company's property under a receiver's control after a loan default. The three parties involved in a receivership procedure are the borrower (company or institution), the lender (e.g. banks) and the receiver (an unbiased third party). The receiver is being given total authority over the company's possessions.

In this situation, the owner is no longer able to decide how to manage the firm's assets until the receivership procedure is completed, that is when the company manages to get out of default. Moreover, during receivership, the company has to be labeled with the 'In Receivership' status in all official documents.

There are many reasons, allow us to illustrate:

1. The company requires finance for its activities and borrows from a bank (or other secured lender).
2. In consideration for providing the loan, the bank requires security. Normally the company will sign a debenture with a fixed and floating charge. This offers the bank security over the assets of the company.
3. If the terms of the agreement are breached or the company does not conform to the bank's wishes, the charge holder can:
   1. Appoint investigating accountants to ascertain how secure or not the bank's debt is and determine the best route forward (not always receivership).
   2. Demand formal repayment of the loans without notice.
   3. Appoint a receiver to administer and receive the company's assets.
4. The receiver has a duty to collect the bank's debts only, they are not generally concerned with the other unsecured creditors or shareholders' exposure.        

The Receiver, as an independent neutral party will: 

1. A receiver will quickly ascertain what the prospects for business are and decide whether to sell some or all of the assets, the business as a whole, or to continue to trade whilst a better deal can be achieved. Because of the rules and case law, he may wish to get rid of the assets and staff as soon as possible. They will adopt employment contracts with staff as appropriate.
2. They may remove directors and employees without impunity.
3. They ultimately decides the way forward and will (often) not take advice from the directors.
4. They must pay the preferential debts (employees claims for arrears of pay and holiday pay) first from any floating charge collections.
5. If a deal is to be done with directors the receiver must first advertise the business and its assets for sale.
6. They must conform to the tight rules and regulations governing receivership and report to the courts and the initiator of the proceedings. 

The company is rarely saved in its existing form. Its assets will be subject to "meltdown" (most people know that in receivership or liquidation assets are sold at a knock down price), often jobs and economic activity are lost. The directors will typically lose their employment and any monies the company is due to them, and the company may cease to trade. In addition, the director's conduct is investigated.

From the creditors' perspective, it is unlikely that any unsecured creditors will receive any of their money back and often they lose a valuable customer. Clearly the cost of receivership can be very high and the bank has to underwrite the receiver's costs.

The bank can take control where directors have maybe lost control. The receiver also has power to act to save the business quickly. The bank can ensure that its exposure is (at least) not increased and hopefully recover all of its money. For directors, the advantages are that it mitigates the risk of wrongful trading and may crystallize a very difficult position allowing them to get on with their lives.

Preferential creditors may see their debts repaid by the receiver.

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.

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.

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)

Follow the guidance we provide. Discuss the problems with your key people. What caused them and how you can get around 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. It is hard to avoid receivership since this is often the ultimate solution for lenders to recover the money borrowers owe. Nonetheless, there are ways to persuade the lenders not to proceed and allow you to come up with a recovery plan. In this situation, you will most likely need an experienced legal practitioner who has handled receivership cases before. This specialist will lead the discussions and try to convince the lender to grant you some time to put in place your strategy.

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.

The receiver is a neutral party who will have the legal right to handle the company's possessions. Please note that the receiver's role is impartial. This person will not represent the interests of the other two parties and will not answer to them. The receiver is appointed with the sole role of protecting the property and taking the best business decisions. The receiver will, therefore, handle all the company's assets that were trusted to him or her and secure them. Moreover, the receiver is allowed to run the assets however they find suitable to make them more efficient or profitable. Bottom line is that these practitioners can take any decisions that will help increase the value of the assets. They can solve title problems, plan an effective marketing strategy, or even appoint new managers.

The answer to this question is yes; receivers are allowed to sell assets. They can sell the assets which secure the money that is owned. It is the receiver's responsibility to manage the company's property and find solutions to improve the asset's performance. Selling some of the assets might help continue business operations and prevent the company's value from decreasing. However, keep in mind that the rules which govern the sales of assets in receivership cases differ from state to state. An experienced attorney can shed light on this topic and help out with specific indications.

This period depends upon how fast things evolve and what decisions the receiver makes. The type of creditors involved is also important, those who are secured will be the first ones who get paid. Unsecured creditors will be dealt with in the end if there is still the possibility to pay them. Typically, the receivers will carefully analyze the claims' priority before they start making payments. The available funds that result from the assets administration or sale will be divided accordingly.

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!

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

Unless the receiver recovers all loans due the bank after his/her fees (and any payments due to preferential creditors) then your PG will crystallize. In other words the receiver may seek to recover money from you.

This is a complex question that cannot be answered without a great deal of information and without knowing the particularities of each case. If the business is sold in a reasonable time then their employment rights may be continued with the new owners. If the receiver makes them redundant and reduces the force, they may pursue unemployment options. Each situation is different. Again this is a complex question - email us if you want more detail.

After the debt is covered, the receiver can be successfully discharged. Then, a final meeting is required to close the case. During this hearing, a document will be filed with the aim of discharging the receiver. The same document will also dictate how the remaining assets will be handled. Usually, the receiver has to come forward with pertaining recommendations on how to manage these assets.

This is another difficult question that can't be tackled in an instant. Receivership cases require a different amount of time depending on the specific situation of each company. Receiverships are completed once the receiver manages to recover the sums due to the lender. Depending on the value of the assets and the debts that have been incurred, it can take anywhere between several months to several years before the procedure is completed.

The fees will depend upon the property that is being assigned to the receiver. The receiver's fees are administrative expenses. Usually, receivers charge an hourly fee, and the payment derives from the operating income of the property that they manage. Other receivership expenses might derive from additional legal services provided by accountants, attorneys, or other professionals. However, the court's approval is usually necessary before hiring these practitioners.

After the debt is covered, the receiver can be successfully discharged. Then, a final meeting is required to close the case. During this hearing, a document will be filed with the aim of discharging the receiver. The same document will also dictate how the remaining assets will be handled. Usually, the receiver is requested to come forward with pertaining recommendations on how to manage these assets