Updated: 5th February 2020
Fixed Charge Receivership's in Northern Ireland are not commonplace in times of company insolvency – largely because they only relate to charges set-up prior to 15 September 2003 – but they do still crop up occasionally, particularly in matters relating to property. Floating charges are far more common as they were a more popular option for lenders - more information on floating charges can be seen on our administrative receivership in Northern Ireland page.
Like floating charges, fixed charges are also used by a company to secure borrowing which is often cemented through a debenture (loan agreement) issued by the company. However, the two charges have comparable differences.
Fixed charges can be secured on actual property – often referred to as immoveable property – such as buildings, land, machinery, plant etc. It can also be secured on intellectual property such as trademarks, copyrights and patents. In this arrangement, the borrower would require permission from the lender to sell it as it would be legally signed over to the creditor. The lender – usually a bank – would also place a ‘charge’ against the asset and this would stay in place until the loan is repaid.
On the other hand, floating charges are a particular type of security and strictly only available to companies which is why fixed charges are more infrequent in business. Floating charges allow firms to borrow even when they have no particular assets to use as security, such as freehold premises.
A lender holding a fixed charge in Northern Ireland has recourse to the asset if the borrower defaults under the loan. The lender usually has a power of sale over the asset, or the power to appoint a fixed charge receiver to deal with and realise the asset on its behalf (because of concerns over lender liability, the second option is normally used). The lender therefore has a claim over the proceeds of sale in priority to other creditors. Where the sale proceeds are less than the amount of the loan, the lender has an unsecured claim for the balance, but if there is a surplus after repayment of the loan, the balance must be returned to the borrower.
If your company has breached a fixed charge agreement such as defaulting on the loan, your lender has the option to call in the asset. They have legal ‘power of sale’ over the asset, reclaiming it from you to cash in, or they could utilise the more popular option of calling in a fixed charge receiver to realise the asset on their behalf. As part of the fixed charge agreement, this lender would be a preferred and secured creditor meaning they would be paid out first if your company was in financial distress. Any proceeds from the sale of the asset would return to the lender. If there was a surplus, such as equity, these funds would belong to your company.
Real Business Rescue has vast experience at both ends of the receivership spectrum, acting as a receiver on behalf of the lender and, more frequently, as impartial insolvency experts for companies in financial distress that require instant finance to help cash-flow. We can also assist with a number of other insolvency services in Northern Ireland – depending on the situation – including restructuring, administration and, if needs must, liquidation.
If you’re failing to meet the legal requirements of your debenture and the lender is losing patience, the ball is in their court and they could call in a receiver whenever they see fit. A receiver has the power to come into your business and raise cash through the sale of assets, potentially causing your company to wind down. It needn’t be that way; there are measures that can be taken but time is of the essence and you must contact us at the earliest stage of alarm.
We’re situated in the heart of the Belfast next to Belfast City Hall and we offer company directors a free consultation at this office or alternatively a licensed insolvency practitioner can come to see you at your convenience. We believe all directors deserve the opportunity to discuss their business matters with a company rescue expert at no expense. We have an extensive network of 77 offices offering confidential director support across the UK.