What does it typically involve?
This is usually a bank-driven process used to maximise the return to a floating charge holder.
This process is started by the directors or by a creditor with security over the assets of the company (a debenture) that pre-dates 14 September 2003. The power to appoint a receiver must be contained within the terms of that security. If the directors realise that the company cannot continue to operate, they could ask the debenture holder to appoint a receiver, or the debenture holder may make the decision independently from the company.
The receiver’s duty is to recover funds on behalf of the debenture holder. The debenture may allow a receiver to take control of a specific asset, such as a property commonly known as an LPA Receivership, or may allow the receiver to trade the company and complete outstanding works, as well as the power to sell any company assets that are covered by the debenture (Administrative Receivership).
In Administrative Receivership, once the receiver has concluded his duties the company is either struck off or enters into liquidation. In unusual circumstances, the remaining assets of the company could be returned to the directors.
In an LPA Receivership, no further action is taken with regard to the company as the powers granted only extend to dealing with the asset subject to the charge.
We must stress that this is a brief overview and is not intended to allow a director to self-diagnose. We would recommend that if you are under threat or considering entering into receivership, you contact us for a free consultation to ensure that you take the appropriate action.