About company receivership

A company is usually placed into receivership by a secured lender (usually a bank or a financial institution) who holds a registered charge or mortgage debenture however in rare circumstances; a Court can also appoint a company receiver.

A company receiver is generally appointed to ensure repayment of the charge or security holders outstanding debt and the receiver achieves this by taking control of company assets and selling all or part of the assets subject to a charge.

The company receiver reports and accounts directly to the secured lender and must pay any money recovered from the company's assets to the secured lender. The only exception to this is that in certain circumstances the company receiver is required to pay employee entitlements before payment to the charge holder.

In short, the company receiver acts in the best interest of the secured creditor – not the unsecured creditors.

A company receiver is not required to liaise with general unsecured creditors but is required to lodge a Report as to the company's affairs with the courts within 30 days of his appointment as receiver.

Further, the company receiver must take reasonable care to ensure market value or the best price reasonably obtainable is achieved for the sale of company assets.

A company receiver usually has very extensive powers and in most cases when a company goes into receivership a company receiver will have the power to:

  • trade-on the business with a view to selling it as a going concern; or
  • break-up the business and sell individual assets.

The directors' powers are suspended on the appointment of a company receiver and the receiver will assume total control of the company. A director will not be able to run the company any in any way after a company receiver has been appointed.

A company can be placed into liquidation notwithstanding a company receiver has been appointed, however, the receiver will have full control of the company and its assets notwithstanding the liquidators appointment.

If the secured creditor is paid out in full, any surplus is payable to the liquidator. If no liquidator had been appointed the surplus, after the secured creditor has been satisfied, is paid to the company.

For more information about company receivership, contact the Directors Helpline on 0845 430 7676 today.

Filed under: INSOLVENCY

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