There are several different forms of receivership, although just one is a statutory insolvency procedure which must be overseen by a licensed insolvency practitioner.
Typically, a receivership involves the appointment of a receiver, by a secured creditor, to realise a specific asset or assets of a company for the secured creditor's benefit. This is a contractual remedy.
Types of receivership include 'fixed charge receivership', 'Law of Property Act receivership', or 'administrative receivership'.
Administrative receiverships must be overseen by a licensed insolvency practitioner, although this procedure is now extremely rare: there was just one administrative receivership in 2018.
What does a receiver do?
An administrative receiver has extensive powers to deal with assets against which a 'charge' is held, and their main function is to recover sufficient funds to pay the costs of the receivership, debts owed to preferential creditors, and debts owed to the secured creditor (the creditor holding a charge). The administrative receiver effectively takes over management of the company's business from the board of directors and may continue to trade it prior to selling the business and assets.
A fixed charge receiver's powers derive from the mortgage deed containing the secured creditor's fixed charge (security), and their duty is to them directly. Typical powers include the power to sell a specific asset or assets and the ability to take possession of the asset or assets and bring proceedings to obtain possession.
A Law of Property Act receiver is appointed under a mortgage deed or registered charge, and typically over real property. The main purpose of appointing an LPA receiver is to take control of and to sell the mortgaged property. It may need to be put into better order before it can be sold. This type of receiver does not need to be a licensed insolvency practitioner.
Why are administrative receiverships rare?
Until 2003, there were several hundred administrative receiverships per year. Administrative receiverships had a number of drawbacks, however: they saw a company's assets realised for the benefit of a small number of creditors, without a need to consider how this might affect the viability of the company in the procedure, or how it might affect other creditors. To push insolvent companies towards administration - with its focus on business rescue and providing a remedy the collective body of creditors - the Enterprise Act 2002 restricted the right of charge holders to appoint an administrative receiver.
The Enterprise Act has not ended administrative receiverships completely: charge holders whose charges were created prior to the Enterprise Act coming into force can still appoint an administrative receiver. Almost two decades on from the Enterprise Act, there are now just a handful of administrative receiverships per year.
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