Reviewed: 16th September 2019
When creditors are threatening to send your company into receivership it can be easy to become intimidated and concerned, as the likely outcome of such an occurrence would be the end of the business. Whenever a company fails to meet the terms of a debenture that is secured by fixed and floating charges, they face the risk falling into receivership -- a formal insolvency procedure in which the debenture holder appoints a receiver to assume possession of secured assets and receiver the funds owed. When a company acquires a loan by using one of its assets or asset classes (i.e. - equipment, property, accounts receivable etc) as a security, the lender/debenture holder has the right to seize possession of those assets if the loan goes unpaid for too long.
We explain what business rescue options are available to you as the business owner, and it is you as the director who stays in control and decides what route to take. It makes no sense for our client directors to feel pressured into something that they believe does not favour them.
The receivership process can begin quickly without much warning once the debenture holder (creditor) has the right to exercise ‘power of sale’. This happens faster if the debenture’s legal charge contains a provision that allows for the express appointment of a receiver in the event of default. Unfortunately, most receivership procedures are initiated based on fixed charge provisions that allow for the express appointment of a receiver. If such a provision is not present in the debenture terms then the creditor would have to go through the process of issuing a payment demand notice. Then, once that notice goes unpaid they would be able to appoint a receiver.
Once a receiver is appointed their primary concern is to act in the best interest of the secured debenture holder (creditor). If more than one lender holds a charge against the company then they must also be considered by the receiver with repayment priority given in order of priority of the securities. Section 109 of the Law of Property Act (LPA) describes the statutory powers and privileges given to receivers during receivership; however, fixed charge provisions may be added to the terms of a debenture by the lender. The receiver can request/collect any income (including rent) that has been appointed to be received. They may also facilitate the sale of the property, if necessary, to recover the full debt owed.
If the company’s assets are able to cover the debt owed then they may be able to continue operating after receivership, but this is more of a rare exception than the standard. In most cases the insolvent company is too far behind to cover their liabilities using only their assets, at which point the business must be completely liquidated and dissolved in order to repay as many secured debts as possible. The best way to avoid receivership is to act as soon as the threat arises. You might be able to force your company into an administration procedure, during which time all legal actions against your company (including receivership) are stayed initially for a period of about 8 weeks. Once the threat of receivership is postponed we can help you negotiate a formal company voluntary arrangement (CVA) with creditors, which could give you the breathing space needed to make repayments, or we may consider the option of a pre-pack administration sale.
If you’ve been unable to repay a secured loan and are worried about the possibility of losing property and/or your business to receivership, call us on 0800 644 6080 and we’ll provide a free consultation to thoroughly assess your case and recommend a suitable course of action. Real Business Rescue provide director advice online, over the phone, or in-person at one of our 75 UK offices or a place of your convenience.
16th September 2019
There was around a 25 per cent increase in the number of restaurant businesses entering insolvency over the course of the year to June 2019, according to the latest figures on the subject.Read More