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When a company breaches the terms
of its borrowing from a creditor with a floating charge over
substantially all of the company's assets, that creditor may
appoint an administrative receiver (who must be a licensed
insolvency practitioner) to recover the money it is owed.
Many companies give such a charge to banks as security for
their borrowing.
Administrative receivership is
often referred to simply as 'receivership'.
"When a company breaches the terms of its borrowing
from a creditor with a floating charge, that creditor may
appoint an administrative receiver"
What can an administrative receiver do?
An administrative receiver has extensive
powers to deal with the charged assets. The administrative
receiver effectively takes over management of the company's
business from the board of directors and can have it continue
to trade prior to selling the business and assets.
"The Receiver effectively takes over management
of the company's business from the board of directors and
can trade-on or sell the business and assets."
Does the administrative receiver pay trade creditors
the money they are owed?
No. The administrative receiver
does not make payments to unsecured creditors in respect of
the money owed to them prior to appointment. An administrative
receivers' main function is to recover sufficient funds to
pay the costs of the receivership, the preferential creditors
and the charge holder. (Preferential creditors are a special
category of unsecured creditor. They include certain debts
due to employees, the Inland Revenue, HM Customs & Excise
and the Redundancy Payments Service.) If the company has more
assets than are required to make these payments, the surplus
is normally passed to a liquidator, who deals with creditors'
claims.
Six months after writing off a
debt in your accounts, you can claim VAT bad debt relief from
HM Customs & Excise for the VAT you have paid.
If you believe that you own something
in the company's possession, you should contact the administrative
receiver as soon as possible with full proof of ownership
and be prepared to identify what you are claiming. The receiver
will examine your claim carefully before deciding whether
to release the goods in question, pay you for them or otherwise.
"An administrative receiver is not personally
liable where he has disclosed that he is acting as agent for
the company and expressly excluded any personal liability."
Is the administrative receiver bound by contracts
made by the company prior to the appointment?
Generally, the administrative receiver
is not bound by pre-receivership contracts and may choose
not to have the company perform them. The other party will
then have a claim for breach of contract, which will rank
as an unsecured claim. Special provisions apply to employment
contracts.
"A company can be in administrative receivership
and liquidation at the same time. This is more likely once
it becomes clear that there are sufficient assets to allow
the liquidator to make a distribution to creditors."
As an unsecured creditor, what information am
I entitled to?
The administrative receiver normally
notifies all known creditors of the appointment within 28
days. A meeting of unsecured creditors is held within three
months of the appointment, unless the company goes into liquidation
earlier or the court otherwise directs. The administrative
receiver gives a report to the meeting on the events leading
to the appointment, the carrying on of the business, disposals
of assets, what is owed to the various classes of creditor
and how much, if anything, is likely to be available to unsecured
creditors. A copy of the report is normally sent to all known
creditors.
Can the unsecured creditors form a creditors'
committee?
Yes. A creditors' committee may
be appointed at the meeting of creditors and must consist
of at least three and no more than five members.
The creditors' committee may receive
reports from the administrative receiver and may meet periodically.
Creditors' committee members are
not paid, but will receive their reasonable travelling expenses
as a cost of the receivership.
Does the appointment of an administrative receiver
prevent a creditor taking legal action against the company?
No. Creditors may continue or begin
any legal action against the company, including petitioning
for its liquidation, whilst the company is in administrative
receivership.
If you are considering this, you
should think carefully whether you would benefit from doing
so. For example, success in most actions would result in an
unsecured claim against the company, which might prove valueless
unless there were to be a substantial return to unsecured
creditors. Petitioning for the company's liquidation is unlikely
to speed up distributions to creditors and may hinder business
or asset sales and reduce the amount available for unsecured
creditors.
Does administrative receivership automatically
end when the company goes into liquidation?
No. A company can be in administrative
receivership and liquidation at the same time. This is more
likely once it becomes clear that there are sufficient assets
to allow the liquidator to make a distribution to creditors.
"The administrative receivership is complete
when the floating charge holder had been paid in full or when
the administrative receiver has sold all the assets and distributed
the proceeds."
When is the administrative receivership complete?
The administrative receivership is complete
when the floating charge holder has been paid in full or when
the administrative receiver has sold all the assets and distributed
the proceeds. He will then cease to act and send a summary
of his final receipts and payments to the company, the registrar
of companies and the creditors' committee.
How is the administrative receiver's fee determined?
The floating charge holder agrees the
administrative receiver's fee. A liquidator, if one is appointed,
will review the administrative receiver's fee and could apply
to the court to challenge it.
What should do if I am dissatisfied with the
administrative receiver's handling of the case?
You should first contact the administrative
receiver to try to resolve the problem. If you are still not
satisfied, you should bring the matter to the attention of
the liquidator, if there is one. If you think that the administrative
receiver is guilty of professional misconduct, you should
contact his recognised professional body (see below).
R3 is a centre of excellence representing
all those who work with under-performing businesses in the
UK. R3 does not license or discipline insolvency practitioners;
this is the responsibility of the practitioner's recognised
professional body. The RPB's are:
- The Association of Chartered
Certified Accountants
- The Institute of Chartered
Accountants in England and Wales
- The Institute of Chartered
Accountants in Ireland
- The Institute of Chartered
Accountants in Scotland
- The Insolvency Practitioners
Association
- The Law Society
- The Law Society of Northern
Ireland (for Northern Ireland only)
- The Law Society of Scotland
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