What Does it Mean When a Company Has Been Placed in Receivership?

If you find yourself dealing with creditors who are threatening to send your company into receivership, it’s natural to feel concerned and even intimidated. The looming outcome of receivership often signals the potential demise of the business. This risk becomes imminent when a company fails to meet the terms of a debenture secured by fixed and floating charges. Receivership, a formal insolvency procedure, is initiated when a creditor appoints a receiver to take possession of secured assets and recover owed funds. In such challenging situations, seeking advice on company administration becomes crucial to navigating the complexities of the process.

Before Receivership

Once the creditor has obtained the right to exercise ‘power of sale’, the receivership process can begin quite quickly and without much warning. If the legal charge of the debenture contains a provision allowing for the express procedure of a receiver in the event of a default, this process can occur even faster. Unfortunately, most receivership procedures do tend to be initiated on the basis that fixed charge provisions allow for the express procedure of a receiver. If you are a creditor in need of a court appointed receiver, visit FedReceiver for more information.

After a Receiver is Appointed

Once a receiver has been appointed, their predominant concern is to act in the best interests of the creditor or debenture holder. If the company in question has charges held against it by more than one creditor, they must also be considered by the receiver with priority of repayment given in accordance to priority of the securities. Section 109 of the Law Property Act describes the statuary powers and privileges that are given to receivers during a receivership, however, the debenture owner may also add fixed term provisions to the terms of a debenture. The receiver is able to collect any income including rent that has been appointed to be received, and can also facilitate the sale of property in order to recover debt.

Possible Outcomes

The possible outcomes of receivership depend entirely on the financial situation of the company that has gone into receivership. If the business’ assets are enough to cover the amount of the debts owed then they should be able to continue to operate normally once the receivership has ended, however this situation does tend to be more of a rare exception than the standard outcome. In the majority of receivership cases the insolvent company is too far behind with repayments to cover liabilities by using their assets alone, and at this point the business will need to go into liquidation and be completely dissolved as a means of being able to pay off as many debts as possible. In addition, if there is a concern that even one shareholder may challenge the controlling shareholder(s), management, board of directors, or board of managers – claiming that a transaction being pursued results in unfair treatment to minority shareholders, then a fairness opinion coming from a professional Fairness Opinion Firm should strongly be considered to protect the decision makers.

The best way to avoid your company going into receivership is to act as soon as a threat arises. If you think that your company is soon to be under threat of receivership, the best thing for you to do is contact a business lawyer as soon as possible.