Law & Start/Close a Business



RECEIVERSHIP

What is a Receivership?
A receivership comes about when a company defaults on its secured borrowings. These borrowings are usually from a bank or another lending institution that has in place a security for their loan.

To organize the finance the lender took what is known as a floating charge as a security over the assets of the company to secure the loan in the form of a debenture. When the lender suspects that the company is insolvent or is about to become insolvent (that is, it cannot pay its bills when they become due) to protect itself it appoints a person known as a receiver (thereby putting the company into receivership).

The receiver’s role is to take over the running of the company with the sole purpose of doing everything possible to repay the outstanding loans.

The receiver’s has to get together all the assets and discharge or pay off the floating charge first, that is on the lenders loan, and then pay off any preferential creditors. A receiver will take control of the administration of the company and when the lenders loans have been fully repaid the receiver will hand the company back to the directors together with any surplus funds.


The Receivers Role and Powers

The receiver’s role and powers are as follows:

  1. Ascertain the prospects of whether the business is viable including whether any of the assets should be sold off to reduce or repay the debenture.
  2. To remove directors and any employees if necessary.
  3. To pay any taxes that are due.
  4. To make a decision on the way forward and this will include not taking advice from the directors necessarily.
  5. To conform to the rules and regulations which govern receiverships.
  6. To investigate the conduct of the business and the directors as a whole and file a report.